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  • CARES Act Overview: Small Businesses

    March 31, 2020

    Resources for Small Businesses:

    In our opinion some of the most significant programs the CARES Act is offering for small business are:

    -Paycheck Protection Program

    -Employee Retention Credit

    -Deferral of Payment of Payroll Taxes

    Paycheck Protection Program:

    Businesses, including sole proprietorships, independent contractors and self-employed individuals are eligible to apply for the program. Under the Paycheck Protection Program, lenders will generally be able to issue SBA 7(a) small business loans up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs over the previous year (excluding annual compensation of amounts over $100,000 per person).

    -Payroll and commission payments

    -Insurance premiums/group health care benefits

    -Mortgage, rent and lease payments


    -Funds used for other purposes will not be eligible for loan forgiveness

    The single largest potential benefit of a loan issued under the Paycheck Protection Program is the possibility of having all or a portion of the loan forgiven. The amount eligible to be forgiven is the amount spent, during the first 8 weeks after the loan is made, on:

    -Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000;

    -Rent pursuant to a lease in force before February 15, 2020;

    -Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020; and

    -Group health insurance premiums and other healthcare costs

    Second, the maximum interest rate that can be charged for a loan made under this program is 4%. Small businesses tend to be risky borrowers, so the ability to borrow up to $10 million at no more than 4%, and over a term of up to 10 years, is a pretty significant ‘win’ for many small businesses in and of itself!

    Finally, payments for loans made under the Paycheck Protection Program will be deferred for a period of no less than six months and no longer than one year. Additional guidance will be provided to lenders within 30 days of enactment to further elaborate on the 6-to-12-month deferment period.

    If you are interested in applying for the Paycheck Protection Program, we recommend that you gather the following items that will be needed for documentation:

    -Documentation verifying the number of full-time equivalent employees on payroll and pay rates, including: payroll tax filings reported to the IRS, state income, payroll, and unemployment insurance filings

    -Documentation to prove your mortgage, lease, or utility payments (cancelled checks, payment receipts, account statements)

    -Certification that states: the documentation presented in true and correct, the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments & any other documentation determined necessary by the SBA

    Employee Retention Credit:

    The ‘trigger’ for a company to begin to be eligible for the Employee Retention Credit is that operations of the company have been fully or partially suspended during a quarter either as a result of a governmental authority or in which revenue in 2020 has less than 50% of the revenue from the same quarter in 2019.

    For those businesses that do meet this (unfortunate) requirement, the business will continue to qualify for the credit until the earlier of the end of 2020; or depending upon the method of qualification for the credit, there is either a quarter without a government-required suspension of operations, or gross revenue from the current quarter exceeds 80% gross revenue from the same calendar quarter in 2019, whichever is sooner.

    Notably, for businesses qualifying for the credit based on revenue, by virtue of the fact that at least one quarter’s revenue in 2020 must be more than 50% less than the revenue for the same quarter in 2019, a company experiencing a sustained substantial (but not-substantial-enough) decrease in revenue throughout the year, may never qualify for the credit.

    However, a company that experiences a more temporary, but dramatic decline in revenue, and which actually experiences a much better year overall, may, in fact, qualify for the credit in one or more quarters. Finally, it is worth highlighting that the key metric used here is revenue, not profit.

    Deferral of Payment of Payroll Taxes:

    The CARES act provides eligible employers (including self-employed persons) the ability to defer payroll taxes from the date of enactment, through the end of the year, until the end of 2021 and 2022.

    More specifically, 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due on December 31, 2022.

    For self-employed persons this relief applies to them with respect to the ‘employer equivalent’ portion of their self-employment taxes.

    Other Programs:

    The CARES Act offers other programs which may be advantageous for businesses. We highlighted the ones above which require immediate attention and suggest that you setup a time to discuss future planning possibilities with us and your accountant or CPA.

    Additional Resources:

    SBA Website:

    CARES Act:

    US Department of Treasury:

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