Small Business Relief From Coronavirus
Just three short weeks ago some of my clients were experiencing the best 1 st quarter of their business’s life.
The economy was thriving, and it seemed for some, they could do everything wrong and still turn a profit in Q1.
Things have truly evolved so rapidly and unexpectedly even the most prepared business is overwhelmed with the ever-changing landscape.
Not just financially, inventory supply lines have been compromised, workers are being furloughed, executive orders have mandatory shutdowns for certain industries, landlords are unsure if they will receive their monthly rent.
Safe to say most businesses were not prepared for the crisis we are now facing.
In response to that, federal and state governments as well as the Small Business Administration (SBA) and even local banks are offering different resources for small businesses impacted by COVID-19.
Here is a summary of available coronavirus grants, loans, and options as of April 5th , 2020.
Paycheck Protection Program (PPP):
The SBA will guarantee loan terms of 2 years and 1% interest for companies with fewer than 500 employees.
Eligible business can qualify for loans up to $10 million and can get deferments of 6 months to a year.
The portion of the loan used for payroll at the employees’ normal salary levels for 8 weeks can be forgiven. Up to 25% of the funding may also be used for rent/mortgage interest and utilities. That is, of course, if your lease doesn’t offer any rent abatement for untenable space.
You will need to apply with your financial institution for this coronavirus loan.
The application went live on April 3rd , and unfortunately there were a lot of challenges.
Reach out to your banker as soon as possible as there is only $350 billion allotted in the CARES Act for the PPP loan program.
You can read a more thorough explanation of this loan and the next two options here.
Economic Injury Disaster Loan (EIDL):
The SBA is providing working on capital loans of up to $2 million to small business and nonprofits with less than 500 employees.
The terms of this loan are up to 30 years and interest rates of 3.75% for small business or 2.75% for nonprofits.
The previous collateral requirements with traditional SBA loans have largely been waived.
Economic Injury Disaster Grant for EIDL Applicants:
When you apply for the EIDL you can elect to receive an advance of $10,000 within three days of application processing to maintain payroll, provide paid sick leave and to service other debt obligations.
It is my current understanding that even if you do not qualify for a larger loan or choose not to take the larger amount you will still potentially still receive the small business grant of $10,000.
There is a finite amount of money available for this program, and it is expected that this opportunity will run out quickly.
Only the $10,000 grant under the EIDL is eligible for forgiveness.
However, you can elect to refinance your EIDL under the PPP program and it will become eligible for forgiveness.
Employee Retention Tax Credit (ERTC):
The ERTC is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.
This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
An Eligible Employer may not receive the Employee Retention Credit if the Eligible Employer receives a Small Business Interruption Loan under the Paycheck Protection Program that is authorized under the CARES Act.
An Eligible Employer that receives a paycheck protection loan should not claim Employee Retention Credits.
Federal and Most State Income Tax Filing and Payment Deadlines Extended until July 15th:
The IRS has extended the amount of time you have to file and pay your 2019 income taxes from April 15th to July 15th.
This includes your estimated tax payments for the 1st and 2nd quarters for 2020 as well the IRA and Health Savings Account funding deadlines.
If you are unsure about your state filings, please reference the list maintained by the American Institute of Certified Public Accountants.
Payroll Tax Payment Deferment:
An employer may delay payment of the employer’s 6.2% of the Social Security tax.
For the period beginning March 27, 2020 and ending before January 1, 2021, payment of applicable Employer SS Tax owed during the Deferral Period is due by: December 31, 2021 with respect to 50% of such amount, and December 31, 2022 with respect to the remaining 50% of such amount.
As long as Employer SS Tax deposits are made in accordance with the above schedule, no penalty will be imposed.
Like the ERTC the employer will not be eligible for coronavirus deferment if they received the PPP funding mentioned earlier.
Similar provisions apply in relation to the self-employment tax.
Banks Defer Payments:
Many financial institutions have voluntarily extended additional payment terms to help with the financial stressors of coronavirus including 3-month deferments of payments or offers to make interest only payments for a few months.
Check with your financial institutions to see what might be available to you.
Up to $100,000 Withdrawal from Your Retirement with No Penalty:
You can withdraw up to $100,000 this year without the usual 10 percent penalty for early withdrawal, as long as it’s because of the outbreak.
Many people will need long term capital resources, and they can now use their retirement accounts if need be.
You will also be able to spread out any income taxes that you owe over three years from the date you took the distribution.
And if you want, you could put the money back into the account before those three years are up, even though the rules may normally keep you from contributing that large.
This exception applies only to coronavirus-related withdrawals.
You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic.
Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.
Borrow up to $100,000 from Your Retirement:
You can take out twice the usual amount as a loan from your 401(k).
For 180 days after the bill passed, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000.
Usually you can’t take out more than half your balance, but that rule is suspended.
Unemployment (UI):
Under normal circumstances you cannot qualify for unemployment if you are self-employed unless you have paid into the system.
Also you must be available for work and typically must have been laid off by the employer due to lack of work (varies state-to-state).
Due to COVID, the Department of Labor is allowing significant flexibility for states to amend their laws to provide UI benefits to all those effected by the outbreak including self-employed workers and small business owners.
Under the CARES Act everyone will qualify for an additional $600 per week until July 31 st , on top of what the state would have already awarded them.
Keep in mind the benefits vary greatly state to state.
Most states are also waiving the waiting period and expanding the number of weeks you can draw.
If you are paying yourself “payroll” under one of the other programs mentioned above you will not likely be able to draw unemployment.
Rent Negotiations (Read Next):
Many landlords are extending additional terms to their tenants affected by the crisis.
You can read more here about the techniques used to negotiate with your landlord under COVID-19.
As we discover more about how long this crisis will last, I suspect there will be additions to the small business resources gathered here.
In the meantime, the important thing is for you to craft a strategy forward as the leader of your organization.
Which resources you tap into is a crucial component of that.
If you are unsure of your next steps, I am happy to answer any questions you might have.
Until then I wish you and your business health and wellness as we march forward!
Allison formed Allison L. Reynolds, CPA, PLLC in 2019 after more than 15 years of public accounting experience with local CPA firms in Tennessee. Over the years, Allison has helped numerous individuals pursue their dream of successful business ownership, and she is using that knowledge to pursue her own dream. Through a unique set of skills and an approach that is catered specifically to her clients’ needs, she has seen businesses go from surviving to thriving! Her clients range from individuals, to small and medium sized businesses as well as not for profit organizations. More info may be found at www.allisonreynoldscpa.com
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