CARES Act: What’s in it for Small Businesses, the Self-Employed and Gig Workers (Updated April 14)

By SBE Council at 30 March, 2020, 8:59 am

UPDATED April 14, 2020

by Karen Kerrigan-

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed by President Trump on March 27. (The full text of the legislation is here.)

SBA’s “Paycheck Protection Program” Applications Will Begin April 3

The U.S. Treasury and Small Business Administration (SBA) have launched “Paycheck Protection Program” (PPP) and CARES Act webpages, which include information for borrowers, lenders and a sample application form that small businesses will use once SBA-approved 7(a) lenders begin taking applications on April 3 (according to the U.S. Treasury).

See the SBA’s PPP page here, and the U.S. Treasury’s CARES Act page here.

The SBA also launched a new guidance page here.

NEW on April 13: Guidance from the U.S. Treasury released on April 13 about the PPP in Q&A format clarifies other issues with regard to franchises, affiliation and lender responsibilities and protections.

NEW on April 8: The Latest Round of U.S. Treasury Guidance: Another round of guidance was released on April 8, with clarification in some key areas, which can be read by accessing this simple Q & A document.

According to the U.S. Treasury: “Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We encourage you to apply as quickly as you can because there is a funding cap.”

Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.

ABOUT CARES ACT: Eligibility and “the rules.” For a top-line overview of the program provided by U.S. Treasury, please click CLICK HERE

SMALL BUSINESS BORROWERS: If you’re a borrower, more information from U.S. Treasury can be found HERE. This link is helpful in filling out your PPP application, determining eligibility and related information about the program.

NEW “Final” Guidance and Rules: As expected, U.S. Treasury released Interim “Final” Rules on the CARES Act “Paycheck Protection Program” (PPP). SBE Council has reviewed the rules which can accessed here, and will have forthcoming comments and analysis on them.

NEW Borrower Application: This is Final borrower form for PPP loans (which is submitted to a PPP participating lender participating).

NEW Final Lender Application: Here is the final application form that lenders use for each borrower.

NOTE: Please see my March 29 update here, which includes the Senate Small Business Committee’s CARES Act Guide for Small Business Owners.

FAQs: The Committee also created a Frequently Asked Questions (FAQs) document on SBA loans related to the CARES Act and COVID-19. The document focuses largely on the new SBA 7(a) Paycheck Protection Program (PPP) loans, as well as issues related to Economic Injury Disaster Loans (EIDLS) and converting these into PPP loans. Read the FAQ here.

CARES Act Details

There are a lot of summary documents that have been provided by committees, congressional leadership and others, but let’s start first with a Q&A document provided by GOP Minority Leader Kevin McCarthy. The Q&A provides a broad outline of key features of the CARES Act, including small business provisions. Highlights of this document as it relates to small businesses, entrepreneurs and the self-employed, include:

Q: Unemployment Insurance – are the self-employed, gig workers, and contractors eligible? A: Yes, the bill expands unemployment benefits to cover more workers including self-employed and independent contractors, like gig workers and Uber drivers, who do not usually qualify for unemployment. Overall, the bill provides $250 billion in funding for expansion of unemployment benefits, the largest increase ever.

Q: Can small businesses can hire back previously fired employees and still have the [new SBA 7a Paycheck Protection Program] loans forgiven? If so, what is the hire-back date? A: Yes. There is flexibility in the program to allow businesses to hire new, or returning employees, by June, 30, 2020, and still qualify under the headcount requirements.

Q: How quickly will business be able to access loans? A: We are working with the SBA on capacity issues, including onboarding new lenders. The SBA is assuring the Small Business Committee that they are ready to stand up all of the requirements within the Senate bill as quickly as possible.

Q: Employee retention credit – how will this work? A: The Employee Retention Credit provides a refundable payroll tax credit equal to 50 percent of up to $10,000 in wages per employee (including health benefits) paid by certain employers during the coronavirus crisis.

The credit is available to employers:

● whose operations were fully or partially shut down by government order limiting commerce, travel, or group meetings due to coronavirus, or

● whose quarterly receipts are less than 50% for the same quarter in the prior year.

Wages paid to employees during which they are furloughed or otherwise not working (due to reduced hours) as a result of their employer’s closure or economic hardship are eligible for the credit.

However, for employers with 100 or fewer employees, all employee wages qualify for the credit, regardless of whether they are furloughed or face reduced hours.

To prevent double dipping, employers that receive SBA 7(a) Paycheck Protection Program loans are not eligible for the credit. Additionally, wages that qualify for the required paid leave credit are not eligible for the credit.

The credit is for wages paid by eligible employers from March 13, 2020 through December 31, 2020.

