On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This is a $2 trillion economic relief plan designed to provide assistance to over 90% of Americans.
We will be sending out a series of summaries that address the multiple features of the bill. The coronavirus pandemic has created an enormous cash flow strain on both businesses and working individuals. The below summary provides information on two Small Business Administration (SBA) loan programs: The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loans (EIDL). We have also included important information on expanded unemployment benefits.
If you have questions on how the bill applies to you, please reach out to one of our team members.
Paycheck Protection Program (PPP)
This loan program is a key provision of the CARES Act that provides essential relief to businesses. This program is particularly attractive due to the loan forgiveness feature. We’ve included details on the program and also encourage you to check out this useful Small Business Guide and Checklist from the U.S. Chamber of Commerce for a quick overview.
What is a PPP loan?
These are loans administered by local SBA-designated lenders. They are available to businesses that were in operation prior to February 15, 2020.
The available loan amount is 2.5 times the average monthly “payroll costs” for the 1-year period that ends on the date that the loan is originated, up to $10 million. Payroll costs include wages, payments to independent contractors, group health care premiums, and retirement benefits. Payroll costs do not include payroll taxes and compensation to an individual in excess of $100,000.
The loan term is 10-years, and the maximum allowable interest is 4%. There is no personal guarantee or collateral required for the loan. The loans are fully guaranteed by the SBA. Loan payments are deferred from 6 to 12 months.
Who is eligible?
A small business or 501(c)(3) with fewer than 500 employees.
An individual who operates as a sole proprietor, independent contractor, gig economy worker, or an individual who regularly carries on any trade or business.
You must also be prepared to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
How do I receive loan forgiveness?
The loan balance is forgivable if used for qualifying expenses paid during the 8-week period beginning on the loan origination date. Qualifying expenses include payroll costs (as noted above), rent payments, interest on mortgage payments, utilities, and group health insurance premiums and other healthcare costs. To note, rent and mortgage interest payments are only forgivable if the obligation was in place prior to February 15, 2020.
Additionally, the borrower must maintain the same average number of employees for the first 8-week period beginning on the loan origination date as the business had from either of the following date ranges: February 15, 2019 – June 30, 2019 or January 1, 2020 – February 29, 2020. If you have already reduced employment or wages during the period from February 15, 2020 to April 26, 2020, you can still meet this employment requirement by rehiring employees or increasing any decreased wages prior to June 30, 2020.
Any loan forgiveness received is not taxable.
How do I apply?
We suggest reaching out to your bank to see if they are an SBA-approved lender. However, there are thousands of banks and credit unions that participate in SBA’s lending programs. To find a lender, use the SBA's online search feature to find your local resources. It is recommended that you be prepared to provide your lender with:
Your most recent IRS Form 941: Employer’s Quarterly Federal Payroll Tax Return
Detailed summary of your January 2019 – March 2020 payroll expenses
2019 financial statements: Profit & Loss and Balance Sheet
Economic Injury Disaster Loans (EIDL)
This pandemic is being defined as a disaster, which makes EIDL available to businesses at this time.
The maximum loan amount is $2 million, and the loan term is 30-years. Interest rates are 3.75% for small businesses and 2.75% for non-profits. For EIDLs less than $200,000, you do not need a personal guarantee, and you can be approved based on your credit score. The first month’s payments are deferred for a full year from the loan origination date.
An appealing provision of this program is that borrowers can receive up to $10,000 in an emergency grant cash advance. This advance can be forgiven if spent on paid leave, payroll costs, mortgage or lease payments, repayment obligations that cannot be met due to revenue loss, as well as several other costs. Because this is an immediate advance, you are able to receive these funds even if you don’t end up qualifying for any additional funds.
To apply for EIDL, visit the SBA's disaster website, and be sure to apply for the Economic Injury for Coronavirus loan. It is important to note that you cannot take out an EIDL and PPP loan for the same purposes, so we encourage you to compare the benefits and features of both programs to determine which best fits your needs.
Other Resources & Programs for Businesses
We would like to highlight a few other SBA resources. The SBA Express Bridge Loans allow small businesses who currently have a relationship with an SBA ‘Express Lender” to access up to $25,000 with less paperwork and a quicker turn-around time. For any existing SBA-backed loans, SBA is required to provide payment deferral.
The Ohio Bureau of Worker’s Compensation has deferred payments due for March, April, and May to June 1, 2020.
Health insurance premiums can be deferred for up to 60 days in the state of Ohio.
SharedWork Ohio is a voluntary layoff aversion program that allows workers to remain employed, and it allows employers to retain trained staff during times of reduced business activity. Under a SharedWork Ohio plan, the participating employer reduces affected employees’ hours in a uniform manner. The participating employee works the reduced hours each week, and the Ohio Department of Job and Family Services (ODJFS) provides eligible individuals with an unemployment insurance benefit proportionate to their reduced hours.
An Employee Retention Credit is available to eligible employers who have experienced a significant decline in gross revenue. The available credit is equal to 50% of eligible wages paid to employees who are not working due to the employer’s full or partial cessation of business. The credit applies to wages paid after March 12, 2020, and before January 1, 2021. But, it is limited to $10,000 in wages per employee per quarter. Businesses that have obtained a CARES Act government loan are not eligible for the credit.
A Payroll Tax Deferral allows employers to defer 6.2% Social Security tax liability for the remainder of the year with respect to any amounts not yet deposited as of March 27, 2020. 50% of this liability is due on December 31, 2021, and the remainder is due on December 31, 2022. This relief also applies to self-employed persons’ employer portion of their self-employment taxes. Businesses or individuals that have obtained a CARES Act government loan are not eligible to defer payroll taxes.
Expanded Unemployment Benefits
Applying for unemployment benefits is done at the state level. For information on applying for Ohio’s unemployment benefits, Ohio is regularly updating the Office of Unemployment Insurance Benefits website with further information and FAQ’s. For non-Ohio residents, please visit this website, and search for your state to view available resources. In general, individuals are not eligible to receive unemployment benefits the first week that they are unemployed. The CARES Act allows states to provide unemployment compensation benefits immediately, without the ‘normal’ one-week waiting period. Additionally, the maximum period of receiving unemployment compensation is being extended by 13 weeks. Pandemic Unemployment Assistance (PUA) provides self-employed individuals and other individuals who are ineligible for standard unemployment the opportunity to be eligible for up to 39 weeks of benefits. As of right now, there is not definitive information on how to apply for PUA in Ohio, but we recommend continuing to check here for updates. Unemployment compensation can also be increased by up to $600/week for up to four months. This has the ability to substantially increase the amount of money an individual is entitled to temporarily receive via unemployment compensation benefits, as the average weekly unemployment benefit nationwide is under $400. Finally, states have been provided with incentives to create “short-time compensation” programs. These programs are meant to help employees who have seen hours cut or have experienced a partial income drop but are still employed. Since they are still employed, they are ineligible for unemployment benefits. Ohio’s short-time compensation program is the SharedWork Ohio program listed above.
COMING SOON:
More Details on the Stimulus Package
We plan to be in touch with further information on the other provisions of the CARES Act.