In a monumental attempt to address the instability and uncertainty created by the Coronavirus pandemic and the resulting economic disruptions, the Federal Government passed the nearly $2 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).
In addition to individual recovery payment and forgiveness-eligible loan programs , the CARES Act provides more economic relief for small and mid-sized businesses to assist in surviving a virtual economic standstill and the recession that will likely follow. As business leaders contemplate how best to position themselves when the dust finally settles, they should be aware of the following benefits provided by the CARES Act.
Expanded Options under SBA Bridge Loan Program
- New SBA Express Bridge Loans Are Available in amounts up to $25,000. These loans are intended to be made through a streamlined process, pending application for other loans. For more information click here: https://www.sba.gov/sites/default/files/2020-03/Express-Bridge-Loan-Pilot-Program-Guide-FINAL-3.25.20.pdf
- Maximum Amount of Existing SBA Express Loan Programs is Increased from $350,000 to $1,000,000. This program can be utilized for payment of working capital costs not associated with COVID-19, purchasing real estate and other business expansions and refinancing.
- Small Business Tenants The CARES Act also provides low-interest loans to businesses to allow them to avoid defaulting on their leases and mortgages.
Tax Provisions for Real Estate Business and Operating Businesses
- Refundable Payroll Tax Credit Is Available for business operations suspended during the covered period, in whole or in part, by COVID-19 or where gross receipts in a quarter declined by more than 50% from the same quarter in the prior year. For employers with less than 100 full-time employees, all employee wages paid qualify for the credit regardless of whether the employer is open for business, employees are working from home, or the business is subject to a shutdown order.
- Social Security Tax Deferment allows for deferred payments of the employer share of Social Security tax relating to wages paid through the end of 2020 for two years, with half to be paid by December 31, 2021 and the other half by December 31, 2022.
- Advanced Tax Credit Refunds for Paid Leave mandated by the Families First Coronavirus Response Act will be available to employers at an employee’s regular rate of pay, subject to certain dollar limitations, for a total of 10 days that an employee is unable to work due to either Coronavirus-related illness or child care obligations.
- Net Operating Loss (NOL) from 2018, 2019, and 2020 can be carried back 5 years and may be used to fully offset a company’s taxable income during that 5-year period.
- New Rules For Qualified Improvement Property (QIP) which reduces the depreciation schedule from 39 years to 15 years retroactive to 2018. This assists commercial construction projects by making qualified improvement properties eligible for additional depreciation. This allows for expensing of assets having a “useful life” of 20 years or less. Any net operating losses created by this change qualify for the net operating loss discussed above.
- Active Excess Business Losses may be claimed by amendment to 2018 and 2019 tax returns without regard to the previous business loss restriction, which denied deductions for excess business losses in tax years beginning after December 31, 2017. The excess business loss limitation is suspended though December 31, 2020.
- Relaxed Business Interest Deduction Limitations increase the amount of interest expense a business may deduct on its tax returns. Typically, a business may deduct interest expense of up to 30% of its adjusted taxable income. Pursuant to the CARES Act, adjusted taxable income limit is increased from 30% to 50% for the taxable years 2019 and 2020.
- Benefit Amount Increases by $600 per week in addition to the weekly benefit amount the individual receives under state law through July 31, 2020.
- Benefit Duration Increases the number of benefit weeks by 13 weeks beyond the state benefit limit, which in Pennsylvania increases the maximum number of weeks of unemployment compensation from 26 weeks to 39 weeks.
- Benefit Eligibility Expands to cover individuals who are not traditionally eligible for unemployment compensation, such as self-employed persons, independent contractors, persons without sufficient work history, etc.).
- Benefit Eligibility Expands to allow for benefits in more circumstances, including individuals unable to look for work due to eligible COVID-19 related issues through December 31, 2020.
- One Week Waiting Period Waived.
- Debt Limits Are Temporarily Increased from $2,725,625 to $7.5 million for purposes of the newly enacted Small Business Reorganization Act. The provision automatically sunsets one year from the date of enactment of the CARES Act.
- COVID-19 Related Payments Are Temporarily Not Counted in current monthly income or disposable income. These figures influence whether a debtor files under Chapter 7 or 13, and whether a Chapter 13 plan is confirmable over an objection. This change sunsets one year after enactment of the CARES Act.
- Chapter 13 Plans Are Temporarily Amendable for the express reason of COVID-19 Hardship, and can provide for payments for a period of up to seven (7) years from the date the first payment under the original plan was due (previously, plan length was capped at five (5) years). This provision also sunsets one year after enactment.
- Small Business Debt Relief Program provides relief by covering loan payments on non-disaster SBA loans (such as non-Paycheck Protection Program 7(a) loans, 504 loans, and microloans), including principal, interest, and fees, for six months.
- Withdrawals from 401(k) accounts up to $100,000 can be made without 10% early withdrawal penalties.
- Main Street Business Lending Program to provide short-term financing options to small and medium businesses. Details are expected to be released soon.
Metz Lewis attorneys are mobilized to advise businesses and individuals regarding time sensitive coronavirus-related issues. Unprecedented times call for unprecedented measures, and we stand ready to provide our proven guidance. Please do not hesitate to reach out to Christopher A. Brodman (firstname.lastname@example.org); John R. O’Keefe Jr. (JOkeefe@metzlewis.com); John W. Lewis (JLewis@metzlewis.com); or Brian J. Golias (email@example.com); or your primary Metz Lewis contact if you have any questions or wish to discuss.