Small businesses can now apply for SBA loans, designed to retain their workforce, under the Paycheck Protection Program (PPP). Companies can apply for amounts up to the lesser of $10 million, or 2.5x their average payroll costs. Companies can use funds to cover payroll, rent, utilities, mortgage interest, group insurance premiums, and certain other expenses. Eligible payroll costs do not include employees with an annual salary greater than $100,000.
Benefits of the CARES Act for Small Business
Businesses can expect full or partial forgiveness of the PPP loan if they show that the funds were used for approved expenses. Also, companies must spend the funds during the first 8 weeks after receiving the loan. However, the business must maintain the same headcount of employees. Due to likely high subscriptions, at least 75% of the forgiven amount must have been used for payroll (per sba.gov). These loans are available through June 30, 2020.
If a company is interested in a quick infusion of a smaller amount of cash ($10,000), they can look into the Economic Injury Disaster Loan (EIDL). Alternatively, if a company is having trouble keeping up with payments on their current or potential SBA loan, they can look into the Small Business Debt Relief Program. If a company has an existing relationship with an SBA Express Lender, it can access up to $25,000 rather quickly through the SBA Express Bridge Loan.
Small businesses are also eligible to defer 2020 payroll taxes. They can pay the 2020 deferred amounts in two installments. The first one comes due at the end of 2021. The second one comes due at the end of 2022. Employers receiving assistance through the PPP cannot receive the deferral.
Counseling and training assistance are available. A company can turn to their local Small Business Development Center (SBDC), Women’s Business Center (WBC), or SCORE mentorship chapter. These partners will receive additional funds to expand their reach and better support, small business owners.
How do I know if my company is eligible for a Paycheck Protection Program (PPP) loan?
This program is for any small business with less than 500 employees. This includes sole proprietorships, independent contractors, and self-employed persons. Also included are private non-profit organizations and 501(c)(19) veterans organizations affected by coronavirus/COVID-19.
Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.
Does a PPP loan require a personal guarantee or collateral?
No. Lenders will not ask applicants for collateral or guarantees, nor will you have to prove you were unable to obtain financing elsewhere. You will, however, have to sign a good faith certification.
How does the CARES Act impact my company’s qualified retirement plan, such as a 401(k) or 403(b) plan?
The CARES Act provides for a special “coronavirus-related distribution” not subject to the 10% early withdrawal penalty. Repayment of the distribution can be made over three years without regard to the typical plan contribution limits. It is also includable in taxable income over three years to the extent not repaid. Such distributions generally may not exceed $100,000 in total for an individual. A coronavirus-related distribution means a distribution made on or after Jan. 1, 2020, and before Dec. 31, 2020, to an individual:
- Who contracts COVID-19
- Whose spouse or dependent comes down with COVID-19
- Who experiences adverse financial consequences as a result of quarantine, furlough, reduction of work hours, inability to work due to lack of child care as a result of COVID-19, the closing or reduction of hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
The plan administrator may rely on an employee’s certification that the employee satisfies the conditions noted above.
Loan Relief for Qualified Individuals
Additionally, for plans that allow for loans, the CARES Act provides certain loan relief for qualified individuals who satisfy one of the conditions above.
- A temporary increase on the plan loan limit (generally, up to the lesser of the present value of the non-forfeitable accrued benefit of the employee under the plan or $100,000) for loans made during the 180-day period following the enactment of the CARES Act;
- An additional one-year delay on any plan loan repayment that comes due during the period beginning on the enactment of the CARES Act and ending on Dec. 31, 2020. Any subsequent repayments must be adjusted to reflect the delay in due date and any interest accrued during the delay.
Finally, the CARES Act provides a waiver of required minimum distributions for the calendar year 2020 from qualified retirement plans, defined contribution plans under Internal Revenue Code Section 403(a) or 403(b), and eligible deferred compensation plans under Internal Revenue Code Section 457(b) (excluding those maintained by tax-exempt entities).
Please reach out to your SYM advisor with any additional questions. If you know of a business owner who could benefit from this information, forward and share.
The CARES Act for Business Owners (webinar)
Listen to gain answers and guidance on the CARES Act, Paycheck Protection Program, and Families First Coronavirus Response Act.
Seth Whicker, CFP®, MS, Principal and Senior Financial Advisor at SYM Financial Advisors
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Tom Ackmann, Principal and Senior Retirement Plan Advisor at SYM Financial Advisors
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Randy Brinneman, Senior Vice President at Ossian State Bank
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Unpacking the CARES Act for your Dental Practice (webinar)
Sponsored by SYM Financial Advisors in cooperation with the Isaac Knapp Dental Association, “Unpacking the CARES Act for your Practice” webinar includes guidance from the following panelists:
Joe Cohen, Partner, Barrett McNagny Attorneys at Law
Seth Whicker, Senior Financial Advisor, SYM Financial Advisors
Nathan Courtney, Consultant, Legacy Practice Transitions and Owner, Cloverleaf Advisory Group
Angie Daughtery, Lead Advisor, Cloverleaf Advisory Group
Dr. Brad Stutler, Stutler Dental Care