April 22, 2020 | By McCathern Law
*Edited April 24, 2020 to reflect updated legislation*
All of us at McCathern, PLLC realize the substantial impact COVID-19 (the “Coronavirus”) is having on many of you and your businesses. As our purpose and credo is “Improving People’s Lives” we hope this update provides a brief overview of some of the different types of economic relief available to small businesses, and what business owners can do to access that relief. To date, the main source of economic relief has been the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020. Importantly, new legislation that provides additional economic relief was enacted on April 24, 2020.
Paycheck Protection Program (“PPP”)
A major element of the CARES Act is the PPP. This program was designed to help small businesses keep their workers employed by providing 100% federally guaranteed loans, with certain portions of these loans being forgivable.
Specifically, under the PPP, small businesses are eligible to borrow up to 250% of their average monthly payroll expenses, up to a total of $10 million. This amount is intended to cover 8 weeks of payroll expenses, and any additional amounts for making payments towards debt obligations. The portions of the PPP loan used to cover payroll, mortgage, rent, or utility costs from February 15 to June 30, 2020 are eligible for forgiveness, with the forgiven amount being nontaxable.
PPP loans are distinct from the 7(b) Small Business Administration (“SBA”) Economic Injury Disaster Loans (“EIDL”) program that is already available to small businesses and cannot be used for the same expenditure.
All funds appropriated to the Paycheck Protection Program through the CARES Act were exhausted. However, the president signed a bill on April 24, 2020 that appropriates additional funding to the PPP of as much as $321 billion, of which $310 billion is to be used for additional PPP loans.
McCathern is prepared to advise our Clients on this relief package. Because additional funding is expected to be exhausted quickly, we are advising eligible Clients to file applications for funding as soon as possible.
Economic Injury Disaster Loans (“EIDL”)
Small businesses also have the option of utilizing the SBA’s existing Economic Injury Disaster Loans program, which was expanded by the CARES Act and provides for longer-term loans with favorable borrowing terms. Businesses in all fifty states, the District of Columbia, and some U.S. territories are eligible for EIDL loans relating to economic injury caused by the Coronavirus pandemic. While there are no loan forgiveness provisions applicable to EIDL loans, businesses that have already applied for or received EIDLs due to economic injury attributable to the Coronavirus can seek to refinance their EIDL loans under the PPP to take advantage of the PPP’s loan forgiveness provisions. Companies may be eligible for loans under both programs, but they are unable to seek recovery under the EIDL loan for the same costs that are covered by a PPP loan.
Applicants must have suffered “substantial economic injury” from the Coronavirus in order to qualify for an EIDL under the CAREs Act. These loans are based on a business’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) up to $2 million. EIDL loans may be used for payroll and other costs, to cover increased costs due to supply chain interruption, and to pay obligations that cannot be met due to revenue loss. EIDL loans have a fixed 3.75% interest rate for small businesses and a 2.75% rate for nonprofits, and they have up to a 30-year term and amortization (determined on a case-by-case basis).
For more detailed information on the eligibility and use requirements for the EIDL, please see the Small Business Owner’s Guide to the CARES Act.
New Employee Retention Tax Credit
A new Employee Retention Tax Credit was also established by the CARES Act. But, this new tax credit is not available to employers that receive a PPP loan as discussed above. This employee retention tax credit provides eligible businesses with a refundable payroll tax credit for 50% of the wages paid during this outbreak and applies to wages paid from March 13, 2020 through the end of the year. This tax credit is available to businesses whose operations were fully or partially suspended due a Coronavirus-related shut-down order or whose gross receipts declined by more than 50% when compared to the same quarter in the previous year.
The Employee Retention Tax Credit is provided for the first $10,000 of qualified wages paid to an eligible employee. These wages may include the business’s contribution to the employees’ health insurance costs, but any amounts that the employer already received a tax credit for under the Emergency Family and Medical Leave Expansion Act (“EFMLEA”) or the Emergency Paid Sick Leave Act (“EPSLA”) are excluded.
Payroll Tax “Holiday”
The CARES Act also provides for deferred payment of the employer’s portion of Social Security taxes they would otherwise be obligated to pay. These deferred payments can further assist with immediate cash-flow issues faced by small businesses. Any deferred payroll taxes would be required to be paid over the next two years – with half of the owed amount being required to be paid by December 31, 2021, and the remaining half by December 31, 2022.
Emergency Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act
Under the CARES Act aspects of the Family Medical Leave Act (“FMLA”) has been expanded and modified. These changes also affect the enactment of the new Emergency Paid Sick Leave Act (“EPSLA”). This recent legislation requires employers to provide certain emergency paid leave benefits to employees taking leave due to the Coronavirus outbreak. These changes took effect on April 1, 2020, and most of the expanded provisions will expire on December 31, 2020.
Private-sector employers with fewer than 500 full-time and part time employees within the United States at the time the employee’s sick leave is to be taken will generally be covered. Employers with fewer than 50 employees may be considered exempt by the Department of Labor (“DOL”) if complying with these changes would jeopardize the viability of their business. All employees of an employer are covered so long as the employee has worked for the employer for at least 30 calendar days, regardless of whether the employee is full-time or part-time.
Importantly, employees are now eligible to request and take leave if the leave is due to a “qualifying need related to a public health emergency”. The qualifying need is the inability to work or telework due to the need to care for a child under the age of 18 if the child’s school, place of care, or child care provider is closed due to a public health emergency, including the Covid-19 outbreak.
Employers are now required to provide up to 80 hours of paid-sick-leave benefits if an employee:
- Has been ordered by the government to quarantine or isolate because of COVID-19.
- Has been advised by a health care provider to self-quarantine because of COVID-19.
- Has symptoms of COVID-19 and is seeking a medical diagnosis.
- Is caring for someone who is subject to a government quarantine or isolation order or has been advised by a health care provider to quarantine or self-isolate.
- Needs to care for a son or daughter whose school or child care service is closed due to COVID-19 precautions.
- Is experiencing substantially similar conditions as specified by the secretary of health and human services, in consultation with the secretaries of labor and treasury.
McCathern expects additional guidance to come from the DOL while these laws are in place and we will continue to update this post as needed. If you have questions or concerns about FMLA and EPSLA, please contact us at any time.
Relief for Existing SBA Customers
The SBA’s debt relief program is automatically paying the principal, interest and fees of all existing 7(a), 504 and microloans for a period of six months.
The SBA is also offering Express Bridge Loans of $25K for small businesses that currently have a business relationship with the SBA Express Lender. It is set up so that small businesses can access it quickly.
As with everything else these days, changes to anticipated and current guidance from respective governmental departments is changing on almost a daily basis so we will continue to provide updates to you. Regardless, please know all of us at McCathern are here for you should you have any questions or concerns on this or anything else from the range of services we provide as we will get through this together.