The CARES Act: Avenues for Relief for Our Business Clients

By Nancy Williams

With the ongoing economic crisis amidst the COVID-19 pandemic, the newly enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides several immediate potential lifelines for businesses in need.  The following are a few of the highlights. We stand ready to help you determine how you and your business may specifically benefit from these and other provisions of the CARES Act.

Paycheck Protection Program (“PPP”) Loans

• Generally available to businesses with fewer than 500 employees (including all affiliates), but limited with respect to nonprofits to 501(c)(3) organizations.
• Amount of the loan limited to the lesser of 2.5 times the average monthly payroll costs (for non-seasonal businesses, using the 12 months prior to the loan date) and $10,000,000. Payroll costs include salary/wages and tips, as well as benefits, but annual salaries in excess of $100,000 will be limited to $100,000 for purposes of the calculation.
• No fees, no collateral.
• Apply through existing SBA lenders (check with your financial institution for its eligibility).
• For loan amounts not forgiven, maximum 4% APR for not more than a 10 year term.  Note that Treasury continues to revise the terms of the program loans.  As of 4/1/2020, the loans would bear a 0.5% APR and have a 2 year term.  Check with your SBA lender for the most up-to-date information on loan terms.
• For loan amounts not forgiven, maximum 4% APR for not more than a 10 year term.
• Availability commences April 3, 2020, for small businesses and sole proprietorships, so applications should be submitted ASAP to access available funds.  Confirm with your lender that the application form you are using is the final, approved form.
• We have heard from banks that they anticipate that not more than 25% of the forgiven amount may be for non-payroll costs, due to the likely high subscription in this program.

COVID-19 Economic Injury Disaster Loan Emergency Grant

• Generally available to businesses with fewer than 500 employees (including all affiliates), including a broader range of nonprofits.
• Businesses may apply for both PPP loans and this program, but cannot overlap or double-dip.
• Grants (aka emergency advances) of up to $10,000 under the SBA Economic Injury Disaster Loan program; no repayment required.
• Apply directly to the SBA online https://covid19relief.sba.gov/#/.
• May request SBA make the emergency advance within 3 days after receipt of application.
• Applicant states under penalty of perjury that it is an eligible entity (self-certification).
• Permitted use of funds include: payroll, increased costs of materials due to supply chain issues, rent/mortgage payments, repaying obligations that cannot be met due to revenue losses.

Retirement Plan Distributions

• Individuals may take coronavirus-related distributions during the 2020 calendar year, up to $100,000, from qualified retirement plans.
• Individuals must certify to plan administrator that the distribution is related to the coronavirus.
• No 10% early distribution penalty for participants who are younger than 59½.
• Distributions may be repaid over 3 years from date of distribution to avoid taxation; if not repaid, ratably taxed as ordinary income over 3 year period.

For more information on the CARES Act and how it could potentially benefit your business please contact Nancy L. Williams at [email protected].