CARES Act summary

​Coronavirus Update 5/4/20 
PPP - Update
PPP loan forgiveness and employees who refuse to come back to work 
The Treasury often issues guidance in the form of FAQ's. Earlier this morning, the Treasury Department released new guidance on PPP loan forgiveness provisions. The guidance advises that an employer will not be penalized with reduced PPP loan forgiveness if an employee rejects an offer to return to their job. 
 
From the guidance:
Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer? 
 
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
 
As you can see, documentation is very important and will be a critical part of the forgiveness process.
 
This ruling is one of the changes that we have been actively advocating for with our Federal officials and The Treasury. We continue to engage on a number of other PPP specific issues and will have updates as we learn more.
 
The complete updated FAQ can be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

​Click here for the Sample employment offer form for employee returning or declining to return to work.
​1. When can I get started on applying?
2. Immediately align yourself with your experts
The CARES Act is a very detailed and complex program which ultimately need your local banking relationships for SBA processing.  It is strongly recommended the you engage:
  • Your Business Banking Relationship
  • Your Accountant
  • For those who need guidance please reach out directly to the MRA for recommendations on both Accounting and Banking Partners that will guide you
3. Covered Loan Period
Retroactive to February 15, 2020, through June 30, 2020
4. Who is eligible for CARES Act?
  • A small business with fewer than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on any trade or business
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard
  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply
  • The 500-employee threshold includes all employees: full-time, part-time, and any other status.
5. What are the allowable uses?
  • Payroll costs
  • Health care benefits (including paid sick or medical leave, and insurance premiums)
  • Mortgage interest obligations
  • Rent obligations
  • Utility payments
  • Interest on other debt obligations incurred before Feb. 15, 2020
6. How much can I borrow?
  • Maximum Loan 2.5 x Average total monthly payroll costs incurred during the year prior to the loan date, not to exceed $10 Million
  • For businesses not operational in 2019:
  • 2.5 x Average total monthly payroll costs incurred for January and February 2020
  • Please find a great tool compliments of MRA Board Member Mark Kashgegian and The Antares Group, developed along with the team at Eastern Bank which provides a calculator on borrowing and forgiveness. Click here for calculator.
7. What are borrower requirments?
  • Good faith certification that the loan is necessary because of economic uncertainty caused by COVID-19 and will be applied to maintain payroll and make required payments.
  • Borrower must also certify that they are not receiving this assistance and duplicative funds for the same uses from another SBA program.
  • No collateral or personal guarantee are required.
8. What are the terms of loan forgiveness?
  • Loan recipients will be eligible for loan forgiveness for an 8-week period after the loan’s origination date in the amount equal to the sum of the following costs incurred during that period:
    • Payroll costs (compensation above $100,000 excluded)
    • Payment of interest on mortgage obligation
    • Rent obligations
    • Utility payments
  • The amount forgiven cannot exceed the amount borrowed.
  • Loan forgiveness will be proportionally reduced if the average number of employees is reduced during the covered period as compared to the same period in 2019. The amount of loan forgiveness will be reduced by the amount of any reduction in total employee salary or wages during the covered period that is in excess of 25 percent of the total salary or wages.
    • Payroll documentation and documentation of expenses are required to receive forgiveness, to ensure the forgiveness was used to retain employees and pay expenses.
    • Borrowers that rehire laid off workers by June 30 won’t be penalized for having a smaller workforce at the beginning of the period.
    • Borrowers with tipped workers may receive loan forgiveness for the additional wages paid to those employees.
  • Lenders have 60 days to issue a decision on the application.
  • The canceled loan amount will not count towards gross income for tax purposes
  • Waivers:
    • Borrower and lender fees are waived
    • Prepayment fees are waived
9. CARE Act details
  • Guarantees - Increases the government guarantee of 7(a) loans to 100 percent through December 31, 2020
  • Eligible Lenders - SBA and the Department of the Treasury are granted authority to determine additional lenders to administer the Payment Protection Program loans
  • Maturity Schedule - Maximum 10-year maturity after application for loan forgiveness
  • Interest Rate - Not to exceed 4 percent during the covered period
  • Payment Deferral - Not less than 6 months and not more than 1 year (including payment of principal, interest, and fees)​
10. Economic Injury Disaster Loan (EIDL)
A low-interest, fixed rate loan that can provide up to $2 million in assistance for small businesses that can be used to pay immediate expenses during an emergency.
​
What is an EIDL Grant?
  • The CARES Act creates a new $10 billion grant program, leveraging SBA’ s Office of Disaster Assistance Infrastructure, to provide small businesses with quick, much-needed capital

