Prepared by: Stephen Leonard, CPA – Partner
The Coronavirus Aid, Relief, and Economic Security Act; aka the “CARES Act” was signed by the President on March 27, 2020.
This summary only addresses stimulus funding for business owners under the Keeping American Workers Paid and Employed Act of the overarching CARES Act. CARES has many other relief provisions which we will communicate separately, including tax relief. This stimulus funding is significant for business owners as those receiving the funds have no repayment obligations if the funds are used for approved purposes as detailed below.
To help you prepare to access this stimulus as soon as possible, we would like to give you this guidance. The stimulus will be administered by the SBA, which has not yet been detailed.
Qualifications and Amounts for Stimulus:
- Eligible business must acknowledge in their application any “covered small business concerns” such as disruptions in supply chains, technology, staffing, gross receipts or customers, and closure. Substantiation and documentation must support damage due to economic conditions caused by the above.
- You cannot apply for this funding twice, nor also receive the SBA’s EIDL, Economic Injury Disaster Loans.
- Small businesses (see definition), sole proprietors and nonprofit organizations in operation as of 2/15/2020 are eligible.
- Eligible if small businesses with lower than 500 employees or the number of employees specified under this Act pertaining to applicable NAICS codes established by the SBA. Employees include part-time. Affiliates are grouped for determining 500 employees, as defined by the SBA. See next section for Affiliate waiver.
- Affiliates are grouped except affiliation waived for (a) Businesses within NAICS code 72 (accommodations and food services) and no more than 500 employees per location (b) Franchises with codes assigned by SBA (as reflected on SBA franchise registry) and (c) SBIC portfolio companies.
- Maximum loan amount is lesser of 2.5x Trailing Twelve Months average monthly payroll costs (which excludes any comp above $100k for any person) or $10 million (see alternate measurement periods for new and seasonal businesses.)
- Payroll costs include the cost of compensation, group health care benefits and insurance premiums, retirement plan contributions, state and local payroll tax, self-employment income, all no greater than $100,000 per person annually, prorated for the covered period. Eligible compensation is reduced for any tax credits received for Coronavirus relief received elsewhere.
- Use of loan proceeds is limited to payroll compensation, sick or family leave, (excludes comp in excess of $100k per person), group healthcare benefit costs and premiums, mortgage interest only (not principal), rent payments, utilities, and interest on pre-2/15/2020 debt, leases, and utility services, and retraining employees.
- Forgiveness will be given, no loan fees assessed, no recourse, guarantee, nor collateral required for repayment to the extent used for the above purposes within the covered period during 2020; 2/15/2020 and ending 6/30/2020 or within 8 weeks of receiving the loan proceeds.
- If funding must be repaid, repayments are to be deferred from six to twelve months after inception, with no prepayment penalty, with a reasonable interest rate.
- Forgiveness of repayment will be reduced by a proportion decrease in the average FTE employee during the 8 week measurement period, at borrower’s election, as compared against the period 2/15/19 – 6/30/19 or 1/1/2020-2/29/2020. Seasonal businesses are measured against 2/15/20 – 6/30/20.
- Forgiveness of repayment is also reduced by any 25% reduction in pay for an individual employee, although not for compensation above $100K per employee.
- Forgiveness of repayment will be increased for increased pay to tipped employees.
- No reduction in forgiveness if employee reduction or pay cut is done before 30 days after the act becomes law and reversed before 6/30/2020. In other words, employees laid off must be rehired by 6/30/2020.
- Documentation of the above must be certified by a representative of the recipient and provided to the lender to receive forgiveness.
- Forgiveness of repayment will be excluded from income tax.
To Prepare for the Application Process with the SBA (yet to be determined):
- Last three fiscal or calendar year end financials (minimum tax returns.)
- Year to date financials for March 1, 2020 with prior period comparable.
- March 1, 2020 financials thru application, broken out as a separate period, to be able to isolate the negative impact.
- 2020 payroll period reports – this will allow for isolation of payroll costs.
- Employment files to document head count and FTE averages from 2/15/20 – 6/30/20.
- Federal, state, and local payroll returns for the training twelve-month period.
- Documentation of payment receipts, cleared checks, or other methods of verifying payments to cover mortgage, lease, utility, and payroll obligations from 2/15/20 – 6/30/20.
- Any financial documentation substantiating negative financial impact of the virus, for example, if a manufacturer had to start sourcing material from a different supplier that was materially more expensive due to the original supplier being shut down, severe drop in orders or revenues, decline in workforce due to absence, etc.
We advise you to be prepared and quickly apply for the funding if it is necessary and you qualify. The lenders will have up to two months to approve. Note: This bill applies generally to businesses under 500 employees and other specified industries. See the Coronavirus Economic Stabilization Act financing programs for businesses with larger than 500 employees and who do not meet other qualifications.
Please let us know if we can be of any assistance in determining benefits, qualification, planning, financial statement and tax return preparation, and your application needs regarding this stimulus application process.