CARES Act Overview
By Aaron Saunders, Senior Vice President
On March 27th the CARES Act was signed into law. This $2 trillion economic stimulus package addresses a wide range of economic considerations including assistances to workers and businesses, direct aid to states and cities, and funding for needed equipment to address the COVID-19 pandemic. As outlined below, the CARES Act establishes new avenues for businesses to access potentially forgivable loans and take advantage of changes to the tax code.
The SBA and other federal agencies are currently working to establish guidelines and regulations based on the CARES Act and other COVID-19 response legislation from congress. Benchmark will continue to monitor for this guidance and update clients with information as it becomes available.
Economic Injury Disaster Loan Program (EIDL)
On March 30th, the SBA released its updated Economic Injury Disaster Loan Program (EIDL) application which can be found here https://covid19relief.sba.gov/#/ . The program can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster, regardless of whether the applicant sustained physical damage.
While most small businesses that have sustained a negative impact will qualify, there are certain eligibility restrictions based on business type (lobbying entities, members of Congress, and entities with more than 1/3rd of revenue derived from legal gambling are not eligible). Agricultural enterprises also do not fall under the EIDL program. Farm loans and other USDA programs are being streamlined to ensure impacted farmers and other agricultural businesses have options in case of economic injury due to COVID-19.
The SBA estimates that the EIDL application will take approximately two hours. Applications should be prepared to provide recent financials such as revenues, COGS, etc. Further detail on the EIDL program from the SBA can be found at https://www.benefits.gov/benefit/1504
Paycheck Protection Program (PPP)
The Paycheck Protection Program provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis. PPP allows for loan forgiveness under certain circumstances including
Payroll costs (as defined above), including any additional wages paid to tipped employees.
Any payment of interest on any mortgage debt originally incurred prior to February 15, 2020.
Any payment of rent obligations under a lease agreement in force prior to February 15, 2020.
Any payment for utility services which were in place prior to February 15, 2020 (including electricity, gas, water, transportation, telephone, or internet access).
PPP loans do not have SBA fees and provide a deferral period of six months to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls.
PPP loans are facilitated through current SBA 7a lenders. The SBA has indicated that additional non-bank lenders may be added to the list, which is anticipated as guidance for the program is in issued over the course of the next several weeks.
Tax Code Changes
The CARES act included a number of substantial changes to the tax code which may have varying impact on businesses depending on individual circumstances. Certain new tax credits may not be available if a business has taken out a PPP loan. Assistance from a tax profession should be sought when making this determination.
Net Operating Loss (NOL) Rule Relaxation
Losses arising in 2018, 2019 and 2020 can be carried back to the five preceding years.
Employer Payroll Tax Delay
Employers can defer the 6.2 percent payroll tax due for rest of year until end of 2021, 2022.
Employee Retention Payroll Tax Credit
Certain employers may receive a payroll tax credit of as much as $5,000 per employee for wages (and health benefits) paid after March 12, 2020, and before January 1, 2021.
If the credit amount exceeds the employer’s liability, the excess shall be refundable.
Increase of Interest Expense Deduction Limitation
In 2019 and 2020, corporations can deduct more of their borrowing costs (up to
50 percent of their earnings, instead of only 30 percent of their earnings).
Connect with Aaron Saunders at Benchmark Strategies ( ) for more information on how these programs can assist your organization.