How to take advantage of the CARES ACT
Paycheck Protection Program Loan Forgiveness.
On March 27, 2020, President Trump signed into law the largest bill in U.S. History, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The Basics:
· Up to $10 MILLION loan per small business (any company or non-profit with less than 500 employees), loan is forgiven by the Government.
· The loan can be up to the total of the company’s “payroll costs” for the 12-month period before the loan is made, multiplied by 2.5.
· Payroll costs include the total of the Company’s cost for salary, wages, commissions, tips, plus payment for vacation, parental, family, medical, or sick leave, plus allowances for dismissal or separation, group health care premiums, retirement benefits, state payroll taxes, interest on mortgages, rent, utilities, and interest on debt incurred before Feb 15, 2020. It also includes payments to sole proprietors, self-employed people, and independent contractors.
· The proceeds of the loan can be used to pay these “payroll costs” from February 15 to June 30, 2020. Sole proprietors can pay themselves up to $37,500 in direct payments plus health care, and retirement.
· The borrower needs to certify a good faith belief that current economic conditions make the loan necessary to support the ongoing operations of the business, and that the borrower is not taking multiple SBA loans for the same purpose.
· The Loan Forgiveness part could be interpreted multiple ways, it may be an 8-week forgiveness, or the “covered period” between Feb 15-June 30, 2020.
“I read it as requiring payments made for the period between February 15 through June 30, 2020 be paid within eight weeks following loan origination. The SBA could take the restrictive view, so be cautious. But if the SBA did take such a restrictive view, it would make for a good class action.” — Bill Restis
What Records do you need?
· Borrower must include payroll tax filings reported to the IRS, and state income, payroll, and unemployment insurance filings. It must include cancelled checks and receipts for payment, for items such as rent and utilities. If borrower does not have documentation, they are not eligible.
Additional Relief:
· Grant — A Company can also get a $10,000 immediate relief grant for payroll expenses, mortgage, rent, and more under the Disaster Assistance program while the government is processing an SBA Economic Injury Disaster Loans (“EIDL”). This grant does not have to be repaid. A business that receives an EIDL can apply for, or refinance its EIDL into, the forgivable loan product.
· Taxes — CARES Act modifies the tax rules for net operating losses, can even amend prior tax returns to obtain tax refunds. Employer gets a refundable tax credit for the employer’s share of the 6.2% Social Security (SSI Tax Credit). You can also defer payment of the 6.2% Social Security tax on wages paid for March 27, 2020 until December 31, 2020.
· Student Loans — All payments (principal and interest) for most federal student loans are suspended.
How to apply:
There are multiple types of loans on the SBA website, there is the disaster relief, which you can start on the website, and get a 10K up front. Then there is the 7a application, which you must click here and fill out a lender match. https://www.sba.gov/funding-programs/loans/lender-match
I’ve already started the process and am waiting to connect with a few different lenders.
Resources:
Bill Restis: https://restislaw.com/cares-act-paycheck-protection-program-and-loan-forgiveness/
The National Law Review: https://www.natlawreview.com/article/summary-cares-act
The 335 page Act: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text#toc-idCCF73EAEF8454D2A8B29B9DF4626458E
