Business Assistance During the Coronavirus Pandemic
The COVID-19 emergency has resulted in nationwide shelter-in-place orders and social distancing recommendations that are impacting all areas of life as we know it. One of the most severe impacts of these responses to the coronavirus outbreak has been to bring business activities to a halt in many sectors of the economy. In an effort to keep as many businesses in operation and as many people employed as possible during and after the pandemic, the federal government has enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This new legislation provides almost $2 trillion in aid to businesses, employees, individuals, and families affected by COVID-19 and has since been extended with additional funds.
Paycheck Protection Program
One of the key provisions of the CARES Act is the Paycheck Protection Program, which initially provided $349 billion in Small Business Administration (SBA) loan and loan forgiveness relief to businesses across the country. The CARES Act was later amended to dedicate another $380 billion to small business aid, with most of that amount going to the Paycheck Protection Program, the primary purpose of which is to encourage employee retention during this time of economic uncertainty. The federal government has since allocated an additional $291 billion. Applications for the program are scheduled to close March 31.
The Paycheck Protection Program (PPP) expanded the availability of SBA 7(a) loans to offer businesses amounts approximately two months' worth of operating costs (up to $10 million) to cover expenses including payroll, salaries, mortgage interest, rent, utilities, and group health plan insurance premiums and costs related to paid sick, medical, and family leave. Qualifying businesses are those with 500 or fewer employees, or larger businesses in certain industries, and which were operating as of February 15, 2020. For the purposes of this program, small businesses, sole proprietors, certain nonprofit organizations, tribal businesses, veterans organizations, and people who are self-employed or independent contractors are eligible for loans if they conform to program size standards. The December 2020 revision expanded eligibility to housing cooperatives with fewer than 300 employees and certain 501(c)(6) organizations engaged in destination or tourism marketing. It also expanded coverage to operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
Businesses and non-profits with fewer than 20 employees were awarded a 14-day exclusive loan application period from February 24 to March 10, 2021 in order to circumvent issues that arose when the PPP was first established. The PPP was also revised to allow business owners who were delinquent on their federal student loans or who had non-fraud-related criminal records to apply. The modifications to the PPP program also include improved financial support calculations for sole proprietors, independent contractors, and self-employed individuals. Finally, the PPP was always available for all lawful U.S. residents, but the Biden-Harris Administration clarified that non-citizen small business owners who are lawful U.S. residents may use their Individual Taxpayer Identification Numbers (ITINs) to apply.
Businesses that receive a PPP loan may be eligible for a second PPP loan (a “Second Draw Loan”) if they have exhausted all funds from the first PPP loan, have no more than 300 employees, and can demonstrate at least a 25% reduction in gross receipts from 2019 to 2020.
Paycheck Protection Program borrowers do not need to put up any collateral or guarantee to receive a loan, and they do not need to establish specific losses related to the pandemic. Lenders are to defer all loan payments for a minimum of 6 months and a maximum of 12 months, and there is no penalty for prepayment. Further, any loan proceeds a borrower uses for payroll, mortgage interest, rent, or utilities in the 8-24 weeks immediately after the loan funds are disbursed are forgivable up to the full loan amount (note that 60% of this amount must be spent on payroll). Originally, the loans must have been spent within eight weeks, but the December 2020 revision allowed borrowers to pick a date between eight and 24 weeks after the loan’s origination date to spend the loan for forgiveness. The amount of forgiveness can be reduced if a business reduces employee pay or terminates workers during this period, though this reduction could be offset if the business rehired employees or made up for reduced wages by December 30, 2020. The SBA has not yet released any information altering this due date for 2021 loans. The cancellation of this particular debt will not be counted as income for tax purposes.
Interest rates on any portion of these modified section 7(a) loans that are not forgiven cannot exceed 4%, and lenders are subject to maximum percentages in terms of the fees they may charge on loan amounts.
