On Friday, March 27th President Trump signed the Coronavirus Aid, Relief and Economic Stimulus Act (CARES Act) which provides financial support to both individuals and businesses. There are a number of provisions included within the CARES Act and we have summarized the sections we believe are most applicable to our clients. Our News page includes additional posts regarding CARES Act changes to Unemployment Insurance, Individual Tax Provisions and Business Tax Provisions.
We have received a number of calls regarding the loan opportunities provided by the CARES Act. There are several loans that businesses may be able to utilize for their immediate cash flow needs.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is generally available to companies with not more than 500 employees and those with annual gross receipts under certain thresholds based on industry. Sole-proprietors, independent contractors and other self-employed individuals are also eligible for the loans. Loans are given up to a maximum of the lesser of $10 million or 2.5 times the average monthly payroll costs, including expenses for paid sick leave, healthcare and other benefits. These loans have a maximum term of 10 years and an interest rate not to exceed 4%.
The primary benefit of the Paycheck Protection Program loan is the forgiveness of loan proceeds that are used during the first 8 weeks to cover operating expenses, including payroll, rent, utilities and health insurance premiums.
This program will be administered through local lenders under the guidance of the Small Business Administration. Details have not yet been provided to banking institutions as to the application process. We recommend you reach out to your banking representative and request they alert you when applications are available for submission if you are interested in a Paycheck Protection Program loan.
Economic Injury Disaster Loans
The Small Business Administration’s Economic Injury Disaster Loans are not new under the CARES Act. They have always been available in the event of a disaster, however this is the first time a pandemic event has qualified. Terms on disaster loans are favorable and include proceeds of up to $2 million, a term of 30 years, and interest rates at 3.75% for small businesses and 2.75% for non-profits. The first month’s payments are also deferred a full year from the date of the note.
The CARES Act expanded the provisions of these loans to make them easier for businesses to qualify. Additionally, $10,000 emergency cash grants are also available through the expanded provisions. These funds can be used for providing paid sick leave for employees impacted by COVID-19, maintaining payroll to retain employees, meeting increased costs to obtain materials due to supply chain interruptions, rent or mortgage payments, and repaying obligations that cannot be met due to losses in revenue.
Economic Injury Disaster Loans can be applied for directly through the Small Business Administration at www.sba.gov/disaster.
We will continue to keep you updated with new developments as they become available. We remain fully committed to serving and supporting our clients during these challenging times.
*This article reflects tax law as of March 27, 2020. Some material may be affected by subsequent changes in the laws or in the interpretation of such laws.