In this episode of Simply Tax hosted by Damien Martin, he has on Jim Ashley, Corey Stone and Greg Knight. They talk about how the CARES Act can help small businesses keep their cash flow during these unprecedented times.  Read my summary below for all of my takeaways!

CARES Act = Coronavirus Aid Relief Economic Security Act

Jim Ashley – Programs and how they work

• There was and still is a program in existence before the CARES Act was created called the Economic Injury Disaster (EID) Loan program that assists businesses when there is a presidential declared disaster.
• Since all 50 states are presidential declared disaster areas, they all qualify for the EID loan program
• This loan is a working capital loan for 2 million dollars. It assists the payroll, accounts payable and debt that cannot be repaid. They look at your business as a going concern. The interest rate is 3.75% for businesses and 2.75% for non-profits
• The CARES act has broadened the availability of this.
• A small business has a North American Industry Classification (NAIC) code and has a sizing standard. If you are less than 500 employees, you are a small business or if you are under a certain revenue limit you are a small business based on industry.
• Under the CARES Act they have one big broad stroke that says if you are under 500 employees you are considered a small business and qualify. There are some industries who have larger number limits based on what industry you are in. So, you could have 650 employees and still be in good shape for the loan
• Paycheck protection program (PPP) loan is available for small businesses who qualify within the 500-employee limit. But once again, if you are over that, double check the industry you are in on the government’s website and see if you qualify.
  
  • Applicable based on your physical locations. You can have more than 500 employees within your entire organization, but if you have less than 500 employees under each physical rooftop, you qualify.
  • Contact your attorney or a local small business organization
  • PPP – The amount is based on a formula = the applicant’s average payroll over the previous 12 months multiplied by 2.5 is the amount of the loan. You will select the lesser of $10,000 or that amount. But you can only use this for certain things such as payroll, utilities, rent, and mortgage (or other debt) interest
  • You have 8 weeks to incur and pay these potentially forgivable expenses. The SBA wants you to keep people employed so they want you to spend it within that time instead of saving it.
  • If your employee count is restored by June 30th, you are in good shape
  • The applicant needs to supply all this documentation to the bank and get the banks approval for PPP to get approved. The interest rate is no more than 4% and the business has up to 10 years to pay the loan back
• Employee Retention Credit
  
  • Up to $5,000 per employee to retain them
  • You can take this credit or the PPP credit. Each business needs to do the math to evaluate what credit is most beneficial to them since they can’t do both
• The goal is to get you back up to speed. You can repay the loan in 30 days, 45 days or 60 days based on your current means and you can work this out with your bank

Recap from Greg, Craig and Jim:

• Greg Knight – SBA Loans
  
  • You should make a new forecast of your balance sheet, income statement, cash flow and P&L for the next 6 weeks or year. Greg suggests all businesses to make forecasts based on what they project for the next year. He suggests cutting as many costs as you can if you think you can’t stay afloat.
  • What to focus on from Greg

• • 1. You have to know what your cost structure is and know where your sales and costs are going to be in our COVID-19 situation. Use your spare time to build out your plan on how to move forward and build those forecasts. Then talk to your suppliers, customers, and employees to build full transparency so that you can make it out of this in one piece and ramp back up to full speed when you are able.
    2. Use this as a learning process to investigate the future and see what parts of your business are essential and what parts of your business is are the most successful. This might be a good opportunity for your business to cut the fat and hopefully increase revenue and decrease expenses once things get back up to speed
• Craig’s Takeaways
  
  • The SBA has a great program and it is a great way to pay your employees. This is not guaranteed to be forgivable. There are no personal guarantees on these loans, no prepayment penalty, and there is a payment deferral for six months that can be extended up to a year. Terms are 10 years and interest is capped at 4%. If you have a part of the loan that is not forgiven, you still have the cash and it is a very solid program.
  • Talk to your advisor and see how they can help you most effectively
• Jim’s Takeaways
  
  • Find your trusted group of advisors and lean on them right now because they are the most educated and are trying to help their clients
  • However, nobody knows everything, and more regulations are prescribed everyday
  • The PPP loan is not taxable income. This is awesome!
  • This bill includes a lot of tax advantages so talk to your advisor for the details as they will be the expert for your industry and your business

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