CARES Act Section-by-Section Summary

SBA Paycheck Protection and Disaster Loans, SBA Loan Relief

The Section-by-Section Summary of this massive legislation begins with key details of the new Paycheck Protection Program (PPP) under the SBA 7(a) loan program, how the program will work, and loan forgiveness. This section of the legislation did not change much from what was provided in yesterday’s Small Business Insider (which can be found at the very beginning of the summary).

The PPP provides forgiveness for small business loans for keeping employees: It’s a program for small employers, self-employed individuals, and “gig economy” workers, with $350 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The PPP provides 8 weeks of cash-flow assistance through 100 percent federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. This proposal would be retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.

Debt Relief: There is also debt relief on all existing SBA loan products including 7(a), Community Advantage, 504, and Microloan programs for six months. SBA is required to pay all principal, interest and fees on these loans.

**KEY FEATURES OF PPP LOANS (the pending SBA 7(a) Paycheck Protection Program Loans)**

● Businesses not greater than 500 (unless the covered industry’s SBA size standard allows more than 500 employees), inclusion of sole-proprietors, independent contractors, eligible self-employed and 501 c3 nonprofits.

● Loan amounts up to $10 million through December 31, 2020.

● SBA Express Loan increase from $350,000 to $1 million through the end of 2020.

● Allows complete deferment of 7(a) loan payments for not more than one year and requires SBA to disseminate guidance to lenders on this deferment process within 30 days.

● Requires documentation on payroll tax filings reported to IRS.

● Requires that the borrower show that the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations, the fund will be used to retain workers and maintain payroll, make mortgage payments, utilities and necessary expenses.

● Cover employees making up to $100,000 per year; loans taken for this purposes are forgiven if the business does not lay off its employees (forgiveness is scaled down as layoffs rise). In order to be eligible for a loan, a firm must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began.

● Covered period for payroll February 15, 2020-June 30, 2020.

● No fees collected from lender or borrower.

● Forgoes the “can’t get credit elsewhere requirement.”

● No collateral, no personal guarantee required.

● Max maturity of 10 years from the date on which the borrower applies for the loan.

● Interest rate: Max rate as of Feb 15, 2020.

● Lender must provide complete payment deferment relief for impacted borrower.

● Covered loan risk weight of 0%.

What They Can Be Used For:

● Payroll costs, continuation of group health care benefits during of periods of paid sick leave, medical and family leave and insurance premiums.

● Employee salaries, commission and similar compensation.

● Mortgage payments, rent, utilities, interest of any debt obligations that were incurred before the covered period.

For the Lenders:

● Provides “delegated authority.”

● Lender shall consider that the business was in operation Feb 2020, had employees for whom borrower paid salaries and payroll taxes, paid independent contractors as reported on FORM 1099/Misc.

● The borrower is substantially impacted by the public health restrictions related to COVID-19.

Changes to Economic Injury Disaster Loans (EIDLs). Highlights of changes to EIDLS that will be of interest to small business owners include:

● Expands eligibility for access to Economic Injury Disaster Loans (EIDL) to include Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees or any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020). Private non-profits are also eligible for both grants and EIDLs.

● Requires that for any SBA EIDL loans made in response to COVID-19 before December 31, 2020, the SBA shall waive any personal guarantee on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.

● During the covered period, allows SBA to approve and offer EIDL loans based solely on an applicant’s credit score, or use an alternative appropriate alternative method for determining applicant’s ability to repay.

● Establishes an Emergency Grant to allow an eligible entity who has applied for an EIDL loan due to COVID-19 to request an advance on that loan, of not more than $10,000, which the SBA must distribute within 3 days.

● Requires that an advance payment be considered when determining loan forgiveness, if the applicant transfers into a loan made under SBA’s Paycheck Protection Program.

Apply or learn more about EIDL loans here.

Tax Relief and Changes

In addition to relief announced by U.S. Treasury regarding extension of time to file and pay taxes, the CARES Act includes additional relief and reform measures:

● Delay of payment of employer-side payroll taxes (tax payments may be delayed until January 1, 2021, with 50 percent owed on Dec. 31, 2021 and the other half owed on Dec. 31, 2022.)

● Employee Retention Credit: A refundable payroll tax credit equal to 50 percent of up to $10,000 in wages per employee (including health benefits) paid by certain employers during the coronavirus crisis.

● Five-year carry back and expansion of NOLs. Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years.

● Loosening of business interest deduction from 30 percent of EBITDA to 50 percent of EBITDA.

● Technical correction to Qualified Improvement Property (QIP) depreciation treatment.

● Waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related economic challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. Minimum distribution rules for certain retirement plans in calendar year 2020 are waived.

● Health savings accounts (HSA) changes related to OTC purchases of coronavirus treatments and other changes.

We are working 24/7 to push the U.S. House to act, and will be back with another update soon on other resources and tips for your small business.

Hang in there!