Resources for Business Owners impacted by COVID-19
To say that the past few weeks have been unprecedented would be the biggest understatement of this very young decade. While everyone is likely to feel some impact from the economic slowdown associated with this pandemic, business owners are expected to feel an even larger impact. It seems like every day we are hearing of a new program being established in order to provide help and resources for business owners. Below I have highlighted a few of those plans and provided links that offer specifics on the programs. As you consider pursing one or more of these options for your business, I would recommend consulting with you legal and tax advisors.
Economic Injury Disaster Loans (EIDL)
The SBA provides low-interest (3.75% for-profit and 2.75% non-profit), long-term (up to 30 years) loans of up to $2,000,000 for physical and economic damage caused by a declared disaster. Funds from these loans may be used to help a business pay fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the impact of COVID-19. Businesses applying for an EIDL can receive up to $10,000 in advance of receiving the loan proceeds. This grant is considered to be an Economic Injury Disaster Grant. To learn more about SBA Economic Injury Disaster Loans visit the Alabama Small Business Development Center website. If you do not live in the state of Alabama your state should have a similar website that can be found by searching “state name, small business development center”. In order to start an application for one of these loans please visit SBA Disaster Assistance COVID-19.
To complete your application, you will need:
- Latest filed federal income tax return
- First 3 months of 2020 financial statements
- Personal Financial Statement
- Listing of Debts
- Application loan amount request
SBA Economic Injury Disaster Loans
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed last week the SBA will be creating a new program to provide loans to eligible businesses. Loans provided under this program can be used to cover payroll, benefits, mortgage payments, rent payments, and other operating expenses.
- Good faith certification that the loan is necessary to support operations; and the funds will be used for operating expenses
- Applicant does not already have a pending application under SBA for the same purpose
- Applicant has not received and SBA loan for the same purpose between February 15, 2019 and December 31, 2019
- Documentation verifying number of full-time employees and pay rates for the periods
- Verification of payments on covered mortgage/lease agreements and utility payments
- Certification from the applicant that the amount requested for forgiveness was used to retain employees, pay mortgage/rent, and utilities
- Any other documentation deemed necessary by the SBA administrator
Max Loan Amount and Terms
- Loans are capped at $10 million and shall be the lesser of:
- 5x the average monthly payroll costs incurred in the 1 year period before that loan is made plus the outstanding amount of a loan made under the SBA Disaster Loan program between January 31, 2020 and the date on which such loan may be refinanced as part of the new program.
- Negotiable interest rates not to exceed 4%: amortized over maximum of 10 years
- Any business, nonprofit organization, veteran’s organization, or Tribal business which employs less than 500 people.
- Loans would be forgiven completely (Not to exceed the principal amount of the loan) equal to the costs and payments made during the covered period:
- Payroll Costs
- Interest payments on mortgages
- Utility Payments
- Forgiveness amounts will be reduced for any employee cuts or reduction in wages
- Any Economic Injury Disaster Grant received is also deducted from the forgiveness amount
State and Local Resources
Some states and local municipalities recognizing the vital role that small business plays have begun to roll out their own loan programs for small businesses. A great example of this the Bham Strong Loan program which is designed to provide loans of $10,000 – $25,000 to business with less than 50 employees. Programs like this can be a great way to stabilize your cash flow while waiting to receive funds from more conventional lenders such as the SBA or a bank. Your state, local county and city websites should be able to provide you with any information regarding the assistance they are providing business owners.
The US Treasury has recently authorized taxpayers to delay filing and federal tax payments without interest until July 15th. Some states have followed suit, in order to check your state you can visit the reference page State Tax Deadlines created by the American Institute of CPAs (AICPA). Delaying the payment of taxes for 3 months from a business and personal standpoint can be a great way to conserve cash until your business begins operating in a normal manner again.
It is also important to check with your city and county to see what delays they may be offering. For example, some cities have waived late payment penalties on municipal taxes for a period. Your local county and city websites should be able to provide you with any information regarding the assistance they are providing business owners.
As with all tax related matters you should speak with your CPA / Tax Preparer before deciding regarding delaying your tax payments.
In addition to utilizing the many state and federal relieve programs, business owners should also speak with their lenders. It is recommended that you contact your banker and communicate with them how your business is being impacted. Your banker should understand the uniqueness of this situation and be willing to work with you to create a mutually beneficial strategy.
Families First Coronavirus Response Act
The act was signed by President Trump on March 18th to help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
Key Takeaways include:
- Paid Sick Leave for Workers
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid childcare leave when employees’ children’s schools are closed, or childcare providers are unavailable.
- Complete Coverage
Employers receive 100% reimbursement for paid leave pursuant to the act.
- Health insurance costs are also included in the credit.
- Employers face no payroll tax liability.
- Self-employed individuals receive an equivalent credit.
- Fast Funds
Reimbursement will be quick and easy to obtain.
- An immediate dollar-for-dollar tax offset against payroll taxes will be provided
- Where a refund is owed, the IRS will send the refund as quickly as possible.
- Small Business Protection
Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or childcare is unavailable in cases where the viability of the business is threatened.
- Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
We know that this is a challenging period for business owners, but we also believe in the resilience and resourcefulness of entrepreneurs. As always, we remain committed to serving our clients and helping them to weather the storm. As additional programs and resources become available, we will continue to communicate them with you. If you have further questions or need assistance, please reach out to one of our Client Advisors.
Oakworth Capital Bank does not provide tax or legal advice. All decisions regarding the tax and / or legal implications of these strategies should be discussed with your tax and / or legal advisors before being implemented.