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  • Writer's pictureMohamed Youssef, CPA, ABV

Small Businesses Loans & Relief Programs Under the New Stimulus Bill

Small businesses are facing unprecedented challenges right now with the new coronavirus (COVID-19) pandemic, shelter in place orders are already effective in most areas in California. Businesses have been forced to close their offices, storefronts and customer spending dramatically reduced.

Our firm has been receiving a lot of requests for information about Federal and State grants and relief programs available for small businesses and individuals who are affected by the current economic situation.

On March 27, 2020, Congress approved the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide financial assistance to individuals and businesses. The following summary provides some guidance on which businesses are eligible, and what their loans will look like (featured below are the programs that are most applicable to our client base and is not a complete guide to all programs available under the new bill):

Small Business Paycheck Protection Programs (PPP)

The stimulus bill expands the ability to obtain loans under Section 7(a) of the Small Business Act through a new $349 billion Paycheck Protection Program. Under the program, small businesses that generally have fewer than 500 employees; self-employed; sole proprietors; independent contractors, are eligible for small business loans to cover payroll, health care costs, rent and utility payments.

The amount of the loan cannot exceed the sum of 2.5 times the average monthly payroll cost during the year prior to the loan, have a maximum interest rate of 4%. Loans are available to eligible borrowers under the program through June 30, 2020, fees are waived, payments are deferred by at least six months (but not more than one year).

Loans are fully guaranteed by the federal government, collateral and personal guarantees are not required. To be eligible, a borrower must be in operation on February 15, 2020, and have paid employee salaries and payroll taxes.

Loans under the program are eligible for forgiveness up to the aggregate amount of payroll payments, rent and utility payments made during the eight-week period following loan origination. The amount forgiven is lowered by reductions in full-time employment and in situations where total salaries and wages fall by more than 25%.

You can apply for the Paycheck Protection Program (PPP) at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury.

Please note that businesses cannot get both EIDL (Economic Injury Disaster Loan) and PPP loans at the same time.  You can apply for the EIDL loan now and the PPP loan when it becomes available.  If you qualify and accept the EIDL loan, and you subsequently qualify for the PPP loan, you can re-finance the EIDL loan with the PPP loan, OR you can apply for both loans and decide which one you take if you qualify for both.  Loans are limited to one per Taxpayer Identification Number.

Payroll Tax Credit and Deferral of Employer Payroll Taxes

The act provides a refundable payroll tax credit to eligible employers for 50% of wages paid to employees. The act also permits all employers and self-employed individuals to defer payment of the employer portion and of payroll taxes owed on wages paid (Social Security tax 6.2% and Medicare tax 1.45%).

An employer is eligible for the payroll tax credit if, during any calendar quarter of 2020, it has operations fully or partially suspended due to a governmental order related to COVID-19, or it has a decline in gross receipts of more than 50% compared to the same quarter of the prior year.

All employers and self-employed individuals may defer payment of the employer share of payroll taxes owed on wages paid for the period ending December 31, 2020. Such deferred taxes are due in two annual installments of 50% each. This provision does not apply to any taxpayer who receives loan forgiveness with respect to a Paycheck Protection Program loan.

Unemployment Insurance Benefits and Loans to Employers

The CARES Act expands eligibility for unemployment insurance for workers who are displaced due to COVID-19 in a number of ways. It provides up to 39 weeks of combined federal and state unemployment assistance between January 27, 2020, and December 31, 2020, to individuals, including independent contractors, who are otherwise not eligible for, or have exhausted, other state or federal benefits. Also, provides an additional weekly $600 federally funded payment for up to four months to individuals already collecting state unemployment insurance payments.

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