What Does the 2020 CARES Act Mean for Businesses?

The Coronavirus Aid, Relief, and Economic Security Act, (CARES Act) was signed into law to mitigate the impact of the COVID-19 pandemic at the federal level. Businesses that meet specific criteria have access to the following options:

Paycheck Protection Program Loans

The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis.

The loans have a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.

Small Business Debt Relief Program

This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.

Economic Injury Disaster Loans & Emergency Economic Injury Grants

These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance. They can be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

PA COVID-19 Working Capital Access Program

New funding is available to help small businesses devastated by the novel coronavirus through the COVID-19 Working Capital Access Program, Funds are available to provide loans of $100,000 or less to for-profit businesses with 100 or fewer full-time employees. Funds are expected to become available this week. Loan terms are three years with a 12-year amortization.  In addition:

  • No payments will be due and payable during the first year.
  • Principal and if applicable, interest payments will be due monthly for years two and three.
  • A balloon payment will be due and payable at the end of the third year

The interest rate for the program is 0%. For the purposes of this program, a retail or service enterprise is defined as a for-profit business entity that is involved in business-to-business service, business-to-public service, mercantile, commercial, or point-of-sale retail sectors.

Eligible costs include working capital, which for purposes of this program is considered capital used by a small business for operations, excluding fixed-assets and production machinery and equipment.  Any eligible working capital cost, as defined above, incurred by the eligible business enterprise three months prior to submission of the loan application will count as an eligible cost toward either the loan amount or, if applicable, the matching investment requirement.

Retail and service enterprises are able to incur eligible working capital costs up to six months prior to submission of the loan application. Loan applications are packaged by a Certified Economic Development Organization (CEDO) that services the county your business is located in.

A listing of those organizations is as follows:

  1. Philadelphia – Philadelphia Industrial Development Corp, 1500 Market Street, Suite 3500 West, Phila., PA 19102, Phone – 215-496-8193
  2. Delaware County – Delaware County Economic Development Oversight Board, 100 W. 6th, Media, PA 19063, Phone – 610-566-2225
  3. Chester County – Chester County Economic Development Council, Eagleview Corporate Center, 737 Constitution Dr., Exton, PA 19341, Phone – 610-321-8241
  4. Montgomery County – Montgomery County Commerce Department, Human Service Center – 5th Floor, P.O. Box 311, Norristown, PA 19401, Phone – 610-278-3471

Employee Retention Credit

The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts.

The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed, is limited to $10,000 in aggregate per employee for all quarters.

The credit applies to wages paid after March 12, 2020, and before January 1, 2021.

Deferral of the time payroll taxes need to be paid

The CARES Act defers the payment of payroll taxes. Payroll taxes due from March 27, 2020 and ending on December 31, 2020, are deferred. The deferral applies to the employer portion of the 6.2 OASI portion of payroll taxes, as well as 50 percent of the equivalent self-employment tax. Half of the deferred taxes are due on December 31, 2021, and half are due December 31, 2022.

Five-year carryback for net operating losses (NOLs) arising in 2018, 2019, and 2020

Any NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2021, may be carried back five years unless the carryback period is waived. For NOLs that arose in tax years beginning in 2018 or 2019, the time for making the waiver election is extended to the due date (including extensions) for filing the taxpayer’s return for the first tax year ending after the date of enactment of the new law. Normally, the election is required by the due date (including extensions) of the return for the tax year in which the NOL arose. The carryforward period for NOLs remains unlimited. A technical correction clarifies that the unlimited carryforward period applies to tax years beginning after 2017 and not to tax years ending after 2017. The twenty year carryforward period for NOLs arising in tax years beginning before 2018 is unchanged.

Qualified Improvement Property

The Act contains a correction of the so-called retail glitch and treats qualified improvement property as 15-year property, correcting an oversight in the TCJA. In addition, qualified improvement property placed in service after 2017 will qualify for the 100 percent bonus depreciation rate.

There are other provisions available that benefit businesses, but the above are the ones we view as having the most impact on our client base.

Please contact your accountant directly if you have questions about these programs and how they apply to you or your business.