Economic Relief and Incentives for Small Employers: Three Loans, Two Credits
Congress has given small employers several options to help them weather the economic effects of the COVID-19 pandemic:
1. Immediate SBA Emergency EIDL Grants.
These $10,000 grants that will be available through your local bank (if an SBA authorized lender). Once they get their heads around the program, you should be able to get the money within 3 days after applying. The grants can be used for providing paid sick leave, maintaining payroll to retain employees, meeting increased material costs, making rent or mortgage payments comma and repaying obligations which cannot be met due to revenue losses.
2. Forgivable SBA 7a Loans Paycheck Protection Loans.
These too will be administered through your bank. Under this program, the bank will lend you up to 250% of your average monthly payroll costs or $10,000,000, whichever is less. The SBA is guaranteeing 100%. The interest rate cannot exceed 4%. Payments, including principal, interest and fees can be deferred 6-12 months, and the SBA will reimburse banks for loan original origination fees. After you get your loan, you will be able to apply for loan forgiveness to the extent the loan proceeds were used to covered payroll costs, mortgage interest, rent and utility payments during the 8 week period following the loan disbursement.
3. Traditional SBA Economic Injury Disaster Loans.
This is what most people have been applying for. This is not a new program, but it has been expanded recently. Under the program, the SBA can provide up to $2 million in loans to meet financial obligations and operating expenses that could have been met had the COVID-19 pandemic not occurred. The loan amount is based on your actual economic injury and your company’s financial needs, regardless of whether the business suffered any property damage. The interest rate is currently about 3.75% but cannot exceed 4 percent. The term can be up to 30 years.
4. Tax Credit to Fund Paid Sick Leave.
a. If you have an employee who is sick with COVID-19, and you pay them sick-leave, you can get a FICA tax credit (employer share only) equal to the lesser of wages plus health care costs or $511 per day for up to 10 days.
b. If you give sick leave to an employee who has a sick family member, the credit is $200 per day, up to a maximum of $10,000.
5. Employee Retention Credit.
If a government order requires you to partially or fully suspend operations, or if your gross receipts have declined by certain thresholds, you can receive a payroll tax credit equal to 50% of employee compensation up to $10,000 (per employee) paid between March 12, 2020 and January 1, 2021.
In both cases, you should be able to deduct the amount from your payroll tax deposits or recover a refund when you file your quarterly payroll tax returns.
ABLS recommends that:
- If you have immediate cash flow needs, apply for a $10,000 Emergency EIDL Grant.
- At the same time, you should apply for the Paycheck Protection Program Loan (covering 250% of your payroll).
- You should then apply to have your Payroll Protection Loan forgiven.
- If the options above are not adequate, go to the SBA website to apply for the traditional EIDL loan.
- If you have adequate cash flow, consider one of the FICA tax credit options, the sick leave credit if you have employees who are sick or caring for a sick family members, or the employee retention credit if you have had to suspend your operations or if gross receipts have declined substantially.
Procedures for implementing these new programs are evolving. There are still many unanswered questions.