Atmosera cares deeply about our clients and community. The pandemic and resulting economic conditions have strained many organizations, and small-to-medium businesses are facing more pressure. We would like to share information about the CARES Act that could help your organization.
Coronavirus Aid, Relief and Economic Security Act
President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), providing $2 trillion in stimulus funding. The CARES Act includes several measures to help small businesses, including a forgivable loan called the Paycheck Protection Loan, which is intended to encourage employers to retain and re-hire employees.
Small businesses (companies with 500 or fewer employees) can apply for the loan through banks that make the loans on behalf of the Small Business Administration (SBA), which administers the Paycheck Protection Loans program. Certain businesses with larger headcounts also qualify. You can check industries eligible for the higher thresholds at www.sba.gov/size-standards.
Waiver of affiliation rules for businesses in the accommodation and foodservice industries, franchises and businesses receiving financial assistance under the Small Business Investment Act.
Nonrecourse – SBA has no recourse against any business owner and there are no personal guarantees.
Interest not to exceed 4%.
No debt service payments for at least six months and not more than one year.
How Much You Can Borrow
The loan amount cannot exceed $10 million and is the lesser of:
2.5 multiplied by the trailing twelve-month average monthly payroll PLUS the amount outstanding under the SBA’s disaster loan program, or
For businesses not in existence during the period February 15, 2019, through June 30, 2019, 2.5 multiplied by the average monthly payroll for the period January 1 through February 29, 2020, PLUS the amount outstanding under the SBA’s disaster loan program.
Payroll costs include:
Employee compensation that is:
Salary, wage, commission, or similar compensation;
Payment of cash tip or equivalent;
Payment for vacation, parental, family, medical, or sick leave;
Allowance for dismissal or separation;
Payment required for the provisions of group health care benefits, including insurance premiums;
Payment of any retirement benefit; or
Payment of state or local tax assessed on the compensation of employees.
Compensation to a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount not more than $100,000 in one year, as prorated for the covered period.
Payroll does NOT include certain federal taxes, compensation of employees not resident in the U.S., individual employee compensation over $100,000 annualized, and sick leave and family leave credited under the Families First Coronavirus Response Act.
Borrowers must certify in good faith that:
current economic conditions make the loan necessary to support ongoing operations,
funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments,
no other pending applications are duplicative of the covered loan request, and
the recipient has not received amounts for the same purpose or duplicative amounts from February 15, 2020, through December 31, 2020.
Amounts expended by the borrower during the eight-week period following loan origination for payroll, interest on mortgages, rent and utilities are eligible for loan forgiveness. Such amounts must be substantiated to the lender. Amounts forgiven by the lender are not taxable to the borrower or business owner. The amount of loan forgiveness will be reduced if the business reduces headcount or salaries and wages. The reduction in loan forgiveness is calculated without regard to employees re-hired or salaries and wages restored by June 30, 2020.
To the extent a loan has a remaining balance after reduction for loan forgiveness, the remaining balance will continue to be guaranteed by SBA and the loan shall have a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness.
If you are interested in being notified of additional information and next steps as the SBA Paycheck Protection Program is finalized, check with your banking institution as they should have a website to assist in the process if you don’t want to self-administer via the SBA website. For example, US Bank is collecting contact information in order to assist: https://apply.usbank.com/applications/business/InquiryForm
Business Tax Benefits
In addition to the Paycheck Protection Loan program, the CARES Act included several changes to tax provisions. The following is a summary of some potential benefits from the changes in tax law:
Employer Tax Credit Availability
A tax credit against employment taxes is available for certain businesses. The amount of the tax credit is 50% of the qualifying wages of the employer and is subject to eligibility requirements including a reduction of gross receipts of more than 50% in a calendar quarter as compared to the same calendar quarter in the prior year
Delay of Payment of Employer Payroll Taxes
Employers are responsible for paying a 6.2% Social Security tax on employee wages. From the time the CARES Act is signed into law through December 31, 2020, many employers will be allowed to defer paying their share of this Social Security tax.
Modification of Net Operating Losses (“NOLs”)
NOLs arising in tax years 2018, 2019 and 2020 will be allowed to be carried back five years.
Acceleration of Refundable Alternative Minimum Tax Credit.
The CARES Act expands the ability of companies to claim refundable AMT tax credits and obtain additional cash flow during the COVID-19 emergency.