Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

On March 25, 2020, the Senate unanimously passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), a $2 trillion stimulus package designed to help the ailing economy and ease the burden on families and businesses.  The bill is to head to the House of Representatives where a vote is expected to be held on March 27.  President Trump is expected to approve the measure immediately thereafter.  

Paycheck Protection Program (the “PPP”)

The Small Business Administration (the “SBA”) is expected to receive an enormous amount of funding and significant program adjustments to help small businesses, sole proprietors independent contractors, and self-employed individuals make it through the current COVID-19 crisis. 

Included in the CARES Act is a Paycheck Protection Program (the “PPP”), which provides eligible businesses with loans made under section 7(a) of the Small Business Act to be used to pay for payroll support (including paid sick, medical, or family leave, and costs related to the continuation of health care benefits), employee salaries, mortgage payments, rent, utilities, as well as any debts incurred by the business prior to the covered period (beginning on March 1, 2020 and ending on December 31, 2020).

Who is eligible for the Paycheck Protection Program (the “PPP”)?

In order to be eligible for the PPP,  the business must have been operational as of February 15, 2020 and paying payroll and taxes. The Borrower must good-faith certify that the funds are needed for COVID-19 related hardships, the funds will be used to retain workers, and that their request is not duplicative with other SBA funds for the same purpose (i.e. applicants cannot receive PPP loans if they are already the recipient of SBA 7(b) Economic Injury Disaster Relief loans related to COVID-19, but can carry previous non-COVID-19 EIDL loans and still participate in the PPP). 

The SBA has waived all Borrower and Lender fees and the current “Credit Elsewhere” requirement.  Collateral and personal guarantees will not be required. The maximum interest rate is set at 4%, payments will be deferred for 6-12 months, and there will be no prepayment fees. Additionally, the SBA has delegated authority to all existing 7(a) lenders to expedite loan approvals and distribution of funds. New lenders can also participate in the PPP.  Importantly, the amount spent by the borrower in the first 8 weeks from loan origination may be forgiven. Amounts not forgiven or repaid by December 31, 2020 will convert to a maximum 10-year loan at a maximum 4% interest rate.  The loan will remain 100% SBA guaranteed.

The maximum loan amount is the lesser of: (1) 4 times the businesses average monthly payments by the applicant for payroll, mortgage payments, rent payments, and payments to any other debt obligations incurred during the year period before the date on which the loan is made, or (2) $10 million.

Tax Credits for Businesses

For those businesses that do not participate in the PPP, the CARES Act also includes a series of tax credits for business to ease the burden of keeping staff on the payroll. Businesses may qualify for a 50% refundable payroll tax credit during COVID-19 crisis for businesses that either fully or partially shut down OR have a 50% decrease in receipts versus the same quarter in the previous year and continue to pay employees. The credit is based on qualified wages paid to employees during the crisis based on the number of employees. This covers up to $10,000 paid per employee, including benefits, for the period of 03/13/2020 – 12/31/2020.

Additionally, payroll taxes may be deferred and spread over 2 years. Net operating losses arising in FY’s 2018, 2019, and 2020 can be carried back 5 years, alternative minimum tax credits available as refundable credits through 2021 can be claimed as a refund now, and the allowable deduction of business interest (under subsection (j) of 26 U.S.C. 163) is increased for 2019 and 2020.

Our office is closely following the development of the passage of the CARES Act.  It is expected that application procedures will be detailed shortly after the Act is signed by the President. 

Please contact our office at 920-499-5700 with any questions you may have related to available SBA relief options for businesses adversely impacted by COVID-19.

Please note that the general information provided on the Gerbers Law, S.C. blog is merely informative and should not be taken as legal advice. The content of Gerbers Law, S.C. blog is based on the state of the law at the time of its original publication. Legal developments can change quickly. As a result, the content of Gerbers Law, S.C. blog may not remain accurate as laws change over time. Your use of this site, as well as commenting, sending an inquiry, or contact email does not create an attorney- client relationship in any way. We highly recommend that you consult with a licensed attorney before you rely or act on this information.

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