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Business Assistance During the Coronavirus Pandemic

The COVID-19 emergency has resulted in nationwide shelter-in-place orders and social distancing recommendations that are impacting all areas of life as we know it. One of the most severe impacts of these responses to the coronavirus outbreak has been to bring business activities to a halt in many sectors of the economy. In an effort to keep as many businesses in operation and as many people employed as possible during and after the pandemic, the federal government has enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This new legislation provides almost $2 trillion in aid to businesses, employees, individuals, and families impacted by COVID-19.

Paycheck Protection Program

One of the key provisions of the CARES Act is the Paycheck Protection Program, which initially provided $349 billion in Small Business Administration (SBA) loan and loan forgiveness relief to businesses across the country. The CARES Act was later amended to dedicate another $380 billion to small business aid, with most of that amount going to the Paycheck Protection Program, the primary purpose of which is to encourage employee retention during this time of economic uncertainty.

The Paycheck Protection Program program expanded the availability of SBA 7(a) loans to offer businesses amounts approximately two months' worth of operating costs (up to $10 million) to cover expenses including payroll, salaries, mortgage interest, rent, utilities, and group health plan insurance premiums and costs related to paid sick, medical, and family leave. Qualifying businesses are those with 500 or fewer employees, or larger businesses in certain industries, and which were operating as of February 15, 2020. For the purposes of this program, small businesses, sole proprietors, certain nonprofit organizations, tribal businesses, veterans organizations, and people who are self-employed or independent contractors are eligible for loans if they conform to program size standards.

Paycheck Protection Program borrowers do not need to put up any collateral or guarantee to receive a loan, and they do not need to establish specific losses related to the pandemic. Lenders are to defer all loan payments for a minimum of 6 months and a maximum of 12 months, and there is no penalty for prepayment. Further, any loan proceeds a borrower uses for payroll, mortgage interest, rent, or utilities in the 8 weeks immediately after the loan funds are disbursed are forgivable up to the full loan amount (note that 75% of this amount must be spent on payroll). The amount of forgiveness can be reduced if a business reduces employee pay or terminates workers during this 8-week period, though this reduction can be offset if the business rehires employees or makes up for reduced wages by June 30, 2020. The cancellation of this particular debt will not be counted as income for tax purposes.

Interest rates on any portion of these modified section 7(a) loans that are not forgiven cannot exceed 4%, and lenders are subject to maximum percentages in terms of the fees they may charge on loan amounts.

Tax Benefits

The CARES Act also contains tax provisions that can benefit small businesses, such as the option for employers and people who are self-employed to delay payment of the employer portion of Social Security taxes incurred from the date the CARES Act was enacted through the end of 2020. Businesses that are particularly hard hit by the COVID-19 outbreak may also be eligible for a refundable payroll tax credit in an amount equal to 50% of wages paid between March 12, 2020 and January 31, 2021, though this benefit is not available to companies that receive a Paycheck Protection Program loan. Net operating loss modifications can now also be made by amending business tax returns to distribute losses across certain prior tax years, with no taxable income limitation.

Additionally, businesses with fewer than 500 employees can obtain 100% immediate reimbursement for paid leave given to employees in accordance with the recently-enacted Families First Coronavirus Response Act (FFCRA), up to applicable payment caps. The FFCRA provides workers with a maximum of 80 hours of paid sick leave and increased paid family, medical, and childcare leave taken for reasons related to COVID-19. The reimbursement includes health care coverage costs, and there is no payroll tax liability. People who are self-employed are also eligible for an equivalent credit.

SBA Economic Injury Disaster Loans

Another option for businesses impacted by the coronavirus pandemic is to seek an SBA disaster assistance loan, which Congress has also made easier to obtain in light of the current public health emergency. As recently modified, economic injury disaster loans of up to $2 million can be taken out by companies with 500 employees or less in any US state or territory. Businesses that have obtained a Paycheck Protection Program loan to pay for expenses like rent and payroll cannot subsequently obtain a disaster assistance loan for the same purposes, but a Paycheck Protection Program loan can be used to repay a disaster assistance loan.

Economic injury disaster loan proceeds can be used for payroll, accounts payable, and other expenses, but cannot be spent on certain things like refinancing debt or repairing physical damage. In their current form, these loans can include a $10,000 emergency grant for expenses like rent and payroll. This amount is disbursed within 3 days of a borrower submitting a loan application, and does not need to be repaid.

Other SBA Assistance

Businesses that have an existing relationship with an SBA Express Lender may also be eligible to participate in the SBA Express Bridge Loan Pilot Program, which can make up to $25,000 available while an application for a longer term economic injury disaster loan is in process. The SBA is also providing debt relief assistance to businesses that have recently taken out 7(a) loans by paying principal and interest on current loans for 6 months.

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