Navigating and understanding the CARES Act for small businesses

On March 27, President Donald J. Trump signed the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) into law with provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which quickly passed the House of Representatives, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus. It is the largest modern stimulus package in the country.

The COVID-19 impact on agriculture includes a rapid and unanticipated decline in commodity prices, the likely closure of ethanol plants, the dramatic decline in full-service restaurant and school meal demand, and the reduction in direct-to-consumer sales. The agreement includes a $14 billion increase in USDA’s borrowing authority under the Commodity Credit Corporation and $9.5 billion to assist specialty crop producers, direct retail farmers and livestock operators.

“Of course there are provisions in there that affect everyone as taxpayers and specifics in there that affect agriculture. Something Farm Bureau worked hard on is recognizing these are disruptions that are far and wide and not specific to our traditional row crop agriculture. We wanted to make sure we are looking at everyone, whether you are a cattle producers or selling directly to a farmers market. We wanted to make sure all gamuts of the agricultural community are looked after in this stimulus package,” said Jack Irvin with Ohio Farm Bureau. “On the small business side there are some loan opportunities. Farm Bureau is still working to get clarity on all of this. The administrators and regulators are dealing with unprecedented levels of people trying to access these programs. Hopefully we can get things moving forward in a timely and clear fashion. Right or wrong, there is a lot of ambiguity out there with these programs right now.”

According to Ohio Farm Bureau, the CARES Act:

• Provides direct financial assistance to families in need, including $1,200 for individuals making less than $75,000 and $2,400 for couples making less than $150,000. Families with children will be eligible for an additional $500 per child;

• Includes a large temporary expansion in unemployment insurance benefits by adding a $600 per week across-the-board payment increase through the end of July, providing an additional 13 weeks of benefits beyond what states typically allow, and expanding benefit eligibility to cover self-employed and independent contractors, government workers and nonprofit employees;

• Provides $350 billion in small business loans for companies with under 500 employees that effectively become grants if those loans are used to keep workers on payroll, make rent and mortgage payments, or pay utilities;

• Includes $500 billion in immediate tax relief for businesses of all sizes, including provisions such as payroll tax deferral and the ability to immediately monetize tax losses;

• Creates a new fund established through the Treasury Department and the Federal Reserve to provide loans and loan guarantees to businesses and industries that have been particularly affected by the current crisis, such as airlines, hotels, restaurants and nonprofits;

• Includes strong transparency and accountability safeguards for any company that accesses federal loans and creates a new federal inspector general to oversee these loans;

• Offers $23.5 billion in aid directly allocated for America’s farmers. Of that, $9.5 billion is allocated specifically for specialty crops, producers who supply local food systems and farmers markets, restaurants and schools, livestock producers, and dairy farmers.

The First Commonwealth Bank has been looking at the financial implications of the CARES Act for small businesses, including farms and agribusinesses, and compiled the following information.

What we know now
The CARES Act signed into law allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection program, the initiative provides 100% federally guaranteed loans to small businesses who maintain their payroll during this emergency. The U.S. Treasury and Small Business Administration (SBA) are working now to figure out how to make the money available to you and your business as quickly as possible. We will participate at the highest level and as the SBA has details available, you will hear from us.

The Paycheck Protection Loan Program expands loan eligibility under the SBA 7a program with the intention to assist businesses with covering costs related to payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt.
Borrowers will need to certify that they’ve been impacted. There will be no personal guarantees or collateral associated with the loan. Detailed application requirements are still to be determined.
Loan amount maximum is 2.5 times average monthly payroll not to exceed $10 million.
There will also be a payment deferral and loan forgiveness program.

Who is eligible?
• 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

In addition, some special rules may make you eligible:

• 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
• REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status.

What you can do now
The SBA will soon release more details, but here’s what we know you can do now:

• Determine your number of employees as of December 31, 2019 and as of February 15, 2020
Fill out the SBA Form 1919
• Gather your monthly payroll records for the preceding 12-month period
• Additional documents may be required by the SBA.

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