Paycheck Protection Program

(see SBA website)
The CARES Act (Act) establishes the Paycheck Protection Program, an expansion of the Small Business Administration (SBA) 7(a) loan program, and authorizes $349 billion for the program. Importantly, the Act also increases the SBA guarantee percentage from 85% to 100%, and establishes a loan forgiveness program for Paycheck Protection Program loans. The loan period for this program ends June 30, 2020.
Small Business Eligibility. The Act establishes the program’s eligibility to include (i) companies with no more than 500 employees, and (ii) companies with no more than their applicable size standard under the SBA’s existing requirements based on their North American Industrial Classification System (NAICS) classifications, if higher. Use your Industry Code at the SBA website to see if you are considered a small business by the SBA: www.sba.gov/size-standards. Both full and part time employees are counted. For companies that fall into the classification for accommodations and food service (e.g., hotels, restaurants, taverns), the 500-employee maximum helpfully applies to each location. The Act also suspends the SBA affiliation rules for companies in the accommodation and food service classification (code 72). The Act also makes nonprofit organizations, veterans organizations and tribal business concerns eligible for Paycheck Protection Program loans if they meet the preceding requirements. Importantly, for purposes of the Paycheck Protection Program, eligible “nonprofit organizations” are limited to organizations exempt from federal income tax pursuant to section 501(c)(3) of the Internal Revenue Code, and “veterans organization” refers to a section 501(c)(19) organization.
Alternate Sources of Credit Rules. The Act suspends the SBA’s requirement that the company not have alternate sources of credit.
Maximum Loan Amount. The maximum loan amount is the lesser of (i) $10,000,000; or (ii) the average monthly payroll amount for the trailing 12 months (or, if not in business during the period from February 15, 2019 through June 20, 2019, then for the period from January 1, 2020 through February 29, 2020), times 2.5, plus the amount of any pre-existing emergency loan to be refinanced.
Use of Loan Proceeds. Loan proceeds may only be used for payroll, employer group health, interest on mortgage obligations, rent, utilities, and interest on other debt incurred before February 15, 2020.
Loan Terms. The interest rate is set at 4 percent. Collateral and guarantee requirements are waived. Repayment is deferred for at least 6 months, and up to 1 year, based on guidance to be issued by the SBA within 30 days after the date of enactment of the CARES Act. Loans made are nonrecourse, except to the extent that the proceeds are used for unpermitted purposes.
Underwriting. Loan underwriting is delegated to participating banks and financial institutions, without going through normal SBA channels. Underwriting is based on COVID-19 impact, not ability to repay.
Loan Forgiveness. Borrowers are eligible to have loan amounts forgiven to the extent that they are used to pay for payroll expenses, interest on covered mortgage obligations, covered rent obligations, and utilities, during the period ending June 30, 2020. For federal income tax purposes, any amount that would be included in such borrower’s gross income due to such loan forgiveness is excluded from gross income.

Emergency Economic Injury Disaster Loans and Grants

(check your eligibility)

Eligible Entities:

• A business (including (i) a cooperative, (ii) an Employee Stock Ownership Plan (ESOP) or (iii) a tribal small businesses) with not more than 500 employees.
• Any individual operating as a sole proprietor (with or without employees) or an independent contractor.
• Private nonprofit organizations (the term is not defined for purposes of EIDL Loans, but elsewhere in the Act “nonprofit organization” is defined as 501(c)(3) tax-exempt organizations. It is unclear whether other types of nonprofit organizations are eligible, such as social welfare organizations, trade associations, etc.); and small agricultural cooperatives.

Requirements that are waived:

• No personal guarantees required on advances and loans below $200,000.
• Applicants do not have to have been in business for the 1-year period before the disaster (but need to be in operation on January 31, 2020).
• Applicants do not have to show that they cannot obtain credit elsewhere.

Determination of ability to repay. The loan may be approved based solely on the credit score of the applicant (no tax returns required), or SBA may use alternative methods.

Emergency Grants

• Any Eligible Entity that applies for an EIDL Loan can apply for a grant in an amount as requested by the applicant, but not to exceed $10,000.
• Grant to be paid within 3 days after the SBA receives the EIDL application.
• Applicant has to provide a self-certification form under the penalty of perjury that it is an Eligible Entity.
• Can be used for any allowable purpose, including payroll, paid sick leaves, cost of materials, rent or mortgage, or other obligations that cannot be met.
• The grant does not have to be repaid even if the EIDL Loan is denied.

Business Tax Provisions

(CARES Act for Individuals)
Title II of the CARES Act provides eligible employers an employee retention credit which is a refundable payroll tax credit for 50% of qualified wages (qualified wages are limited to $10,000 per employee per all quarters). Qualified wages also include health plan expenses.
The Act allows employers and self-employed individuals to defer the employer share of Social Security tax (6.2%). The deferred tax is payable in equal parts over the following two years.
The Act modifies certain rules addressing businesses’ net operating losses (NOLs). Accordingly, NOLs arising in 2018 through 2020 can be carried back 5 years. The limitation of 80% of taxable income on the utilization of NOLs is eliminated with respect to pre-2021 taxable years and carry-forwards of pre-2018 NOLs.
The Act allows corporations to accelerate their ability to recover Alternative Minimum Tax credits from prior years and to claim any resulting refund.
The Act increases the limitation on the deduction of interest expense by businesses from 30% to 50% of taxable income (with adjustments) for 2019 and 2020.
The Act corrects the “retail glitch” and enables businesses to immediately write off the costs of all qualified improvement property, including 15-year retail improvement property and 15-year restaurant property.
The Act increases from 10% to 25% the deduction limit applicable to corporations for certain charitable cash contributions made in 2020.
The Act waives the federal excise tax on alcohol used to produce hand sanitizer in 2020.