CARES Act Passage Brings Welcome Relief To Small Businesses

March 27, 2020

by: Russ Russell; Christopher Weller; Courtney Williams; Blake Brookshire; and Barbara Wells

Good News!

Small business owners, would you like some good news for a change? We know we were relieved when we read the CARES Act Congress passed today. We are a small business too, and this law brings relief for small businesses in this difficult time.

What Does the CARES Act Do?

Under the CARES Act, the Government is making small business loans available immediately through banks and other SBA-certified lenders. Small business here means 500 or fewer employees. Both nonprofit and for-profit entities can apply for these loan. These loans under Section 7(a) are “paycheck protection loans.” The loans have the potential to function as a grant for most of the borrowed amount because when a borrower meets certain conditions the Government will forgive some parts of the loan amount. Clearly, this Act aims to retain workers on payrolls and to support small business operations during this challenging time. Generally speaking, employers need to consider the effect that changes to payroll levels will have on tax-free forgiveness of these loans (so long as the business uses the money for rent, interest on mortgage payments, certain utility payments, and payroll).

CARES Act highlights:

• Covered Period:  covered expenses incurred between 02/15/2020 and 06/30/2020
• Eligible Entities: Entities that existed as of 03/01/2020, and have 500 or fewer employees (counting each individual – full and part-time employees)
• Available Loan Amount: Borrowers can receive loans equal to 2.5 times their monthly payroll expense, up to $10 million.
• Non-profit Eligibility: The current legislation does not include the earlier provision that would have disqualified nonprofits that are eligible for payments under Medicaid (Title XIX of the Social Security Act).

The Next Right Thing?

Every small business has careful planning to do. The CARES Act and the FFCRA combine to create a legal landscape in which employers must understand the consequences of their choices. Every situation is different. Special rules apply to certain employees earning wages or salary in excess of $100,000 per year. Loan forgiveness may decrease if payrolls shrink. We can help you calculate the consequences of your choices.

Watch for more good news for small business here as we interpret the rest of the legislation!