On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides additional assistance for small business owners. Under the Act, the U.S. Small Business Administration (SBA) provided two disaster relief programs known as the Paycheck Protection Program and the Economic Injury Disaster Loan Program.
There are unique eligibility requirements for these programs and the lenders. But in general, other than businesses are not eligible to apply for both programs, the SBA also requires the Loan Recipients to:
Paycheck Protection Program
The Payroll Protection Program application will be available within 30 days once the SBA issues its final guidance to lenders. Once that is done we will provide further details on the application process.
For Early Stage Tech Startups that have raised outside capital, they may not be eligible for the small business loan program according to Axios. Small businesses with venture capital investors who control more than 50 percent of voting stock are also disqualified, as are cannabis-related companies. VC-backed startups may also be left out due to SBA "affiliation rules." The SBA takes into account the collective number of employees from an investor's portfolio. For more information please see the Geekwire article and for SBA Affiliation Rules, see here.
For certain hospitality and food service companies, special considerations such as waiving the affiliation rules are applied if their NAIC code begins with "72". If they have more than 500 employees across multiple locations, they are eligible to look at each physical location with under 500 employees and apply for a loan accordingly. These special considerations do not extend to other industries.
Please contact us or use the link to my calendar to schedule an appointment to discuss eligibility. We will need to review your cap table to give you a definitive answer on whether you will be eligible for the program.
Businesses that meet the SBA's "Small Business Concern" and businesses such as nonprofit organization, can apply for Paycheck Protection Program if they have the lesser of:
The number of employees includes full-time and part-time, and seasonally or temporary basis. Whether or not the businesses use a PEO, it will not impact the number of employees. For eligible self-employed individual, independent contractor, or sole proprietorship, documentation such as payroll tax filings, Form 1099-MISC, and income and expenses from the sole proprietorship will need to be submitted.
The maximum amount that can be borrowed is 250% of the average monthly payroll costs that is based on 12-month look back from the date the loan is made and cannot exceed $10 million. For seasonal employer, the average total monthly payment for payroll shall be for the 12-week period beginning February 15th, 2019 or at the election of the eligible recipient, March 1, 2019 and ending June 30, 2019.
Payroll costs will include the following:
The loan will be issued via the SBA's network of 7(a) program lenders and is 100% guaranteed y the SBA. By having available credit from other sources will not disqualify the business. There will be no application fees or closing costs and no collateral or personal guarantee required. The maximum interest rate is 4% and the maximum loan term is 10 years. The first 6 months of payments (principal and interest) are automatically deferred and the deferral period can be extended up to a year.
Paycheck Protection Program: General Loan Forgiveness
A portion of the total loan would be eligible for forgiveness in the amount equal to the payroll costs as well as any covered obligations for interest on a mortgage, rent, and utilities between the covered period. The amount forgiven will not be taxable as income and the covered obligations must have been in place prior to February 15, 2020. The loan amount ultimately forgiven by the federal government will be reduced by the number of employees laid off or experiencing salary reductions of more than 25% prior to, or during the covered period. And to be eligible for the forgiveness, eligible loan recipients should expect to have to verify for the employees kept on the payroll and the wages paid to these employees, as well as any other qualified expenses between the covered period.
If the eligible loan recipients already had to lay off some employees, then reduction in loan forgiveness can be avoided if re-hire previously laid off after February 15th, 2020 and/or restore the salary for those people that may have seen a wage reduction, no later than June 20, 2020.
Paycheck Protection Program: Tax Relief Option
Businesses can also elect for tax relief options instead of the forgiveness option mentioned above but cannot opt for both. Businesses may be eligible for an employee retention credit, which is a fully refundable 50% tax credit applicable to the employer's share of payroll taxes on wages up to $10,000 per employee. Businesses must demonstrate the operations were suspended because of an official government order related to COVID-19, or that gross receipts declined by at least 50% compared to the same quarter in 2019.
