Understanding the CAREs Act (a.k.a. the coronavirus stimulus package)

In response to the Coronavirus (COVID-19) pandemic, the federal government passed and signed the CARES Act into law. The act — which stands for Coronavirus Aid, Relief, and Economic Security — is the largest measure of its kind in modern U.S. history.

The act provides many different forms of financial relief for individuals and businesses. This post provides some useful information to our restaurant partners, and other small businesses, in understanding what forms of relief are available to them.

Disclaimer: This post is not intended to provide explicit financial advice or guidance. Its intent is to simply highlight the forms of relief that may be available to small businesses like the ones that Slice serves. 

The Paycheck Protection Program

Overview:

The CARES Act allocates up to $349 billion in loans for small businesses. These loans  — referred to as the “Paycheck Protection Program” — are administered by the Small Business Administration.

The US Chamber of Commerce has prepared a useful guide and checklist for small business owners looking to understand the program. 

How much is available?

Up to $10 million dollars, for payroll and certain other expenses. It is designed as a direct incentive to keep workers on payroll.

Source: Small Business Administration

How will they determine the amount each business gets?

Each loan will be capped at either $10 million or 2.5 times the average monthly payroll of a given venue, whichever is the smaller amount. 

Here’s how that’s figured out:

  • The average monthly payroll is calculated using the one-year period prior to the loan being made. 
  • Payroll costs include salaries, wages, tips, payments for sick leave, insurance premiums and state and local taxes assessed on the compensation of employees,
  • The salaries of individual employees who are paid an annual salary of in excess of $100,000 will not count when determining the size of the loan. For example, in restaurants this might be executive chefs and general managers.

Source: Harding, Shymanski & Company, P.S.C.

What can the loan be used for?

The loan can be used to cover payroll costs, mortgage, rent and utility payments, and interest on other debt obligations incurred prior to February 15, 2020.

Source: Harding, Shymanski & Company, P.S.C.

What is the interest rate on the loan?

The interest rate on the loan is small. It has a maturity of 2 years and an interest rate of 1%.

Source: Small Business Administration

Is the loan forgivable?

Yes, though there are conditions:

  • If all employees are kept on payroll for eight weeks, the SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities.
  • Up to 75% of the forgiven amount must have been used for payroll costs.
  • Up to 100% of the loan is forgivable but forgiveness will be reduced if you lay-off full-time workers, or if salaries and wages decrease.

Source: Small Business Administration

Who is eligible to apply?

Businesses with 500 or fewer employees may apply. 

  • This includes eligible non-profits, Veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors described in the Small Business Act
  • Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.

Source: Small Business Administration

How do I apply?

According to the SBA, you can apply through “any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.”

Basically this will mean most banks that already issue loans to small businesses. 

The SBA advises that you consult with your local lender as to whether they are participating in the program. The SBA also notes that other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

Notes:

  • Talk to your bank/lender ASAP as these loans are first come first serve.
  • The Aid Assist tool from Intuit can help understand if you are eligible for the loan, and how much you could qualify for. It can also help connect you with an SBA-approved lender if you don’t have one already.
  • As with any loan application, you will be expected to back it up with a lot of financial information, so be prepared to provide it.
  • These loans may take some time to process i.e. don’t plan for a quick loan approval. The SBA is going to be flooded with applications now that the Payroll Protection Program is live.

Source: Small Business Administration

Tax Credits 

The CARES Act also provides eligible employers with a refundable payroll tax credit for 50% of the wages paid by employers during the pandemic. It applies to wages paid between March 13, 2020 and the end of the year.

Note: Employers who do not seek loan forgiveness are not eligible to take advantage of these Tax Credits i.e. if you are approved for a loan through the Payroll Protection Program, you can’t also take advantage of these tax credits. 

Source: Fisher Philips

Tax Holiday/Deferral

In addition to the tax credit, the CARES act also provides for a payroll tax holiday. This has been done to help employers with immediate cash-flow issues. 

Here are the details:

  • Employers may defer payment of their 6.2% portion of Social Security taxes they would otherwise be obligated to pay.
  • This also applies to the self-employed, not just businesses with more than one employee.
  • Any deferred payroll taxes would be required to be paid over the next two years – with half of the owed amount being required to be paid by December 31, 2021, and the remaining half by December 31, 2022.

Note: Similar to the tax credits, any business that receives a loan through the “Paycheck Protection Program” is ineligible to take advantage of the payroll tax holiday. 

Source: Justworks

Other relief programs 

In addition to the CARES Act, there are also a number of other existing federal, state, local, and corporate relief programs available to small businesses.

For example, the SBA’s existing Economic Disaster Injury Loans are available for up to $2 million and can be used for expenses like payroll, fixed debts, employee sick pay, accounts payable, and other costs.

Slice is keeping an up-to-date list of available resources and relief programs here

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