With CARES Act now law, questions arise with regards to how those funds flow down to a specific business and what are the underlying terms. Below is a brief synopsis of the more relevant terms.
The CARES Act will provide businesses tax credits and allow them to defer their payroll taxes so they can continue paying employees. The tax isn’t forgiven; rather the payment is delayed. 50% will be payed in 2021, and 50% will be payed in 2022 (in addition to the company’s regular payroll taxes for those years).
The CARES Act will establish a fully refundable tax credit for businesses of all sizes that are closed or distressed to help them keep workers on the payroll. The goal is to get those employees hired back or put on paid furlough to make sure they have jobs to return to. The credit covers to 50 percent of payroll on the first $10,000 of compensation, including health benefits, for each employee.
The CARES Act will also designate approximately $350 billion specifically to small and medium sized businesses impacted by this pandemic through different distribution vehicles and credits.
For businesses with 500 or fewer employees, they are eligible for loans through the U.S. Small Business Administration (“SBA”) Disaster Business Loan Program of up to $10 million per business. While specific terms will vary on a case by case basis (depending upon the creditworthiness of a particular business; however a business will not be required to show that it is not able to obtain credit elsewhere), it is our understanding that the general terms of the loan are for 10 years at 3.75%. The interest would be deferred for one year. In addition, it is our understanding that any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June 2020 (not to exceed the original principal amount of the loan).
The amount of the loan that may be forgiven will be ratably reduced if the average number of full-time equivalent (FTE) employees during the 8-week forgiveness period is less than the average number of FTE employees at either, (a) the period February 15, 2019, through June 30, 2019, or (b) the period January 1, 2020, to February 29, 2020; the employer chooses which period to compare. To encourage employers to rehire workers laid off due to the COVID-19 crisis, employers that rehire previously laid-off workers will not be penalized for having a reduced payroll at the beginning of the forgiveness period. If, during the period from February 15, 2020, through 30 days after enactment of the CARES Act, there is either a reduction in the number of or wages paid to FTE employees and the employer eliminates the reduction by June 30, 2020, the amount of loan forgiveness will be determined without regard to the reduction.
To apply for forgiveness, businesses must submit documentation regarding the eligible uses of loan funds (payroll costs, mortgage interest, utilities, etc.), a certification that such documents are true and correct, as well the amount to be forgiven, and any other documentation the SBA Administrator deems necessary.
The CARES Act will also provide $17 billion to cover six months of payments for small businesses already using SBA loans.
Goosmann Law Firm is ready to advise and assist you with the CARES Act and the various avenues to receive these funds, including completion of the applications for the Disaster Business Loan, the Bridge Loan, and Paycheck Protection Program.
For questions regarding the CARES Act, contact any of our team members below who are available 24/7 and ready to help businesses looking for assistance in this area.