CARES Act | SBA EIDL & PPP Loans

CARES Act | SBA EIDL & PPP Loans

As a follow up to our overview of The CARES Act sent last week, the third Federal stimulus bill in response to COVID-19, I wanted to provide you with a quick update on additional guidance recently issued on the two key SBA loan programs available to business owners: the Payroll Protection Program (this is the program that will issue forgivable loans and every business owner should know about) and Economic Injury Disaster Loans.

The Payroll Protection Program (“PPP”)

  • Signed into law on Friday, these are SBA loans administered by banks.  $350 billion of loans will be issued.
  • Businesses with < 500 employees, as well as self-employed individuals, can apply for a loan of up to 2.5x their average monthly payroll costs.  Payroll costs include wages, health insurance, and retirement plan contributions, capped at an annual salary of $100,000 per employee.  For example, if your business average monthly payroll is $50,000 the maximum loan is $125,000.
  • If the loan is used for certain expenses (payroll costs, rent, utilities, etc.) during the 8 weeks following the origination of the loan, and as long as there is not a reduction in the number of employees or a greater than 25% reduction in wages paid, the borrower is eligible for complete loan forgiveness.  This is a tax-free grant.
  • The application was just released yesterday, a copy is attached for your review, and we understand that banks will start processing most loans this Friday (April 3rd) and next Friday (April 10th) for any self-employed individuals or independent contractors.
  • There are two things that we recommend you do at this time:
  1. Calculate your average monthly payroll costs for the 12 months from April 2019 through March 2020 (you will likely need to substantiate this with payroll returns filed over that time period, so you should have those ready as well), and
  2. Contact your CURRENT business bank/banker. As mentioned, these forgivable loans will be administered by banks, and we have heard that bankers intend to take care of their existing customers first.  Many lenders who have not done SBA loans in the past will start processing PPP loans.  Each bank will have its own list of required documents that you will need to provide.

If we can help with the average monthly payroll calculations, or working through the requirements of maintaining your pre-COVID-19 payroll and/or reinstating terminated employees to meet this test, please let us know.

Economic Injury Disaster Loans (“EIDL”)

  • Businesses with < 500 employees, as well as self-employed individuals, can apply for loans of up to $2 million. Interest rates will be low, and terms will be 15 to 30 years.
  • Eligible businesses may receive an advance of up to $10,000 within 3 days of submitting a loan application.
    • Advances made prior to loan approval do not need to be repaid, even if the loan application is denied.
  • Businesses will likely be able to receive a much larger loan under the EIDL compared to the PPP, to be used for a variety of operating expenses over a longer time period, but these loans are not forgivable.

As additional guidance is issued we will continue to keep you updated. 

The CARES Act

The CARES Act

Yesterday evening, the Senate passed an updated version of the Coronavirus Aid, Relief and Economic Security (CARES) Act (Stimulus Phase III).  The bill is intended to be a third round of federal government support for individuals and businesses and is the product of negotiations between Democrats and Republicans for a bipartisan response to the crisis.  Please note that at this time it has not been enacted into law but is expected to be by Friday, March 27th

We are fielding a number of questions from our business owner clients, who have already been significantly impacted by COVID-19, regarding their options for access to short- and long-term liquidity to minimize business disruption.  If this applies to you, please feel free to read ahead to the “business” section of this letter.

Click here to read key provisions for individuals and businesses

Tax Extension

Tax Extension

In response to the COVID-19 pandemic, Treasury Secretary Steven Mnuchin announced yesterday that individuals can defer April 15th tax payments up to $1 million, and Corporations can defer up to $10 million of tax payments, for 90 days.  Please note that many details remain unclear with respect to this relief, and no official written policy has been released yet, but we expect additional guidance from the IRS in the coming days and will provide details once available.  For now, here is an overview of what to expect:

  • Tax payments due April 15th can be deferred until July 15th without incurring any interest or penalties.  This extension is available for all individual taxpayers who owe < $1 million for 2019.
  • This 90-day extension of time to pay will likely also apply to 1st and 2nd quarter 2020 estimated tax payments due April 15th and June 15th respectively.
  • Mnuchin’s statement did not extend the tax filing due date, so all taxpayers must still file their tax returns or request extensions (Form 4868 automatically extends the filing deadline to October 15th) by April 15th.
  • For anyone that anticipates a refund for 2019 taxes, as usual we recommend you go ahead and file by April 15th, if not sooner, to have that money refunded.

“We encourage those Americans who can file their taxes to continue to file their taxes by April 15,” Mnuchin said, especially encouraging people who will be getting tax refunds to do so. “Just file your taxes,” he said, and “you will automatically not get charged interest and penalties” on payments made within the 90-day deferral period.

We are following the Families First Coronavirus Response Act (FFCRA) closely, which will address relief in the form of tax credits and/or cash payments to businesses and employees affected by COVID-19 and will send an update once there is an agreement. For our business owners, we are also closely monitoring federal and state incentives (including low interest loans, grants, unemployment for employees, etc.) and will send details and guidelines once available.

The SECURE ACT

The SECURE ACT

The final weeks of 2019 brought the second major piece of tax legislation in the past 24 months, as the SECURE Act (The Setting Every Community Up for Retirement Enhancement Act), which was passed in the House over the summer, finally made its way through the Senate and was signed into law by the President. The legislation may have significant repercussions for individuals engaged in retirement and estate planning.

Attached we have highlighted the key provisions