Last Friday, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The CARES Act is aimed at mitigating the economic fallout resulting from the COVID-19 pandemic. Congress authorized the infusion of $2 trillion into the United States economy. Of that $2 trillion, $500 billion has been allocated to businesses to help to alleviate the calamity caused by quarantines and social distancing. With both essential and non-essential businesses facing severe restrictions, as well as with the uncertainty surrounding the duration of the pandemic, anxiety over business survival is at the forefront. To stymie the potential influx of business closings and bankruptcies, the CARES Act seeks to make cash immediately available to businesses with loans on borrower-friendly terms and conditions as they seek to wade through the pandemic and the economic aftermath.
Paycheck Protection Program
While the CARES Act provides several attractive tax highlights, including the availability of an employer tax credit and the deferral of the Social Security tax portion of the employer’s share of payroll tax, a key component of the aforementioned $500 billion is the Paycheck Protection Program (PPP). The PPP offers businesses with immediate cash to fund payroll, health care benefits, rent, utilities, and interest on mortgage obligations, among other business operating costs. The PPP loans are 100% federally guaranteed and, generally, businesses with no more than 500 employees that were in operation during February 15, 2020 and June 30, 2020 are eligible to apply.
A highlight of the PPP is loan forgiveness. Specifically, as long as a business maintains its payroll and thereby retains its employees, the amount spent by the business during the eight (8) week period after the loan’s origination will be forgiven. It is the intent of the CARES Act that employers maintain employees on their payrolls during this crisis period.
The size of the loan that businesses are eligible to receive is equal to 2.5x the business’ average monthly payroll costs for 2019. Seasonal businesses may use the period between February 15, 2019 and June 30, 2019 as their average monthly payroll. If the business was nonoperational during that period, then the size of the loan is 2.5x the average monthly payroll costs between January 1 and February 29, 2020. In addition, the maximum term for PPP loans, if they must be repaid, is ten (10) years, with a maximum interest rate of 4%, and there are no SBA loan fees or prepayment fees.
In addition to the PPP loans, the CARES Act provides that small businesses may apply for certain SBA loans such as 7(a), 504 and microloans under friendly terms and conditions. Under the CARES Act, the SBA will cover all loan payments, including principal, interest and fees, for such SBA loans made six (6) months before the Act’s enactment, and for loans made within six (6) months of the enactment. To be eligible, businesses must meet SBA “small business” criteria.
To apply for a PPP loan, or any of the other loans available under the CARES businesses may reach out to current SBA 7(a) lenders for assistance. Businesses have until June 30, 2020 to apply. Click here to find an SBA Lender.
Maryland Business Relief Grants
In addition to the CARES Act, the State of Maryland is offering relief to small businesses through loans and grants. Specifically, the Maryland Small Business COVID-19 Emergency Relief Loan Fund offers businesses with fewer than 50 employees with up to $50,000 of cash. Much like PPP loans, Maryland is offering borrower-friendly terms to assist businesses with navigating this crisis. Indeed, under this loan program, interest on the loans run at 0% for the first 12 months, and 2% for the remaining 35 months; and there is a deferral of all payments for the first 12 months, and straight amortization beginning in the 13th month through the end of the loan period. To be eligible, businesses must have been established prior to March 9, 2020 and be in good standing. Also similar to PPP loans, loaned fund may be used for operating expenses such rent, mortgage payments, and utilities. To qualify, businesses must establish the lost revenue resulting from the COVID-19 pandemic.
The Maryland Small Business COVID-19 Emergency Relief Grant Fund offers grants of up to $10,000 not to exceed 3 months of cash operating expenses to businesses of 50 or fewer employees. Like the state’s loan program, businesses must be established prior to March 9, 2020, and be in good standing. To qualify, businesses must produce financial documentation that reflects that its annual revenues do not exceed $5 million. Similarly, businesses may use the grant for ordinary business operating costs such as working capital to support payroll expenses, rent, mortgage payments, and utilities.
Please contact Chris Young at 301.762.5212 with any questions you may have about the CARES Act, with assistance in obtaining a Paycheck Protection Program loan for your business, or with the State of Maryland’s grant or loan programs.
Chris Young is an associate in the Business & Tax practice at Miller, Miller & Canby. He focuses his practice on corporate legal agreements, business formation, tax controversy work and helping clients deal with new tax regulations. View more information about Miller, Miller & Canby’s Business & Tax practice by clicking here.