On March 27, 2020 we sent out a memorandum that provided details on Covid-19 aid available for small businesses. The CARES Act was officially signed into law later that day. As a result, we wanted to address some additional questions that you may have.
Loans Available to Small Businesses: Small businesses (businesses with less than 500 employees) are eligible to apply for newly created Paycheck Protection Loans and other SBA financial assistance, including disaster loans under 7(b)(2) and traditional 7(a) loans at the same time. However, you cannot use your Paycheck Protection Loan for the same purpose as your other SBA loan(s). For example, you cannot use both a disaster loan and a Paycheck Protection Loan to cover payroll. Businesses with existing Section 7(a) loans will be eligible to receive a six-month subsidiary provided by the SBA, during which the SBA pay the principal, interest, and fees. Disaster loan recipients and those with 7(a) loans receiving a six-month subsidy may apply for and take out a Paycheck Protection Loan as long as there is no duplication in the uses of funds. Alternatively, business that receives a disaster loan between January 31, 2020 and June 30, 2020 as a result of a COVID-19 disaster declaration is also eligible to refinance their disaster loan into a Paycheck Protection Loan.
The differences between these loans is described in the chart below:
|Traditional Section 7(a) Loans||Section 7(a) Paycheck Protection Loans||Section 7(b) Disaster Loans|
|Dates Available||Ongoing||Feb. 15th to June 30th, 2020||Jan. 31st to Dec. 31st, 2020|
|Eligibility||Based on size/industry||Fewer than 500||Employees Fewer than 500 Employees|
|Maximum Loan Size||$5 million||$10 million||$2 million|
|Amount Guaranteed by SBA||85% of loans up to $150,000 and 75% of loans over $150,000||100% Through Dec. 31,2020||Generally, the same as traditional 7(a) loans|
|Duration||10 or 25 years||10 years||30 years|
|Interest Rate||1% – 2.75%||Up to 4%||3.75% (for profit) or 2.75% (not-for-profit)|
|Forgiveness Available||No||Yes, 8 weeks of allowable use payments||No|
|Advance Use of Funds||No||No||$10,000|
|Allowable Uses of Funds||Many||Payroll, mortgage, rent, utilities||Obligations and expenses that could have been met if no disaster had occurred.|
|Interaction with Other Loans||Can’t be used for the same expenses as a Paycheck Protection Loan||Can’t be used for the same expenses as other SBA Loans||Can’t be used for the same expenses as a Paycheck Protection Loan|
Additionally, the Paid Sick Leave Credit, the Child Care Leave Credit, and the Employee Retention Credit are not available to employers who choose to participate in the Paycheck Protection Program. Deferral of the employer portion of payroll taxes is also not available to employers receiving assistance through the Paycheck Protection Program.
Employee Retention Credits: This provision provides a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis. Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave.
Payroll Tax Deferral: The CARES Act allows you to defer the employer’s 6.2% share of Social Security taxes incurred between the date of enactment and December 31, 2020 until 2021 (50%) and 2022 (50%). However, you cannot defer payroll taxes if you have a Paycheck Protection Loan that is forgiven. A self-employed taxpayer can defer 50% of self-employment tax until 2021 (25%) and 2022 (25%). When the taxes come due in 2021 and 2022, the self-employed taxpayer will not have to make estimated payments against those deferred self-employment taxes.
NOL Carrybacks: Net operating losses for 2018, 2019 and 2020 can be carried back for up to five years and if carried forward, can offset 100% of taxable income until 2021. Come 2021, losses from pre-2018 can offset up to 100% of post-2020 taxable income, but losses from 2018 forward can only offset 80% of post-2020 income.
If you have additional questions about the best loan for your business, or whether to apply for a loan or use the available tax credits, please contact our office and we would be happy to assist you.