April 3, 2020

Coronavirus Aid, Relief, and Economic Security (CARES) Act: What could it mean for your small business?

In response to the ever-increasing impacts of COVID-19 across the nation, Congress passed the CARES Act last week to provide much-needed relief for individual taxpayers and small businesses. By now, many people are already expecting their $1,200 checks from the government – but the bill also contains many provisions intended to mitigate the economic effects of the coronavirus on American small businesses. Read on to learn how your small business may be able to benefit from this act:

Paycheck Protection Program

One of the major provisions meant to assist small businesses that the CARES Act established is the Paycheck Protection Program, which makes available loans that are guaranteed by the Small Business Administration. These loans must be applied for by June 30, 2020 and have a maximum duration of ten years.

Eligibility for Paycheck Protection

  • These loans are available for firms with less than 500 employees.
  • Loans do not require a personal guarantee, credit underwriting, or collateral check.
  • They only require a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19 and that funds will be used to maintain workers.

Loan Provisions for Paycheck Protection

  • The maximum loan size under the act is equal to the lesser of:
    • $10 million
    • 5x the average monthly payroll cost of the previous year
  • Proceeds mays be used for payroll costs, group health premiums, salaries or commissions, rent or mortgage interest, utilities, or other business interest incurred prior to February 15, 2020.
  • Loan payments are not due for 12 months after origination.
  • The maximum loan interest rate is 4%.

Loan Forgiveness for Paycheck Protection

  • After issuance of paycheck protection loans, they can be forgiven in the amount of eight weeks payroll + utilities + rent + healthcare insurance premiums.
  • This forgiveness only applies if:
    • Your firm has the same number of employees from February 15, 2020 through June 30, 2020 as either (1) during the same period in 2019 or (2) from January 1, 2020 through February 15, 2020.
    • No employees with compensation under $100,000 have pay reductions of more than 25% compared to the most recent quarter.

Other Benefits – Payroll Tax Credits and Deferrals

In addition to Paycheck Protection Loans, the CARES Act also created an Employee Retention Credit as a credit against payroll taxes.

  • This credit is equal to 50% of eligible wages paid to each employee, up to a maximum of $10,000 of wages per employee.
  • Businesses may qualify for this credit if (1) operations are partially/fully suspended due to government requirements or (2) if they experience a quarter with less than 50% of revenue (net profit) compared to the same quarter in 2019.

As a local business, Arnerich Massena fully understands the devastating impact that COVID-19 is having on our thriving community of small businesses. If you are interested in learning more about how the CARES Act may be able to support your small business, please reach out to your advisor and CPA to discuss potential opportunities.