Atlanta Financial Blog

Help Available to Business Owners

Chris Blackmon, CFP®, CPA

April 3, 2020

Help for small businesses continues to be a hot topic after the massive stimulus bill passed Friday, March 27th. Details of the available programs continue to be clarified but one of the programs for which we have fielded the most questions is the Payroll Protection Program. The Small Business Administration (SBA) has released the official application and will begin to process applications on Friday, April 3rd. These loans will typically be processed through an SBA approved bank (our experience has been that almost all banks of reasonable size are enrolled and will be processing these loans and applications).

If you have not already contacted your bank to discuss the application process we suggest reaching out now as there is expected to be a backlog of applications when they start. Do not worry if you you aren’t able to submit your application immediately as they will continue to be processed through Tuesday, June 30th. But since funds for this program currently are capped, submitting as soon as possible is advisable. These loans will be forgiven assuming you maintain your current headcount through that date (effectively becoming a grant). If you have or will need to terminate employees, you may also still qualify for forgiveness with rehires by 6/30/2020. The forgiveness process will also be handled through the bank servicing your loan.

While each business owner should evaluate the impact of the Coronavirus on their business, it is expected that most businesses have seen a significant interruption to their business.

The Treasury Department has issued some helpful information through an information sheet you can find here.

For your convenience, we have included below our summary of the provisions of the CARES Act that impact business owners, which was highlighted in our email you should have received on March 30th. As always, we continue to research and learn details of the programs in real time as clarifications and details are made available through our network of industry professionals. Please don’t hesitate to reach out and discuss your situation or the program with us.

FOR BUSINESS OWNERS
What about loans for small businesses?
Under the Paycheck Protection Program, small businesses that have been impacted by COVID-19 with up to 500 employees will be eligible for loans provided by SBA-approved lenders (up to $10m depending on payroll costs and other factors). Some of the details are:

Qualification requires a “good faith certification” that the loan is necessary due to the uncertainty of current economic events due to COVID-19.
Proceeds must be used to retain workers and maintain payroll and group health benefits or pay rent/mortgage interest, lease and utility payments.
Loans have a maximum term of 10 years and maximum interest.
Payments of interest and principal may be deferred from 6 to 12 months.
Loans can be forgiven (and the forgiven amount excluded from taxable income) for amounts used for payroll, interest on mortgages, rent and utilities.
Loan forgiveness is reduced for any employee cuts or reductions in wages according to a rather complex formula.
Loans do not require collateral or a personal guarantee, and have no recourse against shareholders, officers, partners, etc. as long as proceeds are used for authorized purposes.

In addition, the CARES Act makes additional changes to the SBA Disaster Loan Program to:

Expand eligibility to sole proprietorship and independent contractors
Waiver personal guarantees on loans under $200,000
Offer a 6-month deferment of payments
Allow proceeds to be used for:
- Maintaining payroll
- Providing sick leave to employees unable to work due to COVID-19
- Increased supply chain costs
- Rent or mortgage payments
- Repaying debts that can’t be covered due to lost revenue

Planning Tip: If you are business owner experiencing financial consequences from COVID-19, we encourage you to contact an approved SBA lender immediately to explore the funding that might be available to assist you during this crisis. Even if you have already laid-off employees, there are provisions to rehire that might still make loan proceeds forgivable. Whether loans are forgivable or not, the loan terms are quite favorable and worthy of consideration. NOTE: Beware of scams related to these programs. Deal only with approved SBA lenders.

What other payroll relief is available?
Refundable Tax Credit
The act also creates a refundable tax credit against payroll tax liability equal to 50% of the first $10,000 in wages per employee. Eligible businesses must have fully or partially suspended operations due to orders from a governmental entity OR experience a year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50% (with the credit continuing until gross receipts exceed 80% year-over-year.

Deferral of Employer Payroll Taxes
The CARES Act postpones due dates for employer payroll taxes (and half of self-employment taxes) for wages paid in 2020. The deferred amount would then be paid 50% on 12/31/2021 and 50% on 12/31/2022.

Planning Tip: Discuss these two payroll tax benefits immediately with your CPA prior to making any further payments.

What tax benefits will I get from operating losses?
The CARES Act allows for Net Operating Losses (NOL) in 2018, 2019 and 2020 to be carried back 5 years and increases the amount of income that can be offset to 100%.

Planning Tip: Consult your CPA if you had operating losses in 2018 or 2019 to discuss whether refiling immediately is warranted. Doing so could create an immediate infusion of much-needed cash flow.

At AFA, we are working diligently to stay abreast of all of these issues, while also continuously monitoring the markets, economy and your portfolios. We will continue to update you as the understanding of the bill’s provisions and how it will be enacted evolve. In the interim, please reach out if we can assist with any questions or concerns you might have regarding The CARES Act, or any other matter.

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