As we navigate through these uncharted waters of the COVID-19 pandemic, we are working to provide you details, policies, and procedures, to help you stay afloat and focused on your small business. Recent legislation passed on the CARES ACT has left many companies overwhelmed and unsure of where to even start. Today, we kicked off our 30:Minute Webinar series with guest presenter Holly Snow, a partner in the corporate law practice of Paul Hastings to discuss what the recently passed stimulus package means to you.
Holly reviewed at a high level some of the programs in place to help. Below is an overview.
TITLE 1: PAYROLL PROTECTION PROGRAM (PPP):
For eligible companies, these loans may provide an attractive source of additional liquidity to pay certain expenses.
- The loan size ranges up to $10,000,000 (with the maximum amount for a company being based on a formula related to payroll).
- Intended to be very attractive terms, e.g., low interest, no fees, unsecured, no pre-payment penalties, guaranteed by the government, no payments required for at least six months
- In certain circumstances, forgivable without cancellation of debt income (subject to constraints regarding avoiding headcount and salary reductions).
In addition, here is an updated list of items to provide:
- Certificate of Formation/Incorporation
- Limited Liability Company Agreement/Operating Agreement/Bylaws
- Certificate of Good Standing
- Organizational Chart and list of any affiliates
- Most recent tax returns (recommend to bring prior 3 years, if available)
- Employee/Payroll information
- Month to month full-time employee from 1/1/19 to current
- Descriptions of layoffs, furloughs, and terminations since 2/15/20
- Monthly payroll information from 1/1/19 to current for all FT, PT or other employees
- The total amount of salary, wages, commissions, tips, or other compensation (excluding compensation in excess of $100,000 annually for any individual employee, as prorated for the covered period and compensation for any employee whose principal place of residence is outside of the U.S.);
- Payments for vacation, parental, family, medical or sick leave (excluding qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (the “FFCRA”) and qualified family leave wages for which a credit is allowed under section 7003 of the FFCRA);
- Allowances for dismissal or separation;
- Payments required for the provisions of group health care benefits, including insurance premiums;
- Payments of any retirement benefit;
- Payment of state or local tax assessed on the compensation of employees (excluding taxes imposed or withheld under chapters 21, 22, or 24 of the Code during the covered period); and
- State income, payroll, and unemployment insurance filings
ECONOMIC INJURY DISASTER LOANS (EIDLs):
For eligible companies in areas affected by a disaster – including a pandemic – that have suffered substantial economic injury as a result of the pandemic, these loans may provide additional liquidity to pay certain expenses
- The loan size ranges up to $2,000,000 (with the actual amount to be based on the economic injury suffered by the business, as determined by SBA).
- Up to $10,000 may be available to an applicant within three days of the application date.
- Existing rules relating to personal guarantees have been waived with respect to loans not to exceed $200,000. Likely that collateral requirements will otherwise continue to apply, absent additional guidance from the SBA.
LOCAL LOAN PROGRAMS:
Many states and municipalities have created their own small business loan programs.
- Forbes.com has been maintaining a list (Paul Hastings LLP has not vetted it for accuracy) https://www.forbes.com/sites/advisor/2020/03/20/list-of-coronavirus-covid-19-small-business-relief-programs/#4224313fe89d
TAX SUBSIDIES AND CREDITS:
Enhanced Ability to Carryback NOLs – NOLS from ’18-’20 can be carried back as many as five years from the year of the particular NOL (as opposed to only carried forward previously); up to 100% (rather than 80%) of taxable income for ’18-’20 can be offset; this benefit is particularly valuable if taxable income from ‘17 (or prior) can be offset given the maximum federal rate in those years was 35% (rather than current 21%).
Deductibility of Interest Expense – The CARES Act increases the cap on allowed interest expense deductions from 30% of adjusted taxable income to 50%.
Refundable Payroll Tax Credit — For companies whose operations were fully or partially suspended due to a COVID-19 shut-down or suffered a 50% or greater gross receipts reduction relative to prior year’s quarter (and that don’t take advantage of the Title I loans), there is a refundable payroll tax credit for 50% of wages paid (covering first $10k of wages (including employer-provided health benefits) from 3/13/20 to 12/31/20). For employers with more than 100 employees, the credit is available for employees that are not working and for employers with 100 or fewer employees the credit is available for all employees.
Family and Medical Leave Act Subsidy – Companies with less than 500 employees are eligible for 100% tax credit coverage of the cost of providing the COVID-19-related family and medical leave to their employees. The mechanism to receive these benefits are, in the first instance, the ability to keep payroll taxes and, to the extent that is not sufficient to cover the FML cost, to apply for accelerated tax credits.
Deferral of Employer Portion of Social Security Tax – Ability to defer payment of employer portion of social security payroll tax during ‘20 (with 50% of such deferred amount payable in ’21 and the other 50% payable in ’22).
Enhanced Ability for Employers to Agree with States on “Work Sharing” Programs – Typically, employees whose hours have been reduced are not eligible for state unemployment benefits. The new legislation provides federal subsidies to the states to encourage programs in which employees have their hours reduced (instead of being laid off), but they are still eligible to receive partial state unemployment benefits.
Additionally, Holly and the Paul Hastings firm was able to provide us with a PDF Document, that goes into more detail about things like calculating payroll costs and what someone must bring to the SBA lender.
For the recorded version of this webinar, click here.
Look for upcoming webinars and recordings here.