Emergency Funding Options for Businesses

Economic Injury Disaster Loan (EIDL)

Some businesses prior to the passage of the CARES Act may have created an application for the Disaster Relief lending that was being offered by the federal government (Economic Injury Disaster Loan). Please note that these loans do not have the same lending provisions and forgiveness provided in the CARES ACT. Therefore, if an EIDL is in process, you may want to consider halting that application provided funds have not yet been received. If you have an EIDL in place, you can still apply for the PPP.

Paycheck Protection Program (PPP)

This program offers more than $370 billion in funding for small businesses. Businesses with fewer than 500 employees are eligible for up to $10 million in loans, which can be used for payroll and other expenses, such as insurance premiums, mortgage interest, rent or utilities.

There is no collateral for these loans, no personal guarantees are required, no fees associated with the loan as well as other attractive features. The handling of these loans will be done by local lenders not directly by the federal SBA administrators. However not all local lenders are currently qualified lenders. Therefore, you will need to determine if your banker is a qualified lender for these SBA loans. The CARES Act application is currently not available to the lenders but hopefully will be forth coming very soon.

Recipients of a loan made under the Paycheck Protection Program (PPP) will be eligible for loan forgiveness in an amount equal to the sum of the following costs incurred and payments made during an eight-week period beginning on the date of the loan origination:

  • payroll costs (including health insurance premiums)
  • interest payments on any covered mortgage obligation incurred before Feb. 15, 2020
  • payment of rent under a lease in force prior to Feb. 15, 2020
  • utility payments for which service began before Feb. 15, 2020

Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms up to a maximum of 10 years with an interest rate no greater than 4%.

Additionally, any business that has applied for the Florida emergency bridge loan can still apply for this federal loan. Florida has also indicated that you can use proceeds from the CARES ACT PPP loan to satisfy the Florida emergency bridge loan.

Employer Retention Credit

The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s full or partial suspension of business or a significant decline in gross receipts. This refundable credit can be claimed against the employer’s portion of the 6.2% Social Security (old-age, survivors, and disability insurance (OASDI)) tax.  The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters.

An eligible employer is defined as:

  • An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19); or
  • An employer that experiences a 50% decline in gross receipts for the calendar quarter compared to the same quarter in the prior year.

Qualified Wages. The credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021. If the employer has more than 100 full-time employees, qualified wages are wages paid to employees who cannot work during the COVID-19-related circumstances described above. If the employer has 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.

Please note that this credit is not available to any business that participates in the Paycheck Protection Program.

Delayed Payment of Employer Payroll Taxes

In general, under the Federal Insurance Contributions Act (FICA), taxes are imposed on both employers and employees on wages paid to the employee for Social Security and Medicare hospital insurance. The FICA taxes are imposed on both the employer and the employee at a rate of 6.2% for Social Security and 1.45% for Medicare for a total of 7.65% for the employee and 7.65 for the employer (15.3% in total).

The employer portion of the Social Security payroll taxes (6.2%) due from the period beginning on March 27, 2020 and ending on December 31, 2020 can be deferred. During this payroll tax deferral period, the total payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.

Any business that does not have a loan forgiven under the new SBA Paycheck Protection Program is eligible for the payroll tax deferral.

In an enormous effort to provide emergency economic relief during the COVID-19 pandemic the impact of the CARES Act is intended to be far reaching. We are only beginning to navigate these new rules and will continue to review the guidance forthcoming. We are here to help you therefore please do not hesitate to contact us if you have any questions by either replying to this email or calling 239-939-2233.