Forgivable Loans, Payroll Protection, and Tax Relief amidst COVID-19

By guest contributor and law clerk: Keith Fischer

I haven’t left my apartment building in two weeks and I know it is the same for you, too. I look out my window and see a fast and social world that has come to a screeching halt. Here, the bright awnings and the colorful rows of fabric that would ordinarily be lined-up along Fashion District streets are now locked behind the metal doors of every store now closed. This hub of fashion retail businesses is desolate, for lack of a less ominous word. And I’m disturbed that, for the first time in nine years of living in downtown Los Angeles, there is plenty of available parking.

Shut-down orders abound as governments seek to mitigate the impact of the COVID-19 pandemic by closing public places and requiring citizens to stay home. Many businesses, out of this unforeseen necessity to public health, are left with no other choice but to close shop, leaving many businesses without revenue and employees without income.

Although many workers are able to continue their employment from home, many businesses that require social gathering to generate income must close.

Yet these policies—that individuals must stay home unless otherwise engaged in only essential travel, maintaining social distancing—are a vital strategy in combating this pandemic and should be strictly followed. Still, the economic impact is undeniable.

The federal government is therefore providing—under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—roughly $2 trillion to individuals, small businesses, corporations, state and local governments, and, of course, health services to ensure that people and businesses are financially secure during the current shut down so that these measures of combating the virus’s impact will continue to be effective without obliterating whole markets.

The CARES Act allocates $377 billion to small businesses providing: Paycheck Protection Program loan that is forgiven if used to retain employees; expanded qualifications for SBA Economic Injury Disaster Loans (EIDLs) with short-term forgiveness; six months respite from paying certain new and current SBA loans; as well as a plethora of tax relief for businesses affected by COVID-19 pandemic.

These loans will help maintain your business operations without creating an extended financial burden caused by the duration of shut-down orders. You can apply for as many of these programs as you need and for which you are eligible.

The CARES Act has allocated almost $350 billion to the Payroll Protection Program to enable a business that is facing hardship during the pandemic to retain its workforce. Small business owners with fewer than five hundred employees can apply to the Small Business Administration (SBA) for the Payroll Protection Program from which the business owner can receive a loan for up to $10 million to maintain the company’s workforce.

Any company receiving this particular loan is granted eight (8) weeks of loan forgiveness if during the eight weeks following the date of loan origination, the applicant/owner uses the funds to maintain payroll, make payments on mortgage interest, and satisfy lease and utilities payments. Note that, under the Payroll Protection Program, only a certain percent of the loan can be used for utilities or rent, please check SBA guidelines.

The combined amount of these expenses that is satisfied by the loan during that eight-week period will be forgiven. Businesses that already cut salaries or terminate the employment of its workers, will be given until June 30, 2020, to reinstate salaries or rehire employees. Sole Proprietors and Independent contractors may apply for the Payroll Protection Program as well.

This program seeks to ensure that most companies are capable of retaining its workforce during these critical months of this global emergency. For business owners, this will create a much smoother transition when the time comes to re-open—and come it shall.

The CARES Act has also expanded eligibility and funding available for SBA Economic Injury Disaster Loans (EIDLs). Small businesses, as well as sole proprietors and independent contractors, can apply for this loan to relieve the economic injury caused by the coronavirus outbreak.

This loan offers a $10,000 emergency cash advance which will also be forgiven if these funds are spent to finance paid leave, maintain payroll, and mortgage/lease payments—as well as covering other economic damage, such as responding to increased costs due to supply chain disruptions.

Businesses and other professionals, under certain conditions, can apply for both Economic Injury Disaster Loans, cash advance along with it,  as well as the Payroll Protection Program.

In order to further assist business owners shoulder the financial burden caused by the forced closures, SBA, for six (6) months, will cover the principal and interest for new and existing/current SBA 7(a) loans, 504 loans, and micro loans.

During these six months, owners will not have to worry about these particular monthly expenses, allowing relief funds to be used to carrying on the business despite losses incurred from the coronavirus pandemic. Although this will take place automatically, business owners should still check with SBA to be sure.

Finally, the CARES Act provides many tax relief opportunities for businesses. An employee retention tax credit, for instance, offers businesses a refundable 50% tax credit on wages up to $10,000 per employee if business operations were fully or partially suspended due to a shut-down order or if business experienced 50% gross receipts declined compared to this quarter last year. Consult your tax advisor regarding potential tax relief that may be available for your business.

By ensuring, through these funds, that your business is operational and fully staffed by your current employees during this period of forced closures, you will be better equipped to re-open and resume operations once the shut down orders are eventually lifted.

There is no doubt that the majority of business owners will, and absolutely should, take advantage of these relief options provided under the CARES Act. With these funds allowing businesses to function during this fight against the spread of COVID-19 consumers can soon enjoy those products and services that may not be essential to life, but may arguably be essential to living. In any case, I, for one, am ready for society to resume as smoothly and quickly as possible, even if it does bring the traffic back to L.A.