​Who is Eligible?
  • Private nonprofit organizations, small agricultural cooperatives
  • Businesses; cooperatives; ESOPs; and tribal business concerns with 500 or fewer employees
  • Independent contractors
  • Sole proprietors (whether self-employed or not)

How does the process work?
  • Eligible applicants who apply for an EIDL may request up to $10,000 be immediately disbursed. The amount need not be repaid, regardless of the loan decision
  • EIDL borrowers may apply for the Paycheck Protection Program, but when determining loan forgiveness, the advance EIDL grant is taken into consideration
 
How can I apply?
There are a couple of ways to apply. The SBA has an online portal where small businesses can upload documents and apply for a loan, or they can download the PDF on the agency’s website and mail the forms. The application can be completed online at www.sba.gov/DISASTER
 
How Much?
A million small businesses are eligible to receive up to $10,000
 
How long will the process take?
The legislation requires SBA to disburse the funds within three days of receiving the application
 
How Can it be Used?
  • • Any allowable purpose under the EIDL program
  • • Provide paid sick leave, maintain payroll, and meet increased costs
  • • Make rent or mortgage payments and repaying unmet obligations
11. Questions & Answers
My bank is still not ready to receive my PPP application?
  • Some banks have come on and are beginning to process applications, but the vast majority have not. We have heard informally that 4/8 is the target date for all banks to be up and ready. An SBA  lender list can be found at:  www.sba.gov/MA

The PPP may not work for my business, what are my other options?
There are two SBA emergency capital programs that are available to the public in addition to the PPP.
  • First is a Low interest, long term “Economic Injury Disaster Loan” (EIDL) for up to $2 million. The first payment is deferred for 12 months. The application can be completed online at www.sba.gov/DISASTER
  • Second, if you apply for a EDIL – you can ask for an “Economic Injury Disaster Loan Advance” for up to $10,000 as part of the loan application. If approved, these funds can be used for payroll and other operating expenses and can be FORGIVEN.

Why might the PPP not work for me?
  • Something to consider, we are under the impression that the clock on the 8 weeks starts ticking as soon as the money hits your account. For some operators, it might not make sense to take employees off UI because they will not be in operation. Our industry will most likely need a ramp up period back to capacity. It might make more sense for operators to use that money in 5-8 weeks, which is currently not permitted.
  • The MRA is raising this point about the need for restaurants to secure the loan now and use it at another time with both the National Restaurant Association and our congressional delegation. Reminder, the PPP was written to consider all businesses. As we know, our industry is different due to its size, labor intensity and disproportionate COVID-19 impact.
The MRA can’t advise what specific course of action to take (whether it’s PPP, EIDL, Employee Retention Tax Credits  or some combination of each). Consideration needs to be given to: 
  • how much of your business is currently generating revenue (totally closed vs. partial operating)
  • how this may evolve in June/July/August/into the Fall 
  • which employees are invaluable and what will the restaurant see with expected/usual turnover
  • the best advice we can offer is to work with your trusted banking and accounting professionals 

 What is the Employee Retention Tax Credit?
  • The employee retention tax credit (ERTC) for employers subject to closure due to coronavirus. The provision provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the crisis. The credit is available to employers whose operations were fully or partially suspended, due to a coronavirus-related shut-down order, or gross receipts declined by more than 50% when compared to the same quarter in the prior year.
 
  • For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the coronavirus-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
12. Qualified Improvement Property (QIP)
What happened?
  • Legislative glitch in TCJA that omitted QIP as eligible for 100% bonus depreciation
  • CARES Act includes that fix retroactive to 2018 and 2019
  • QIP now eligible for bonus deprecation
  • NO enlargement of building
  • NO elevator or escalator
  • NO internal structural component

What Did Not Change?
  • Interior and exterior structural improvement
  • 39-year recovery period
  • Not eligible for 100% bonus depreciation or Section 179 direct write-off
    • Except:
      • Roof
      • HVAC
      • Fire Protection
      • Alarm
      • Security Systems

What does this mean for you?
  • You may be eligible for additional depreciation deductions on 2018 and 2019 projects if you did not already take the maximum depreciation via Section 179
  • If you did NOT already maximize depreciation… Consider amending your tax returns
  • ​
The MRA can’t advise what specific course of action to take (whether it’s PPP, EIDL, Employee Retention Tax Credits  or some combination of each). Consideration needs to be given to: 
  • how much of your business is currently generating revenue (totally closed vs. partial operating)
  • how this may evolve in June/July/August/into the Fall 
  • which employees are invaluable and what will the restaurant see with expected/usual turnover
  • the best advice we can offer is to work with your trusted banking and accounting professionals