April 1, 2020
We are in the throes of a crisis like none we have ever seen before. As people are hunkered down in their homes, businesses have seen dramatic decreases in revenue and many have been forced to close their doors. We are still uncertain as to how long this will last.
Business owners (and independent contractors) are looking for cash NOW. The government has passed several relief bills (including the $2 trillion CARES Act) to help small business owners (fewer than 500 employees). Some of these are in the form of immediate cash, some are long-term loans, and some will be grants if used for specific purposes. Several options are available, depending on your circumstances.
So where do you start?
We’ve compiled below a description of programs available and the links to more detailed information.
Cash to cover your payroll costs
The SBA Paycheck Protection Program (PPP) provides cash flow relief through 100% federal guaranteed loans to businesses who maintain their employees during this crisis. (It also applies to sole proprietors and independent contractors who have no employees.) Businesses can borrow up to 2½ times their average monthly payroll costs. To the extent that the proceeds are used to pay for payroll costs, rent/mortgage payments, or utility costs over an 8-week period beginning with the date of the loan, the government will forgive the debt completely… tax-free. Debt forgiveness will be reduced if there is a reduction in average monthly full-time equivalents for the 8-week period compared to either 2/15/19-6/30/19 or 1/1/20-2/29/20, or by the reduction of more than 25% in wages of any employee compared to the most recent quarter. You’ll need to certify that “current economic uncertainty makes the loan request necessary to support the ongoing operations”. However, the SBA does not expect you to burn through your resources, such as lines of credit available.
The SBA guidance issued on March 31 states that any unforgiven portion of the loans will be made for two years at a 0.5% fixed rate with payments deferred for six months. There are no SBA fees (your bank will charge a fee) and no personal guarantees or collateral are required.
This program has been funded with $350 billion and most businesses will be pursuing these loans. Act quickly. (There is a list at the end of this showing documentation you will need when applying.)
Tax credits for employee retention available immediately
If you do not use the PPP loans, you may still receive tax credits for retaining your employees during this crisis. You can receive a 50% credit for wages (up to $10,000 per employee) paid to employees if your business has been partially or fully suspended OR your gross receipts decline more than 50% compared to the same quarter in 2019. If you have fewer than 100 employees, all employees qualify for the credit. If you have more than 100 employees, only wages paid to employees when they are not providing services to the company will qualify.
The credit availability remains in place through the end of 2020 or so long as gross receipts for a quarter are less than 80% of the same quarter in 2019, whichever comes first.
The credit is claimed by reducing your required payroll tax deposits of employee withholdings. If the tax deposits don’t cover all of the credit, the excess may be refunded to you by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Cash to cover your SBA loan payments
Businesses that currently have outstanding non-disaster loans with the SBA will get immediate relief for their scheduled SBA loan payments. Under this program, the SBA will cover all loan payments (principal, interest and fees) for six months. This same relief will also apply to new loans taken out within six months of the enactment of the CARES Act (March 27, 2020).
Contact your lender immediately to be sure your loan payments are covered.
Immediate cash through emergency grants and loans
Businesses (excluding agriculture) can receive an emergency advance of up to $10,000 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To receive the cash you must first apply for an EIDL and then request the advance. You do not need to repay the advance, whether or not your loan is approved. If you already applied for the EIDL and were not offered the $10,000 advance, you need to re-apply.
EIDLs are low-interest loans up to $2 million at very low interest rates (3.75% for small businesses and 2.75% for non-profits) to pay for expenses that could have been paid had the COVID-19 disaster not occurred. In addition, payments can be deferred for up to 12 months. The loan amounts are determined by way of discussion with an SBA loan advisor and can be repaid over a period up to 30 years. EIDLs can be taken out in conjunction with PPP loans, but the expenses covered by the PPP loan cannot be included when determining the amount of the EIDL loan available.
For EIDLs less than $200,000, no personal guarantees or collateral is required. There are no loan fees, guarantee fees, or prepayment fees.
Be prepared with financial documentation, including 2Estate and Trusts years of tax returns, your most current year’s financial statements, a year-to-date financial statement, property leases, a working knowledge of your business, and your personal credit score.
The average turnaround time for the SBA to issue a Disaster Loan decision is 21 days. During that period you’ll be contacted by a loan specialist to figure out the amount and parameters of your loan. Once the documents are signed, funds are usually available within 3 to 5 business days. The total estimated time to fund is 3-5 weeks from the date of submission.
