The CARES Act was passed in an effort to address economic impacts of the COVID-19 outbreak. Among other things, the Act authorizes emergency loans to distressed businesses.
Paycheck Protection Program
: Eligible employers, self-employed individuals, independent contractors, and sole proprietors may obtain loans from the Small Business Administration that are equal to the lesser of $10,000,000 and 2.5 times the borrower’s average monthly payroll costs over the one-year period prior to the date of the loan. Payroll costs include payments made in the form of the following: salaries, wages, commission, tips, vacation time, family leave, parental leave, medical leave, sick leave, contributions to health coverage, retirement benefits, state and local tax payments. Loan proceeds are limited to use for payroll costs, contribution to health care coverage, mortgage payments, rent, utilities, and interest on previously incurred debt.
Loans are only available between February 15 and June 30, 2020. The loans will have an interest rate not greater than 4% and a 10-year maturity period.
Employee Retention Credit: The Employee Retention Credit is designed to assist employers keep employees on their payrolls. To aid in the costs of doing so, a refundable tax credit will be given to employers in the amount of 50% of the employer’s contribution to social security not to exceed $10,000 in wages paid to employees. The tax credit only applies to wages paid between March 12, 2020 and December 31, 2020.
Economic Injury Disaster Loan Program:
The CARES Act made several changes to the Economic Injury Disaster Loan (EIDL) Program. EIDL Loans are available to small businesses in a declared disaster area (all 50 states have all been declared disaster areas for purposes of the EIDL Program effective January 31, 2020) to cover economic injury resulting from the disaster (e.g., loss of revenue). EIDL Loans are processed directly through the SBA, although the SBA may determine to enlist the assistance of lenders for the processing and making of loans. EIDL Loans are available in a maximum amount of $2 million, carry an interest rate of 3.75 percent and have a maximum term of 30 years. Loans over $200,000 must be guaranteed by any owner having a 20 percent or greater interest in the applicant (the CARES Act removed the requirement for personal guarantees on loans under $200,000). The CARES Act also removed standard EIDL Program requirements that the borrower not be able to secure credit elsewhere or that the borrower have been in business for at least one year, as long as it was in operation on January 31, 2020. Applicant may request an expedited disbursement that is to be paid within three days of the request. The advance may not exceed $10,000 and must be used for authorized costs but is otherwise not repayable if the EIDL Loan is not approved.
Paid Leave for Rehired Employees: Employees laid off on or after March 1, 2020 who have subsequently been rehired by the same employer are eligible for Emergency Family and Medical Leave if they worked for the employer for at least 30 of the last 60 calendar days prior to the layoff.
Delayed Payment of Employer Payroll Taxes: Employer-side Social Security payroll tax payments may be delayed with 50% due December 31, 2021 and remaining 50% due December 31, 2022.