The Senate and the House have just passed the third Coronavirus emergency spending package, known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), passed as the amended H.R. 748.
The $2 trillion dollar bill includes $367 billion in forgivable loans to small businesses; $150 billion for hospitals and health supplies; $500 billion for state and local governments and specific industries particularly impacted; extended unemployment benefits; direct payments and tax relief for individuals, as well as tax relief for businesses and assistance for financial markets.
The CARES Act expands the use of telehealth and rushes resources to hospitals, doctors, and other frontline providers. It also allows regulatory relief, so banks can grant loan forbearance for otherwise healthy businesses struggling while business is shut down. Further, it reduces the amount of capital community banks must hold in reserve, so that our community banks can step in to provide access to capital. It also provides a number of grants and loans to small businesses.
Businesses with between 500 and 10,000 employees may seek loans at 2% APR and no payments on interest or principal for the first six months for retention of 90% of workforce at full compensation through September 2020.
The CARES Act also includes consumer protection and relief measures, protecting borrowers from negative credit reporting as a result of the Coronavirus pandemic and implementing a 60-day moratorium on foreclosures and evictions, as well as multifamily loan forbearance while borrowers have restricted ability to evict or penalize.
Immediate Small Business Help
Paycheck Protection Program: The legislation includes $350 billion for the Paycheck Protection Program offering 100% federally-guaranteed loans for eight weeks of assistance to small businesses and 501(c)(3) and 501(c)(19) veterans’ organizations. S-Corp, C-Corp, sole proprietors, independent contractors, and other self-employed individuals are all eligible for these loans. Businesses in the restaurant and hotel industries with more than one physical location employing no more than 500 employees per physical location are eligible.
Loans can be forgiven when used for payroll costs, interest on mortgage obligations, rent and utilities. Eligible payroll costs do not include compensation above $100,000 in wages. The amount forgiven will be reduced proportionally by any reduction in employees retained.
You may use a Paycheck Protection loan to rehire employees you have already laid off and still have the loans forgiven.
This program waives the “credit elsewhere” test for funds provided, the collateral and personal guarantee requirements, and the borrower and lender fees for participating.
SBA Express Loans, require less documentation and paperwork, have been increased from $350,000 to $1 million, through December 31, 2020. These loans are approved or denied within 36 hours and funds are typically available within 90 days. Acceptable uses of SBA Express Loans are for providing business continuity and working short- and long- term working capital to cover accounts payable, purchasing inventory, construction financing, purchasing supplies and more.
Further, all SBA loan products will have automatic deferral for six months where the SBA pays principal, interest and all fees.
Small Business Interruption Loans: The legislation included $299 billion for business interruption loans for businesses of 500 employees or less to receive SBA 7(a) loans for up to $10 million from March to December 2020. Businesses with 7(a) loans guaranteed between March 1 and June 30 will be eligible for loan forgiveness equal to the amount of maintaining payroll continuity during that time period. The maximum loan amount will be four times the business's average monthly expenses (payroll, mortgage, rent, payments on debt obligations) for the preceding year, or $10 million, whichever is less.
Emergency Economic Injury Disaster Loan (EIDL) Grants expedite access to capital for small businesses that have applied for an SBA EIDL. Businesses can now request an advance of $10,000 on the loan to provide covered leave, maintain payroll, and pay debt obligations. Learn more here.
Tax Relief for Individuals & Corporations
The CARES Act has multiple tax relief provisions, such as:
The CARES Act also creates a new tax credit to incentivize retaining employees, which is available through the end of the year. This provision provides employers with a refundable tax credit equal to 50% of employee compensation (including health insurance), up to $10,000 per employee. Employers with more than 100 employees are eligible to receive the credit if they have been closed due to the Coronavirus. Employers with less than 100 employees may receive the credit whether they are closed or not.
Note: If you receive a Small Business Interruption Loan, designated for payroll, you may not receive this credit.
Further, the CARES Act accelerates access to future refundable tax credits attributable to the repealed corporate alternative minimum tax.
Seek guidance from your CPA on availing your business of these tools.
Expanded Charitable Deductions: Non-profits are on the frontlines offering assistance to members of our community in need. This bill aims to support charitable giving an additional $300 deduction for charitable giving, whether an individual itemizes or not. Further, it suspends recent limitations on charitable donations by individuals, such as the 50% adjusted gross income limitation, and by corporations, by increasing the limitation from 10% to 25% of taxable income.
Net Operating Loss Deductions: The bill relaxes requirements from the Tax Cuts and Jobs Act limiting the use of net operating losses from prior years. Under the bill, companies would be able to amend their returns to claim losses from 2018, 2019, and 2020 carried back five years, and the bill would temporarily remove the taxable income limitation ensuring that the net operating loss could be used to fully offset taxable income. Additionally, the bill modifies the rules applicable to pass-through companies and sole proprietors to also be able to benefit from the foregoing rules.
Further, it allows companies to claim a deduction for interest expense up to 50% of their adjusted taxable income. It also allows for immediate write-off of certain improvement costs from the current year. Businesses may amend their prior tax year returns to receive refunds and reduce their tax liability. Visit with your CPA for further assistance on availing yourself of these tools which are aimed at increasing cash flow for businesses.