SBA Express Bridge Loans
The SBA is authorized to make Express Bridge Loans (EBLs) to small businesses affected by the COVID-19 emergency. EBLs provide expedited SBA-guaranteed financing up to $25,000 and are meant to provide fast turnaround while an EIDL application is in process. The loans can only be made by SBA Express Lenders who had an existing business relationship with the borrower. The funds are typically repaid with proceeds from an EIDL.
SBA Express loans
Not to be confused with the Express Bridge Loans, the SBA offers SBA Express loans under the 7(a) loan program. The SBA will respond to loan applications within 36 hours of submission. The loans have a maximum loan amount of $1,000,000 (raised from $350,000 by the CARES Act) and are subject to the normal fees, interest rates and payment terms associated with SBA 7(a) loans. They also require personal guarantees and collateral of real estate that are required for 7(a) loans.
Postpone your payroll tax payments
Employers can defer paying the employer portion of their FICA taxes on wages paid. From now through the end of 2020, payment of the FICA tax (6.2% of salaries up to $137,700) can be deferred to 2021 and 2022 in two equal installments. So long as 50% of the deferred tax is paid by 12/31/21 and 50% by 12/31/22, the payments will be deemed to have been paid timely. No interest or penalties will apply.
NOTE: You cannot defer payroll tax payments if you receive PPP loans.
California has also granted relief to businesses by deferring the filing of payroll tax returns and payment of state payroll taxes for 60 days without penalties or interest. You must submit a letter requesting an extension after you file your returns or pay the deferred taxes. We have drafted a generic letter to help you with this.
Postpone your sales tax payments
California has deferred the due date for sales tax payments and filing for the first quarter to July 31, 2020 for all businesses filing a return for less than $1 million in tax.
Tax changes that may provide immediate cash
Net operating losses
If you incurred net operating losses in 2018 or 2019 the amount of net operating losses (NOLs) that could be carried over to offset profits may have been limited. The CARES Act temporarily removes the limitations to fully allow an NOL to offset income. In addition, NOLs incurred in 2018 and 2019 may be carried back to the prior five years. You may want to amend your tax returns for 2018 or 2019 to take advantage of these changes.
Limitation on losses for non-corporate taxpayers
Business losses greater than $250,000 in 2018 and 2019 may have been disallowed for tax purposes. The CARES Act temporarily modifies the loss limitation for non-corporate taxpayers so you can deduct your total losses from 2018, 2019 or 2020. You’ll need to amend your tax returns for years that have already been filed.
Deductibility of interest expenses
In 2018 and 2019 the deduction for business interest expense paid may have been limited to 30% of your adjusted taxable income. The CARES Act increases the limitation from 30% to 50% of your adjusted gross income. Again, you will need to amend your tax returns to take advantage of this modification.
Bonus depreciation for qualified improvement property
Did you make interior improvements in 2018 or 2019 to your retail space, restaurant, or property that you are leasing from someone else? If so, due to a glitch in the tax regulations, those improvements may
have been subject to depreciation over 39-years. The CARES Act provides a correction to the tax law and specifically designates “qualified improvement” property as 15-year property for depreciation purposes. This also makes the improvements eligible for 100% bonus depreciation. One more time… you must file an amended return to take advantage of this tax law change.
Other resources available
Be sure to take advantage of the resources, counseling and training provided by your local Small Business Development Center (SBDC). SBDCs are hosted by leading universities, colleges, state economic development agencies and private partners, and funded in part by the United States Congress through a partnership with the U.S. Small Business Administration.
Locally, you can contact the Valley Sierra SBDC hosted by Opportunity Stanislaus by calling them at
(209) 422-6416 or by going online.
Documents and Information needed for PPP Loans:
- Documentation for average monthly payroll and average FTEs based on 4/1/19Estate and Trusts/31/20
- Average monthly payroll by category (salaries and wages, commissions, vacation, sick leave, group health care, and retirement contributions)
- Average monthly rent
- Utility costs from 4/1/19Estate and Trusts/31/20
- Interest on mortgage or other business debt incurred before 2/15/2020
- Federal tax ID # and legal name for each entity
- Ownership information to evaluate impact of affiliate entities. If any owner has more than a 50% ownership interest, provide a complete listing of other entities in which they also hold more than 50%
- Documentation on any other COVID-19 relief programs you’re applying for
As with past economic downturns, small businesses have recovered in incredible ways. Your business will be no exception with the right planning and the right people at your side. As we always say, you can count on us and we want to make sure we’re here for you in this time of need.
The information gathered was taken from trusted sources with the most informative content, curated and added to with some of our own insights from years of doing business with companies like yours. Please don’t hesitate to contact your accountant or Becky Austin email@example.com with specific questions or concerns.