• Businesses, nonprofits, veterans' organizations and tribunal concerns with less than 500 employees
• Certain businesses (food services and accommodation) with more than 500 employees are eligible if they have no more than 500 employees at each physical location
• The loan program is even available to sole proprietors, independent contractors, and self-employed individuals.

• The loan is capped at the lesser of $10 million OR 2.5 times the average monthly payroll costs incurred in the one-year period before the date of the loan.
• Payroll costs include salary/wages/tips, sick/family leave/PTO, severance payments, group health benefits (including insurance premiums), retirement benefits, and state or local taxes assessed on employee compensation.
• For any employee who is paid more than $100,000 salary, only the amount up to $100,000 (prorated for the covered period) is calculated into the number.

• An eligible borrower may receive one covered loan, and such proceeds may be used for: payroll costs; continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. The terms of the amount of any portion of the loan that is not forgiven will be for a term not to exceed 10 years and at an interest rate of no more than 4%.

• The amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date.
• Any portion of the loan that is forgiven is excluded from taxable income.
• If the recipient of the loan laid off employees or reduced wages/salaries of its workforce in the period between February 15, 2020 and June 30, 2020, the amount of forgiveness is reduced proportionally by (i) any reduction in employees retained compared to historical levels, and (ii) the decrease in pay of any employee beyond 25% of their historical compensation.
• Notably, furloughs would necessarily impact this loan forgiveness analysis as well.
• To encourage workforce stabilization, the CARES Act takes into account that many businesses might already have or are planning to lay off personnel or cut salaries. If those changes were made between February 15, 2020 and April 26, 2020, those changes are not counted if the business rehires the number of personnel or returns the adjusted salary, as applicable, by June 30, 2020.

Applications should be made to SBA-approved lenders. Your local bank should be able to provide you with additional information on SBA-approved lenders.

Small Business Association (SBA) Economic Injury Disaster Loans ("EIDL").
The CARES Act also expands the Economic Injury Disaster Loans (EIDL) program and has created a new grant program under the SBA's Office of Disaster Assistance to provide quick relief for applications awaiting processing of SBA Economic Injury Disaster Loans

• The CARES Act expanded EIDL eligibility for the period between January 31, 2020 and December 31, 2020, to include any business with not more than 500 employees, any individual operating under a sole proprietorship or as an independent contractor, and any cooperative, ESOP or tribal small business concern with not more than 500 employees.
• To qualify for an EIDL under the CARES Act, the applicant must have suffered "substantial economic injury" from COVID-19.

• EIDL loans under the CARES Act are based on a company's actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) up to $2 million.

• The interest rate on EIDL loans is 3.75% fixed for small businesses and 2.75% for nonprofits.
• The EIDL loans have up to a 30-year term and amortization (determined on a case-by-case basis).
• EIDL loans may be used for payroll and other costs as well as to cover increased costs due to supply chain interruption, to pay obligations that cannot be met due to revenue loss and for other uses.
• Under the ACT, EIDL loans smaller than $200,000 do not require personal guarantees
• Unless changed by the SBA, it appears that the requirement for collateral on EIDL loans over $25,000 would still apply, and, in processing a borrower's application, the SBA must decide that the applicant has the ability to repay the loan.

• No loan forgiveness is available for EIDL loans

• Applications should be made directly to the SBA

Under the CARES Act, EIDL loan applicants can get up to $10,000 to cover immediate payroll, mortgage, rent, and other specified expenses to be paid within 3 days of the SBA accepting the application. This grant does not have to be repaid.

Please note that businesses cannot get both EIDL 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.

A number of other tax provisions were also put into place for small business owners with the signing of the CARES act:

• Provides an employee retention credit against applicable employment taxes of 50% of wages for employers subject to closure due to COVID-19. Such credit is limited to $10,000 of wages paid per employee. Not available to taxpayers benefiting from the SBA Loan Program
• Extends the time for paying employer payroll taxes.
• Temporarily repeals the taxable income limitation for net operating losses and allows a five-year carryback for losses incurred after 2017 and before 2021. This applies to C Corporation with net operation losses after 2017.
• Eliminates the limitation on excess farm losses for years after 2017 and before 2026. This only applies to taxpayers with a farming business.
• Modifies the credit for prior year minimum tax liability of corporations by reducing the limitation on the amount of the credit that is refundable. This applies to C Corporations that had AMT tax credit carryovers after 2017.
• Modifies the limitation on deductions for business interest by increasing the amount of taxable income, which limits the deduction from 30% to 50%. This applies to entities with average yearly gross receipts of more than 25 million.
• Fixes the technical glitch in the Tax Cuts and Jobs Act, which prevented qualified improvement property from qualifying as 15-year depreciation property and bonus depreciation property. This applies to taxpayers that made leasehold improvements after 2018.
• Provides a temporary exception from excise taxes for alcohol used to produce hand sanitizer.

In terms of benefits to small businesses, the biggest incentives available under the CARES Act are the payroll-based loans or the payroll-based tax credits. Since an employer can only elect one of the two, the employer must evaluate which program will provide it with the greatest assistance and financial support. This will vary based upon a multitude of factors.

This information is a broad summary of what the CARES Act provides. No definitive action should be taken by a client until the various benefits and programs have an ability to be "sorted out" and become clearer in their scope, benefits, and burdens.  Information is constantly changing as this unprecedented situation continues to evolve.

Please feel free to reach out to our office with any questions you may have on this information and how it pertains to your specific situation.

SMALL BUSINESS OWNERS GUIDE