At 880 pages long, the Coronavirus Aid, Relief and Economic Security Act passed March 27 isn’t exactly light reading.
The $2.2 trillion CARES Act relief package seeks to reduce the economic destruction from the COVID-19 pandemic with a wide range of provisions for businesses and individuals in the form of loans, grants and tax changes, among other types of aid.
One piece, the Paycheck Protection Program, is aimed at helping small businesses retain workers and pay bills during the coronavirus crisis. The PPP funds up to $349 billion in forgivable loans to businesses with fewer than 500 employees that are forced to close or limit operations during the crisis. Business owners can apply for the loans through banks and other lenders and the loans are approved and funded by the federal government.
Businesses with fewer than 500 employees are also eligible to apply for an Economic Injury Disaster loan advance of up to $10,000. The advances are designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application, and the loan advance will not have to be repaid.
For more information on the CARES Act, PPP and more, visit the Dallas Business Journal’s Small Business Resource Guide by clicking here.
Megan McFarland, partner in charge with the Dallas office of public accounting firm Moss Adams, helps break down some elements of the CARES Act in this interview with the Dallas Business Journal:
Can you give us an overview of the CARES Act?
It’s a three-pronged approach to helping families and businesses through the public health and economic crisis. The three key components are the SBA resources, regulatory relief and the Family First Coronavirus Relief Act.
The Payroll Protection Program is one of the hot topics for sure for most businesses. (Almost) any business is under 500 people, right? So lots of folks are jumping on that.
There are two components under the SBA. There is the Economic Injury Disaster Loan, which no one is talking as much about because they’re the much smaller loans. They have a little higher interest rate, but those are direct through the SBA to apply for those.
The Payroll Protection Program, there’s a little more to it because it’s going through those SBA lenders. The interest rate is 1 percent. Obviously a lot of people see that as essentially free money at a time when they are liquidity strapped, and that can help them hold on to their employees so that when things do get going again, they have those people in place.
What are other elements?
The tax relief components, obviously the extension, everybody knows about. There are a lot of employee retention credits for those (businesses) that are closed by order, in essence. Then there’s the delaying payroll payments for two years. All of those things are obviously driven at keeping people employed.
What are some of the tradeoffs?
One of the things we’re seeing is people really need to weigh what’s better for them. Are they better off taking the Payroll Protection Program loan, or would they be better off with the employee retention and payroll credits? That’s going to really depend on their situation.
Are these programs first come, first served? How are they being administered and made available?
The EIDL (economic injury disaster loan), the smaller loan, that’s straight from the SBA. That’s on the SBA website, and they do a really good job laying out exactly what you need to apply for that.
The Paycheck Protection Program, those are being administered through SBA lenders. So you can’t go straight to the SBA to apply for that. You have to go to an SBA-approved bank. That’s where there’s a hiccup in the system right now. They’re still trying to figure out underwriting standards and things like that. The act says what you have to provide. But there is confusion as to how you’re ascertaining credit checks and things like that for people. There are qualifications on how much of this loan can be forgiven. So some of these banks can end up holding some of these loans if it’s not forgiven, or a portion of this loan. That’s creating some of the confusion. It’s a little more of a process.
There are about seven qualifying things that you have to provide. There’s a calculator out there. You can get up to 2.5 times your payroll, but it’s only on people who are (paid) under $100,000, and if you have over a certain number of employees, it goes down. There’s just a little bit more to the application process.
Is there some kind of a competition or application process for these loans?
I don’t think there is a ranking process. I think there is a maximum that can be distributed. I don’t think that the regulators thought through potentially how much of is would be subscribed and those types of things. But they aren’t even letting sole proprietorships and self-employed apply for it yet. That doesn’t start until April 10.
A lot of people are really excited about it. It’s essentially close to free money, so it’s completely understandable why a business would go after that. Everybody wants to be cognizant that this needs to happen fast to save businesses, but at the same time, how do we get it done and get it done well? There’s a lot evolving on that day to day, so it’s hard to say how it’s going to work out.
How are you advising your clients?
We advise our clients that the sooner you can apply for it, the better. You don’t want to be the guy that gets left out.
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