CARES Act Update

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$2 Trillion Stimulus Package Offers Relief to Small Businesses

Today, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, sending $2 trillion of stimulus money into the pockets of individuals and businesses alike. To help small businesses directly, the Act sets aside nearly $400 billion in loans and grants and offers tax credits for businesses that keep their employees on their payroll despite economic hardships.   

Small Business Loans

The CARES Act makes loans available for up to $10,000,000 for certain businesses without many of the typical SBA requirements. The loans can be used to cover payroll costs, healthcare benefits, salaries, mortgage interest or rent payments, utilities, and interest on other debt obligations. Interest rates for the loans are capped at 4% and payments may be deferred for no less than 6 months. 

Congress has granted broad loan forgiveness terms for costs incurred and payments made up to the amount of the loan for payroll costs, mortgage interest, rent, and utility payments. As you have likely heard, however, the Act penalizes employers for terminating employees, or cutting wages for an employee more than 25%. These penalties reduce forgivable loan amounts in proportion to how many employees or how much wages are cut below 25%. 

The starting number of employees is based on either (1) average number of full-time employees per month from February 15, 2019 to June 30, 2019; or (2) the average number of full-time employees per month from January 1, 2020 to February 29, 2020. This allows employers to limit or eliminate loan forgiveness penalties.

Tax Credits

To incentivize businesses to retain employees, the Act also grants tax credits against quarterly employment taxes for half of all wages and qualified health plan expenses the employer paid to its employees up to $10,000 per employee. The credits are available for businesses that have either had to fully or partially suspend operations due to government stay-at-home orders during applicable quarters.

Like with the FFCRA, the CARES Act is subject to modification in the coming days and weeks as the responsible agencies issue guidance and regulations. You should talk to your lawyer if you’re interested in taking advantage of these loans or tax credits. 

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