CARES Act Information
Our Bay EDA Investor, Hand Arendall Harrison Sale has compiled a comprehensive summary of the Federal CARES Act that became law on March 27th. March 27, 2020, the CARES
Act became law providing an unprecedented $2 trillion in aid and stimulus
funding to battle the national threat of the COVID-19 emergency.
The Act itself is some 880 pages with many programs addressed. The programs discussed in this Alert are those that will be of most interest to businesses and individuals. There are dozens upon dozens of additional appropriations for use in programs and departments of the federal government, the branches of the military, the courts, the legislature, and the VA that appear intended to support governmental operations impacted by the COVID-19 outbreak, which are not discussed below. As always, we encourage you to reach out to one of their lawyers if you would like to learn more. If interested, we can put you in contact with their local representatives. We have extracted some of the exerts, however if you would like to full summary please see below.
For Full Summary Please Click Here
BUSINESS PROGRAMS & TAX ISSUES
Protection Loans & Loan Forgiveness
The Act provides for “paycheck protection” loans to be made by Small Business Administration (SBA)-approved lenders and guaranteed by the SBA. $349 billion is allocated for these loans.
In addition to already qualified “small business concerns” (as defined by the Small Business Act), any business concern, 501(c)(3) nonprofit organization, veterans organization, or Tribal business concern which employs not more than 500 full-time and part-time employees (or the SBA size standard for the industry, whichever is greater) during February 15, 2020, to June 30, 2020, shall be eligible to receive a favorable-term loan made under section 7(a) of the Small Business Act (15 U.S.C. 636(a)) up to $10 million.
proprietors, independent contractors, and self-employed individuals are
eligible to receive a Paycheck Protection loan.
evaluating eligibility, a Lender will consider whether the borrower was in
operation on February 15, 2020, and whether the borrower (i) had employees for
whom the borrower paid salaries and payroll taxes, or (ii) paid independent
contractors as reported on IRS Form 1099.
hotel and restaurant-type businesses with more than one physical location are
eligible if not more than 500 are employed at any physical location. The
business must have an NAICS Code beginning with 72, which relates to the
Accommodation and Food Services Sector.
Amount and Terms
Paycheck Protection loan amount shall be the lesser of:
(i) the sum
outstanding amount of a loan under subsection (b)(2) of Section 7 of the Small
Business Act (a disaster loan) made between January 31, 2020, and the date on
which Paycheck Protection loans are made available to be refinanced, and
2) 2.5 times
the average total monthly payroll costs, OR
For the calculation of the loan amount above, “payroll costs” is the sum of payments of any compensation with respect to employees that is: (A) salary, wages, commission, or similar compensation, (B) cash tip or equivalent, (C) vacation, parental, family, medical, or sick leave, (D) allowance for dismissal or separation, (E) the provisions of group health care benefits, including insurance premiums, (F) any retirement benefit, and (G) State or local tax assessed on the compensation of employees. The average total monthly payroll costs are determined by looking to the applicant’s monthly payments incurred during the 1-year period before the date of the loan application.
For new employers and seasonal employers, the 1-year period used to determine the monthly average of payments is modified. For seasonal employers, the monthly average is determined using the twelve-week period beginning either on February 15, 2019 or March 1, 2019, at the applicant’s election, and ending June 30, 2019. If the employer was not in business during the period from February 15, 2019 to June 30, 2019, then the period from January 1, 2020 to February 29, 2020 is used.
For sole proprietors and independent contractors, “payroll costs” means the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation.