Businesses that choose the option of tax relief instead of forgiveness will also be provided a temporary payroll tax holiday. This would give the option to defer payment of the employer share of Social Security taxes for the period March 27, 2020 to January 1, 2021. Deferred amounts would be 50% due by December 31, 2021, and the remaining will be due by December 31, 2022. Employers would retain sole liability for the eventual payment of these deferred taxes regardless of whether they use a PEO/CPEO.
Paycheck Protection: Application Process
Again, once the SBA have issued its final guidance to lenders, we will provide further details on when and how to apply for the Paycheck Protection Program. Please check here for regular updates - https://www.sba.gov/funding-programs/loans/paycheck-protection-program. From our initial understanding the Paycheck Protection Program will be administered by the banks and lending institutions so it's a great idea to get in touch with them now in preparation for the program being rolled out. Some frequently requested information would include most recent tax filings for your business and personal, most recent financial statements including Balance Sheet and Income Statement. Most lenders will accept financials and tax returns from Calendar Year 2018 at the bare minimum so have these ready.
Economic Injury Disaster Loan (EIDL) Program
The Economic Injury Disaster Loan (EIDL) program provides small businesses affected by the Coronavirus (COVID-19) with working capital loans of up to $2 million that can be used for fixed debts, payroll, accounts payable, and other bills. The credit history must be acceptable to the SBA, and the small business owners must prove the working capital damage caused by COVID-19 and the ability to repay which will be used to determine the payment terms. The low interest rate provided by this program will be 3.75% for For-Profit businesses and 2.75% for Not-For-Profit businesses.
The term for repayment can be up to maximum of 30 years and an EIDL Loan over $25,000 will require collateral. The SBA will not decline a loan for lack of collateral but will require a pledge of what is available. Small business owners will also have the opportunity to receive up to a $10,000 Advance on the loan for emergency capital. The SBA has finished updating the system to implement this provision so small businesses can request an EIDL advance when they apply for the loan.
The following businesses will not be eligible for EIDL Loan:
Economic Injury Disaster Loan (EIDL) Program: Application Process
Application for EIDL Program can be done online or through mail. The estimated decision time is 2 to 3 weeks and the estimated disbursement will be 5 days. And it is critical that the ECONOMIC INJURY box be checked on Page 1 of the EIDL Application to make sure you are applying for the correct loan. If more funds are needed, applicant can submit supporting documents and request an increase. If less funds are needed, applicant can request a reduction. If application is denied, applicant will be given up to six months to provide new information and a written reconsideration request. For more information on how to apply please visit HERE.
To learn more about EIDL Loan, please see here for Zoom Sessions.
Among the provisions under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we would like to introduce these two topics that may be helpful to you: Unemployment Assistance and Recovery Rebates.
There are three new Unemployment Insurance (UI) Programs created by the CARES Act:
We will be introducing these programs in a broadly manner based on the information provided in this Fact Sheet from the National Employment Law Project. Please visit this fact sheet if you would like to know more details for each UI Program.
Pandemic Unemployment Compensation (PUC)
From March 27, 2020, the date the bill is signed into law, through July 31, 2020, all regular UI and PUA applicants will receive $600 per week in compensation in addition to their usual calculated benefit. It may be paid with the regular UI payment or at a different time, but it will be paid on a weekly basis.
Pandemic Emergency Unemployment Compensation (PEUC)
An additional 13 weeks of state UI benefits will become available after the applicants exhausts all their regular state UI benefits. Most of the states will offer 26 weeks of UI benefits except the following:
To be eligible for PEUC, applicants must be actively engaged in searching for work. The CARES Act does provide that a State is obligated to provide flexibility in meeting such requirements in case of individuals unable to search for work because of COVID-19, including reasons of illness, quarantine, or movement restriction.
