April 1, 2020

The $2 trillion CARES Act Phase III Stimulus package couldn’t come soon enough for many small businesses, including showrooms, design professionals and manufacturers, affected by the coronavirus economic shutdown. Scouring multiple news sources, here is the information we have gleaned. Of course, everyone should consult their own financial advisors and tax consultants on the law. Also, the government has created a 35-page overview of the law to help boil it down a bit.

What’s in the CARES Act for Small Businesses?
The bipartisan legislation signed into law by President Trump sets aside hundreds of billions of dollars in available funds specifically for small businesses to obtain loans from the federal government. The program has $349 billion in loans that will be specifically administered by the Small Business Administration (SBA). This $349 billion “Paycheck Protection Program” is separate from the $50 billion in SBA loans that was put into law several weeks ago as part of the Phase II Stimulus package. Moreover, there is another $454 billion that will be administered by new lending agency managed by Treasury Secretary Stephen Mnuchin. Other major industries, including the airlines and companies linked to national security, will have separate funds available. Here is the full 880-page version of the CARES Act passed by the U.S. Senate.

Who Qualifies and How Do You Get a Loan?
Any small for-profit business with fewer than 500 employees is eligible for a loan. To obtain a loan, qualifying small businesses are asked to simply go to their local FDIC-insured bank. Indeed, speaking to reporters yesterday, Mnuchin said small businesses in many cases will be able to walk out of the bank with the money in hand in one day. In an effort to eliminate red tape, there is no hefty government website application. The loans are not like SBA Physical Business Disaster loans familiar to most people that are linked to natural disasters. Businesses that are facing the prospect of bankruptcy from the coronavirus outbreak will have a separate program in which they can participate. The SBA has 68 regional offices around the nation that dealers can visit to get more information face to face.

When Can You Apply for a Loan?
The U.S. Treasury Department has issued enhanced guidelines and set the dates for when small businesses can start applying for Small Business Administration (SBA) loans as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act Phase III Stimulus package.

Any small for-profit business with fewer than 500 employees is eligible for a CARES Act loan. The government made a point of clarifying that all CARES Act loan terms will be the same for every applicant. The federal government has set aside $349 billion for this Paycheck Protection Program.

The CAREs Act loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made.
• Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25 percent of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for six months.

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive CARES Act loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

Where to Apply for a CARES Act Loan
Small businesses can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

The loan application can be found here.

Consult with your local lender as to whether it is participating in the CARES Act loan program. Visit www.sba.gov for a list of SBA lenders.

How Much of a Loan Can You Get?
Small businesses can obtain a loan that covers 2.5 of payroll, not exceeding $10 million. So if your regular payroll is $20,000, you can get $50,000. Also, payroll above $100,000 for any individual employee is not covered. Portions of the loans can also be used for debt obligations, mortgage interest, rent payments, utility payments, and payroll support. The loans themselves must be secured for a term of no longer than five years. Businesses will be eligible for the loans through December 31, 2020.

The bill also provides $10 billion for “emergency grants” of up to $10,000 per company for small businesses that need to cover immediate operating costs.

Is the Loan Forgiven?
Borrowers are eligible for loan forgiveness equal to the amount spent during an 8-week period after the origination date of the loan on payroll costs, mortgage interest, rent or utilities. While the loan is in place, employers must maintain the same employment level within their company as they had on March 13, 2020. In addition, there are limits on the amount of compensation that can go to the owner of the company up until March 1, 2022.

But the law takes its one step further by declaring that small businesses that either maintain their employees during this crisis or rehire those employees will have their loans fully forgiven by the federal government. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Those who borrow money in the program will need to verify through documentation to their bank lender their payments during the period. Banks that receive the required documentation will then have that loan purchased by the SBA.

The CARES Act also includes $17 billion to cover six months of payments for small businesses that have already taken out SBA loans prior to the coronavirus outbreak but now are having difficulty making those payments due to the slowdown. Any loan amounts that are not forgiven at the end of one year will be carried forward as an ongoing SBA loan with a maximum term of 10 years, at maximum interest rate of 4 percent.

What Can Individuals Get?
The CARES Act also includes relief for individuals, including expanded unemployment benefits for workers and direct payments by the government. Specifically, individuals earning less than $75,000 (adjusted gross income) will receive a one-time check for $1,200. Families with children will receive $500 per child. Married couples earning less than $150,000 jointly with no children will receive $2,400. The payouts scale with diminishing amounts up to $99,000 for individuals and $198,000 for married couples. Payouts are expected to be out within three weeks, according to Mnuchin. Importantly, those who are self employed and 1099 workers are also eligible.

Individuals who are on unemployment insurance will get a $600 boost in their unemployment disbursement per week. Also, self-employed people and independent contractors are now newly eligible for these unemployment benefits.  People who are diagnosed with the virus and unable to work, or self quarantining to possible exposure, are also eligible.

Canadian Stimulus Program
Canada has proposed a program for its citizens during this turbulent time. It includes a doubling of the payroll exemption for businesses from $490,000 up to $1 million in payroll; a suspension of any penalties related to non-payment of sales taxes for alcohol, tobacco, fuel and other items until August 31; a special tax credit for business investment; and suspension of property tax reassessments.

– By Jason Knott, chief content officer for Emerald Connected Brands. Emerald is KBB’s parent company.