Small Business Assistance under the CARES Act: New Financing Opportunities to Battle COVID-19

COVID-19 has hit businesses hard.  But, on March 27, the United States government authorized a massive, $2.2 trillion relief package: the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).  The CARES Act includes a significant boost in government-backed private sector financing through the U.S. Small Business Administration (“SBA”).

This is a significant opportunity for you to get the capital your business needs to push through this difficult season.  We at Messerli Kramer curated the following overview of the CARES Act SBA programs to help you explore your options.

Highlights

Paycheck Protection Program (“PPP”)

• Loans up to 2.5x your average monthly payroll and costs like rent and utilities up to $10 million

• 100% federally guaranteed loans with a total forgiveness option

• Effectively a 2-month grant covering payroll, mortgage interest, rent, and utilities

Small Business Debt Relief Program

• Coverage of all principal, interest, and fees for 6 months

• Only for non-emergency SBA loans (e.g., 7(a), 504, and microloans)

• Includes new SBA borrowers

Economic Injury Disaster Loans & Emergency Grants (“EIDL”)

• Low-interest loans up to $2 million

• Grants up to $10,000 given upon loan application

Small Business Counseling & Government Contractors

• Low to no-cost business advice for navigating the crisis from business, tax and financial experts

• Specific financial relief for government contractors

Tax Relief (as an alternative to the PPP)

• Payroll tax credit for 50% of wages paid to furloughed and hours-reduced employees

• Deferral of employer’s share of payroll taxes to equal installments at year-end 2021 and 2022

Details

Paycheck Protection Program Eligibility

The Paycheck Protection Program is only for businesses with 500 employees or less, including full-time, part-time, and any other status.  If you are in the hospitality and food services sector (NAICS 72), including hotels, bars and restaurants, and caterers and contractors, the 500-employee rule is applied on a per physical location basis.  If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply.

Paycheck Protection Program lenders will evaluate whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.  Lenders will also require a good-faith certification that 1) the loan request was necessary in light of economic uncertainty; 2) the borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments; and 3) that the borrower has not sought or obtained duplicative loans elsewhere.  PPP lenders will not require personal guarantees, collateral, or any certification that credit was not obtainable elsewhere.  Independent contractors, sole proprietors, and self-employed individuals may see additional requirements.

Tax Relief Eligibility

The payroll tax credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings, or who have experienced a greater than 50 percent reduction in quarterly receipts on a year-over-year basis.

Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit.  For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee.  Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave (IRC sec. 45S).  The credit is provided through December 31, 2020.  The credit is not available to employers receiving assistance through the PPP.

The CARES Act also allows businesses to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.  Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.  Deferral is not provided to employers receiving assistance through the PPP.

Small Business Debt Relief, Economic Injury Disaster Loan, and Emergency Grant eligibility varies by loan type and/or business size.  Contact us to evaluate your eligibility and determine next steps.

Timeline

The SBA and the US Treasury are finalizing the logistics of these programs.  The Senate has indicated that PPP loans will be available as soon as April 3.  Banks already lending under SBA 7(a) will typically be the first banks ready to deliver CARES Act SBA products to clients.  These loans are generally distributed on a first-come, first-serve basis with statutory caps, so contact your banker as soon as possible.

Conclusion

Messerli Kramer wants to help you navigate this crises and get the resources you need.  The CARES Act SBA financing expansion could be the critical boost your business needs to push through this crisis.  Contact our Corporate group to discuss details and determine the best path forward.

This overview is not legal advice, and it is not exhaustive.  For more information, see the Coronavirus Emergency Loans guide published by the U.S. Chamber of  Commerce and The Small Business Owner’s Guide to the CARES Act published by the U.S. Senate Committee on Small Business & Entrepreneurship.