The salary component of payroll costs is capped at
$100,000 per employee, and the compensation of a sole proprietor, self-employed
individual or independent contractor is capped at $100,000 for purposes of
determining eligible payroll costs.
be for a term of no more than 10 years from the date borrower requests loan
forgiveness (described below) and shall bear interest at a rate not to exceed
4%. Personal guaranties and collateral are not required.
may defer repayment for a period of 6 months to a year. Prepayment is permitted
Uses of Loan Proceeds
covered period (February 15, 2020 to June 30, 2020) a borrower may, in addition
to other allowable uses for these types of SBA loans, use the proceeds of the
loan for payroll costs (subject to a $100,000 annualized per employee limit in
the definition of payroll costs), costs related to the continuation of group
healthcare benefits during periods of leave and insurance premiums, employee
salary and commissions and similar compensation, payment of interest (but not
principal) on any mortgage obligation, rent, utilities, and interest on any
other debt obligations that were incurred before the covered period.
A loan made
under Section (b)(2) of Section 7 of the Small Business Act (a disaster loan)
on or after January 31, 2020 and until the time when Paycheck Protection loans
are made available may be refinanced as part of a Paycheck Protection loan.
Protection loan recipient shall be eligible for forgiveness of indebtedness on
a Paycheck Protection loan in an amount equal to payments made over the course
of the 8-week period beginning on the date of the origination of the loan for:
(A) payroll costs, (B) interest on covered mortgage obligations, (C) covered
rent obligations, and (D) covered utility payments.
costs eligible for calculating the forgiveness amount are limited to
compensation not in excess of $100,000 annualized per employee, self-employed
individual or independent contractor.
of forgiveness cannot exceed the principal amount of the loan.
Loan forgiveness is reduced if the borrower’s number of full-time equivalent employees decreases from a prior period and if the borrower reduces total salary or wages of any employee whose annualized compensation during any pay period of 2019 is $100,000 or less.
and/or salary or wages are reduced between February 15, 2020 and 30 days after
enactment of the CARES Act, the borrower can negate the effect of that
reduction on loan forgiveness by eliminating the reduction through hiring and
salary increases prior to June 30, 2020.
borrower has tipped employees, it may receive forgiveness for additional wages
paid to those employees.
must apply for loan forgiveness and provide supporting documentation. The
lender must make a decision on the application within 60 days.
Loan forgiveness shall be excluded from gross income
for U.S. federal income tax purposes.
“Employee retention” Tax Credit
In the case of an eligible employer, there shall be allowed as a not-to-exceed credit against applicable employment taxes for each calendar quarter (from March 13, 2020, to December 31, 2020) an amount equal to 50% of the qualified wages with respect to each employee of such employer for such calendar quarter. Qualified wages include group health plan expenses paid by the employer that are excluded from the gross income of employees. An employee’s eligible wages for all quarters claimed is capped at $10,000.
“Eligible employer” means any employer who with respect to any calendar quarter in 2020 is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 or has experienced a significant decline in gross receipts (i.e., less than 50% of gross receipts for the same calendar quarter in the prior year until the next calendar quarter that gross receipts are 80 percent of gross receipts for the same calendar quarter in the prior year). Tax-exempt organizations described in Section 501(c) of the IRS Code are eligible.
employers with more than 100 employees, the employee must not be providing
services for the employer to receive the tax credit. However, employers cannot
receive a tax credit for paying employees more than they would have received if
they had been working. For employers with less than 100 employees, the employer
can receive the tax credit even if the employee is providing services.
that receive a Section 7(a) Small Business Act loan pursuant to the Paycheck
Protection Program are NOT eligible for this tax credit.
Employers would also be able to defer payment of
applicable employment taxes from the date of the enactment of the Act until
December 31, 2021 with respect to 50% of the amounts due and until December 31,
2022 with respect to the remaining amounts due. However, employers that receive
loan forgiveness pursuant to the Paycheck Protection Program would not be
eligible for such a deferral.
For Full Summary Please Click Here
State and Federal Financial Resources
To help our local companies and their employees, new programs are opening
through the State and Federal government which can help companies access
capital. These programs are designed so companies can meet financial obligations
and pay ordinary expenses during this disruption period. More information about
these programs are below and can be accessed by visiting their respective