Over the weekend, new Federal legislation was signed to enact the CARES Act. Business financial relief is a significant part of the CARES Act and provides critical help to businesses that may have been negatively impacted by COVID-19. CLCA recommends that applications be submitted as soon as possible.
WHO IS ELIGIBLE FOR HELP?
In most cases, a business with fewer than 500 employees, or someone who operates as a sole proprietor, independent contractor or “regularly carries on any trade of business,” according to the U.S. Chamber of Commerce. Employees include anyone full-time, part-time or other status.
Also eligible are certain food and accommodation services with fewer than 500 employees per location and less than $500 million gross annual receipts last year.
WHAT CAN THE LOAN BE USED FOR?
“Salary or wages, family and sick leave, allowance for dismissal or separation, health care benefits, retirement benefits, payment of state and local taxes assessed on the compensation of an employee, and the sum of payments to an independent contractor,” per the National Federation of Independent Business (NFIB). It can also be used for mortgage payments, rent, lease payments, utilities and interest on debt incurred after Feb. 15.
All expenses have to be incurred between Feb. 15 and June 30, 2020.
WHAT WILL LENDERS ASK ME?
- Were you operating before Feb. 15?
- Does the current economic turmoil make this loan necessary to maintain your operations?
- Will you use the money to keep people working, make mortgage or lease payments, and pay utilities?
SUPPOSE I HAVE AN EMERGENCY LOAN ALREADY?
“There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan,” according to the US Chamber of Commerce. The Small Business Administration can buy loans made before the stimulus law went into effect this month and cover up to six months of payments.
ANY COLLATERAL NEEDED?
No. The Small Business Administration guarantees 100%.
HOW MUCH OF A LOAN CAN I GET?
The maximum is $10 million. But to figure out how much you can receive, NFIB advises multiplying the average total monthly payments for payroll costs incurred during the one-year period before the date the loan was issued by 2.5. Your loan would be whichever is less, that figure or the $10 million.
I’M AN INDEPENDENT CONTRACTOR. WHAT DO I NEED TO SHOW THE LENDER?
If you are an independent contractor, sole proprietor, or self-employed individual, lenders will probably ask for payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.
THE LOAN IS SUPPOSED TO BE FORGIVEN. WHAT REQUIREMENTS DO I HAVE TO FOLLOW?
The amount forgiven is the amount you spend during the eight weeks from the date the loan originates: Payroll costs, mortgage interest, rent on a lease, utility payments, and “for borrowers with tipped employees, additional wages paid to those employees.”
If you reduce your number of employees or reduce wages by more than 25%, the amount of forgiveness drops.
WHAT CANNOT BE INCLUDED?
What does not count in the calculation is salary paid to someone that exceeds $100,000, prorated from Feb. 15 to June 30. Also not included: Payroll taxes, railroad retirement taxes, and income taxes, and compensation of anyone who lives outside the United States.
WHERE CAN I LEARN MORE?
California Senator Dianne Feinstein has two informative documents outlining the CARES Act. One is a user-friendly guide. The other is a detailed explanation of business provisions in the bill. We have linked to both of them below.
Sources: National Federation of Independent Business, Senator Dianne Feinstein, US Chamber of Commerce, and Sacramento Bee.
