Summary of The CARES Act for Small Business Owners

UPDATE: The Paycheck Protection Flexibility Act was signed into law on June 5, 2020 and includes updates regarding the Paycheck Protection Program Loan.

Due to the continued increase in COVID-19 cases and the financial impact it has had on business owners, Congress has provided more flexibility on the rules of the CARES Act by signing into law the Paycheck Protection Program Flexibility Act of 2020. This act overrides some of the requirements and guidelines listed in the CARES Act that was signed into law in March.

The updates are as follows:

  • The covered period for forgiveness of the Paycheck Protection Program (PPP) Loan has been extended to 24 weeks, triple the original 8-week period. Employers are still able to elect the 8-week covered period if they would like. In this covered period, the employer must still use the loan for eligible purposes.
  • The payroll cost requirement for loan forgiveness dropped from 75% to 60% of the loan amount and will still provide partial forgiveness if 60% is not used for that purpose.
  • Workforce levels must be restored by December 31, 2020 to receive forgiveness, 24 weeks longer than the previous date June 30, 2020.
    • New exceptions to this rule:
      • The inability to restore business activity due to COVID-19 or
      • The inability to find qualified workers.
  • >Employers now have 5 years to repay any unforgiven amount, as opposed to 2 years in previous legislation.
  • PPP borrowers can now delay payroll taxes. Half of the borrower’s payroll taxes will be due December 31, 2021 and the other half will be due December 31, 2022.
  • This bill also extends the deferral period for payment of unforgiven amounts by 10 months past the programs end date, June 30, 2020. Borrowers also may defer payment until they receive compensation for any amount that was forgiven.

The application deadline remains June 30, 2020.

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The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020. This Act will have an impact on approximately 90% of all Americans in some form or fashion. There is already a plethora of information being released on the Act, much of which is more confusing than helpful! Therefore, our Wealth Management Team at SFMG is attempting to cut through the noise and summarize the key points of the bill and the impact it will have on our client base. Please contact your Advisor or Financial Planner at 972-960-6460 to discuss how the CARES Act might impact you.

Provisions for Small Businesses

Small business owners (less than 500 employees) are eligible to receive aid including loans from the Small Business Administration (SBA), additional tax credits and/or deferral of payroll taxes.

What loans are available to cover needs related to COVID-19?

  • Paycheck Protection Program (PPP) Loan 
    • Capital to cover the cost of retaining employees
  • Emergency Economic Disaster Loan/Emergency Economic Injury Grant
    • Loans of up to $2,000,000 for 30 years with a maximum rate of 3.75% (fixed)
    • A quick infusion of a smaller amount of cash ($10,000) to cover you immediately (received within 3 days)
  • Small Business Debt Relief Program
    • Capital to keep up with payments on your current or potential SBA loan

What are the specifics of the PPP loan?

  • Issued by SBA approved lenders
  • 100% guaranteed by the federal government
  • Must be applied for by June 30, 2020 – but apply ASAP. 
    • Applications are being accepted starting April 3rd for Small Businesses and Sole Proprietors 
    • Independent Contractors and Self-Employed Workers can begin applying April 10th
  • Maximum loan equals the lesser of:
    • $10,000,000
    • 2.5 x average monthly payroll cost of previous year (2/15/19 – 6/30/19)
      • Start date can be 3/1/19 if there is employment of seasonal employees
      • excluding employee comp greater than $100k prorated for the period
      • If you were not in business between 2/15/19 – 6/30/19, the max loan is equal to 250% of average monthly payroll costs between 1/1/20 – 2/29/20
    • Maximum duration of 2 years
    • Maximum interest rate is .5%
    • Initial payments will be deferred for 6 to 12 months for any unforgiven amount

Am I eligible?

  • Must have been in operation on 2/15/20
  • Must have less than 500 employees
  • Must make a good-faith certification that the loan is necessary due to the uncertain economic conditions caused by COVID-19.
  • All entities including:
    • LLCs
    • C-corp
    • S-corp
    • Sole proprietors
    • Independent contractors
    • Self-employed individuals

What are the proceeds eligible to be used for?

  • Payroll costs
  • Group health insurance premiums and other healthcare costs
  • Salaries and/or commissions
  • Rent or mortgage interest (excluding amounts pre-paid)
  • Utilities
  • Payment of retirement benefits
  • Other business interest incurred prior to 2/15/20

Will I have to pay the loan back?

  • There is a forgivable portion of the loan for 100% of amounts spent on the below items during the 8-week period following the issuance of the loan:
    • Payroll costs, excluding prorated amount for individuals with compensation greater than $100,000.
    • Rent pursuant to a lease in force before 2/15/20
    • Electricity, gas, water, transportation, phone, or internet access expenses for services which began before 2/15/20.
    • Group health insurance premiums and other healthcare costs
  • The above stipulations are true ONLY IF:
    • The same number of employees are employed from 2/15/20 through 6/30/20 as either:
      • During the same period in 2019 OR
      • 1/1/20 until 2/15/20
    • No employees with compensation under $100,000 have reductions of >25% compared to the most recent quarter.

What are the specifics of the Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EEIG)?

  • Emergency Economic Injury Grants are $10,000 grants received by a small business within three days of applying for an EIDL.
    • An EIDL application must be submitted, and then the request for the EEIG can be made.
    • The EEIG does not need to be repaid under any circumstance
  • Economic Injury Disaster Loans are loans up to $2,000,000 for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
    • Maximum maturity of up to 30 years with a maximum interest rate of 3.75%
    • Personal guarantees are required for loan amounts above $200,000
  • Grants are available from 1/31/20 (backdated) to 12/31/20

Am I eligible for an EIDL/EEIG?

  • Must have been in operation since 1/31/20
  • Must have 500 employees or fewer

Will I be able to take advantage of both the PPP and EIDL?

  • Yes, as long as there is not duplication in the uses of funds.
  • Any advance amount received under the EEIG program will be subtracted from the amount forgiven in the PPP.

What is the Employee Retention Credit?

  • New credit against payroll taxes
    • 50% of wages paid to each employee, up to max of $10k of wages/person
  • This credit cannot be used if the employer utilizes the Paycheck Protection Program. 

Do I qualify for the Employee Retention Credit?

  • Must qualify by either:
    • Having operations partially/fully suspended due to government-required suspension of operations.
    • Have a quarter with <50% of revenue (not profit) from the same-quarter in 2019.
  • Will qualify to receive until earlier of:
    • End of 2020
    • When suspended operations resume for the quarter, or when revenue >80% of same calendar quarter in 2019

Payroll Tax Deferral

  • Employers will be permitted to defer 2020 payroll taxes
    • 50% will be due on 12/31/2021 and remaining 50% will be due on 12/31/2022.
  • This applies to self-employed individuals, as well (only ’employer’ portion of payroll taxes).
  • This credit cannot be used if the employer utilizes the Paycheck Protection Program. 

Approved lenders are in the process of gathering data from the Small Business Administration on next steps for the application process. We recommend contacting your preferred lender as soon as possible to confirm they are participating in this program. If you do not have a preferred lender, SFMG can provide a list of options.

If you have questions regarding the Paycheck Protection Program, Economic Injury Disaster Loans/Grants, Employee Retention Credit or Payroll Tax Deferral, please contact your CPA and/or your Wealth Management Team at 972-960-6460.

For additional information on the resources available to small businesses, we recommend reading the following. We have also included a sample application for the Paycheck Protection Program.

Small Business Resource Summary

Paycheck Protection Program Application

U.S. Chamber of Commerce Small Business Loan Summary

CARES Act U.S. Senate FAQ

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