The States are also obligated to follow the "Non-Reduction Rule" in the CARES Act, which suggest that they may not do anything do decrease the maximum number of weeks of UI or the weekly benefits available under state law of as January 1, 2020, as long as they are participating in these programs.
Pandemic Unemployment Assistance (PUA)
Pandemic Unemployment Assistance (PUA) provides emergency unemployment assistance to workers who are left out of regular state UI or who have exhausted their state UI benefits. PUA will be available to workers who are immediately eligible to receive PUA for up to 39 weeks. This program will expire on December 31, 2020 unless otherwise extended.
You will be eligible for PUA if you are a:
Applicants for PUA Program will need to provide self-certification that they are partially or fully unemployed, or unable and unavailable to work due to one of the following circumstances:
It's important to know that workers who can either telework with pay or are receiving paid sick days or paid leave are not eligible for PUA.
This graph provided by New York State Department of Labor provides a good summary.
For New Yorkers filing for unemployment see details below:
Important Information for Unemployment Insurance Claimants:
The CARES Act was enacted on Friday, March 27, 2020. Please see the CARES Act web page for information about how the Act may affect UI benefits. Please do not call if you already have a UI claim; it will only make it difficult for others to reach an agent.
Information regarding the CARES Act and other COVID-19 updates will be posted in the Frequently Asked Questions about Unemployment Insurance During the Coronavirus Emergency.
If you are filing a new Unemployment Insurance claim, the day you should apply is based on the first letter of your last name.
A - F file on Monday | G - N file on Tuesday | O - Z file on Wednesday
Missed your day? File on Thurs-Fri-Sat
Any claim you file will be backdated to the date you became unemployed. If you are eligible, you will be paid for all benefits due.
Department of Labor is extending telephone filing hours as follows:
Monday through Thursday, 8 am to 7:30 pm.
Friday, 8:00 am to 6:00 pm.
Saturday, 7:30 am to 8:00 pm.
2020 Recovery Rebates for Individuals
In addition to Unemployment Benefits, the CARES Act also provides Recovery Rebates, also known as the Stimulus Checks, for individuals. Because the distribution of the Stimulus Checks will be coming from the Internal Revenue Service (IRS), the IRS will use 2019 tax forms to determine how much and where to send the checks. If 2019 tax forms have not yet been filed, the IRS will use 2018 tax forms to determine.
The Treasury Secretary Steven Mnuchin said that Americans should start getting these checks within three weeks, however, according to NBC News, some experts believe that with the budget cuts and the outdated technology, it may take up to months to distribute the checks. Another factor that will also delay the receiving of the check is change of address after previously filed tax forms. People whose address have changed after filing their tax return will need to submit a change of address form to the IRS which can take up to 4 to 6 weeks to process. But for those who have set up direct deposit as the method of refund on their previously filed tax return, they can get the check a little bit sooner than those who elected for paper checks.
The IRS does not have my direct deposit information. What can I do?In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
The amount of the Stimulus Check one can receive will be based on the previously filed tax return of how much they've made. See below for the thresholds:
In order to be eligible for the Stimulus Check, an individual cannot be one of the following:
For individuals who have not filed a tax return since 2018, the IRS will use the following 2019 forms to determine the amount and address for the Stimulus Check:
Once the Stimulus Check have been distributed, a notice will be sent by mail to the taxpayer's last known address no later than 15 days. The notice will indicate the method of distribution (by direct deposit or paper check), the amount distributed, and a phone number for the appropriate point of contact at the IRS to report any failure to receive such payment.
For FAQ published by the IRS regarding the stimulus checks please see link here.
Tax Relief - Federal Income Taxes
In addition to the CARES ACT, there will be automatic extensions to file and pay Federal Income Taxes until July 15, 2020. Such extensions apply to individuals, partnerships, and corporations. There will be no interest or penalties, but it does not apply to gift, estate, payroll or excise taxes. First quarterly estimated payments that are due April 15th will be applicable. Most States will likely to follow and New York State is confirmed to be one of them.