The CARES Act also contains tax provisions that can benefit small businesses, such as the option for employers and people who are self-employed to delay payment of the employer portion of Social Security taxes. Businesses that are particularly hard hit by the COVID-19 outbreak may also be eligible for a refundable payroll tax credit in an amount equal to 50% of wages paid between March 12, 2020 and December 31, 2020, though this benefit is not available to companies that receive a Paycheck Protection Program loan. Net operating loss modifications can now also be made by amending business tax returns to distribute losses across certain prior tax years, with no taxable income limitation.
Additionally, businesses with fewer than 500 employees can obtain 100% immediate reimbursement for paid leave given to employees in accordance with the recently-enacted Families First Coronavirus Response Act (FFCRA), up to applicable payment caps. The FFCRA provides workers with a maximum of 80 hours of paid sick leave and increased paid family, medical, and childcare leave taken for reasons related to COVID-19. The reimbursement includes health care coverage costs, and there is no payroll tax liability. People who are self-employed are also eligible for an equivalent credit. These tax benefits are available for FFCRA leave taken through September 30, 2021.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, amended and extended the employee retention credit under the CARES Act. From January 1 to December 31, 2021, the tax credit that an employer can claim against the employer share of Social Security tax is increased to 70% of qualified wages. (The maximum is $7,000 per employee per calendar quarter in 2021.)
The definition of qualified wages was changed in 2021. For an employer that averaged more than 500 full-time employees in 2019, qualified wages are those paid only to employees not providing services because operations are fully or partially suspended due to the decline in gross receipts. For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are those paid to all employees during a period when operations were fully or partially suspended during the quarter in which the employer had a decline in gross receipts. In 2021, only small employers with an average of 500 or fewer full-time employees in 2019 may request advance payment of the employee retention credit.
Employers that receive a PPP loan may still qualify for the employee retention credit for wages not paid with forgiven PPP proceeds. This rule is retroactive to March 27, 2020.
The employer credit for paid family and medical leave was extended through 2025, permitting eligible employers to claim an elective general business credit equal to 12.5 percent of eligible wages if the rate of payment is 50 percent of such wages, increasing by 0.25 percent (until 25 percent) for each percentage point that the rate exceeds 50 percent. The maximum amount of family or medical leave to be taken into account for any employee is 12 weeks per year. Tax-free employer student loan repayment benefits were also extended through 2025, allowing an employer to contribute up to $5,250 annually toward an employee’s student loans or other educational assistance (such as books) without counting the payment toward the employee’s income.
SBA Economic Injury Disaster Loans
Another option for businesses impacted by the coronavirus pandemic is to seek an SBA disaster assistance loan, which Congress has also made easier to obtain in light of the current public health emergency. As recently modified, economic injury disaster loans of up to $2 million can be taken out by companies with 500 employees or less in any US state or territory. Businesses that have obtained a Paycheck Protection Program loan to pay for expenses like rent and payroll cannot subsequently obtain a disaster assistance loan for the same purposes, but a Paycheck Protection Program loan can be used to repay a disaster assistance loan.
Economic injury disaster loan proceeds can be used for payroll, accounts payable, and other expenses, but cannot be spent on certain things like refinancing debt or repairing physical damage. In their current form, these loans can include a $10,000 emergency grant for expenses like rent and payroll. Emergency grants up to $10,000 were originally calculated based on the number of employees, but now they are awarded to applicants in low-income communities. This amount is disbursed within 3 days of a borrower submitting a loan application, and does not need to be repaid.
SBA Shuttered Venue Operators Grant Program
The Shuttered Venue Operators (SVO) Grant program was created on December 27, 2020 and provides $16 billion to eligible shuttered venues. SVO grants may be up to $10 million. Eligible entities may include live venue operators or promoters, theatrical producers, live performing arts organization operators, relevant museum operators, zoos and aquariums, motion picture theater operators, and talent representatives. The entity must have been in operation as of February 29, 2020, and the venue or promoter must not have applied for or received a PPP loan on or after December 27, 2020.
Other SBA Assistance
Businesses that have an existing relationship with an SBA Express Lender may also be eligible to participate in the SBA Express Bridge Loan Pilot Program, which can make up to $25,000 available while an application for a longer term economic injury disaster loan is in process. The SBA is also providing debt relief assistance to businesses that have recently taken out 7(a) loans by paying principal and interest on current loans for 6 months.