Posted on April 2, 2020 in

CARES Act – Small Business Relief

The United States Government has recently passed the CARES Act; Coronavirus Aid, Relief, and Economic Security Act.  This bill has allocated $350 billion to assist small businesses; to maintain their employees and provide capital to keep operations running amid this pandemic & economic downturn.  This initiative is known as the Paycheck Protection Program, which will provide 100% federally guaranteed loans to small businesses.

Small businesses are eligible if you meet certain criteria:

  1. Few than 500 employees (to include full-time, part-time, and any other status of employee)
  2. A 501(c)(3) with fewer than 500 employees
  3. Individuals who operate as a sole proprietor
  4. Individuals who operate as an independent contractor
  5. Self-employed individuals who regularly carry on any trade or business

Lenders will be looking at February 15, 2020 as this is the date in which the borrower needed to already be in operation and paying employee salaries and payroll taxes or had paid independent contractors.  In the application, small business owners will be asked to certify that the loan request is necessary to support ongoing business practices during the current economic conditions & that the loan proceeds will be used to retain workers, maintain payroll, or make mortgage, lease, and utility payments. If you are self-employed, there is a tax credit for sick leave and family leave. It also allows for emergency paid sick leave for quarantine or testing for COVID-19.

Included in the bill is a payroll tax credit on wages to retain workers.  It lets small businesses borrow as much as $10 million with an interest rate no higher than 4%.  Payroll could be covered for up to 8 weeks.  These loans could cover mortgage or rent payments and utility bills.  These are loans backed by the Small Business Administration (SBA) and can be forgiven in the future as long as your company meets the conditions, effectively making your loan a grant. Principal being forgiven and only the interest to be paid. There are minimal requirements, no personal guarantee. The main goal of this initiative is to keep businesses running and paychecks going to employees. It’s best to be in contact with your trusted banker & payroll professional to get the process started as guidelines and payroll calculations could get complicated.

An update to previous info regarding EIDL, disaster loans, is that it allows an emergency grant of $10,000 to be issued even if you don’t end up qualifying for the EIDL. Remember, no double dipping. The EIDL and the PPP loan (which could become a grant) should not be used for similar costs. If you get both, keep records of what was used for payroll, rent, and utilities so that portion of the loan becomes the grant.

Tax Day is now July 15, 2020. The Treasury Department and Internal Revenue Service have recently announced the federal income tax filing is automatically extended from April 15 to July 15.  If you are set to get a refund, the IRS urges you to file as soon as possible. Most tax refunds are still being issued within 21 days.  There are no additional forms to file or no reason to call the IRS to qualify for this automatic relief. If you need additional time beyond July 15 deadline, then a request to file extension on Form 4868 must be completed.   Remember, this also extends the deadline to fund retirement accounts (including health savings accounts) and profit-sharing accounts. If 2019 is looking like a better year than 2020, maybe contributing to your retirement plan for 2019 makes more tax “cents” than holding off to fund later. With recent market declines, now may be a great time to consider funding. Check with your trusted tax professional regarding this planning opportunity.

Payroll Taxes & Social Security

If you’re an employer and your business was affected by coronavirus, you could be eligible for 2020 tax credit equal to 50% of the wages you pay your employees.

The credit will be given for the first $10,000 of salary, including health benefits, paid to each eligible employee, and applies to qualified employee wages from March 13, 2020 through December 31, 2020.

To be eligible, your business had to have shut down during the pandemic, or your gross receipts to have gone down by more than 50% compared to the same quarter last year. If your business has 100 or fewer full-time employees, it doesn’t matter if you shut down or not.

Employers and self-employed people can also defer payment of the 6.2% employer share of the Social Security tax over two years. Half of it will need to be repaid by December 31, 2021 and the other half by December 31, 2022.

Financial Planning

A great financial plan is having cash on hand. Being in position to purchase assets when other business owners cannot weather the storm or when assets get depressed in value because nobody wants to own them, are examples of when cash is king. Times like these, being the contrarian, or as Warren Buffet once said, “Being greedy when everyone is fearful.”  Be ready to take advantage of the opportunity that presents itself, don’t act emotional instead be proactive.  Another idea for a small business owner is to increase cash flow by taking advantage of low interest rates. If you have a mortgage, consider refinancing at historic low rates.  It’s always important to have a plan, small business owners should have two, one for their business and one for themselves. If you need help with your financial plan, contact a fiduciary that will put your best interests ahead of their own!

Important Checklist:

  1. SBA.gov for all your small business info and to apply for disaster loans.
  2. Keep a separate file for all things related to COVID-19; copies of applications, check copies, etc.  Consider a separate bank account for tracking purposes in the future.
  3. When filling out the application(s), be sure to use the fillable version and avoid handwriting if at all possible, to avoid any potential delays.  If you are required to submit additional docs, be sure to use the SBA forms.
  4. PPP applications will be ready to submit as early as Friday, April 3, 2020.  So, get them prepared and over to your trusted banker for submission.

We don’t know what we don’t know.  The process is available, and pieces are in place, but the outline is not completely defined.  As we learn more, as the SBA continues to provide guidance, we will continue to update and send out.  Contact CPS with your small business questions.   Stay safe and don’t touch your face like you haven’t touched your portfolio.

Tony Corrao | CFP®️
Financial Advisor