CARES Act: Financial Relief for Doctors and Other Small Business Owners as a result of COVID-19

The CARES (Coronavirus Aid, Relief and Economic Security) Act was enacted into law on March 27, 2020 to help provide financial stability and relief for individuals and businesses affected by COVID-19. While the bill is very broad and addresses a number of areas and industries, we believe the following are important to highlight for our healthcare clients at this time, especially as many doctors struggle to meet payroll and other overhead obligations.

As just one example, many dentists have temporarily closed their offices completely, while others are only seeing patients on an emergency basis. However, even though the office is closed, and the revenue has stopped, expenses will continue to accrue. Although there may be some reductions in expenses like utilities and supplies, rent will still be due.

Additionally, given the close relationships doctors have built with their staff over time and the need to retain quality employees, many doctors have decided to continue paying staff while they are partially or completely closed. Without assistance, this can create a significant burden on the doctor, which is where the CARES Act comes in.

Many small businesses are now eligible for disaster relief loans from the Small Business Administration. Additionally, the CARES Act provides conditions for when loan payments may be deferred, and loan amounts forgiven. The CARES Act includes relief for small businesses through the following programs:

  • Paycheck Protection Program loans
  • Economic Injury Disaster Loans
  • Small Business Tax Credit
  • Delay of Payment of Employer Payroll Taxes

A.    Paycheck Protection Program Loan Overview

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. The program provides cash-flow assistance through federally-guaranteed loans to employers who maintain their payroll during this emergency.

These are not simply loans, though.  If employers maintain their payroll and do not lay off or terminate employees, the loans are completely forgiven.  This is intended to help employers retain employees while providing ongoing payment to workers who otherwise would have lost their jobs.  The PPP also waives SBA fees and, to the extent the loan is not forgiven, it provides that any loan payments will be deferred for between six months and a year. This program is retroactive to February 15, 2020 in order to help bring workers who may have already been laid off back onto payrolls, but loans are only available through June 30, 2020.

Since the funds are intended primarily to be used for payroll expenses, there are some limitations on how the funds may be used.  Although the final parameters have not been set, the SBA anticipates that not more than 25% of the forgiven amount may be for non-payroll costs.

Question:       Who is eligible for assistance under the PPP?

Answer:          Generally speaking, all businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.

In order to qualify, you must also certify that:

(a) The uncertainty of current economic conditions makes the loan request necessary to support the ongoing operations of the business.

(b) That the funds will be used to retain workers and maintain payroll or make lease and utility payments.

(c) That the business does not have an SBA loan pending that would be duplicative of the amounts received under the loan. (d) That the business has not received payments under the PPP for the same purpose.

(d) That the business has not received payments under the PPP for the same purpose.

Question:       When can I apply?

Answer:          Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.                        

The loan application period ends on June 30, 2020 for both groups. Other     regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Question:       How much can I borrow?

Answer:          Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount (up to a $10 million cap). If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee (meaning when computing payroll costs to determine the loan amount, any compensation for employees/owners above $100,000 annually will not be included in the calculation).

Question:       What if I already had a workforce reduction?

Answer:          You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020 without penalty. Otherwise, reductions in the loan amount will be proportionally reduced by any reduction in employees retained compared to the prior year.

Question:       How does the loan forgiveness work?

Answer:          You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations.

In order to qualify for forgiveness, you must certify that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.

The lender must make a decision on the forgiveness within 60 days. Canceled indebtedness will not be included in the borrower’s taxable income.

Question:       Anything else I should know about this program?

Answer:          All loans under this program will have the following identical features:

  • Interest rate of 0.5%
  • Maturity of 2 years,  maximum  of 10 years
  • First payment deferred for six months
  • 100% guarantee by SBA
  • No collateral
  • No personal guarantees
  • No borrower or lender fees payable to SBA

The window for application opens on April 3, 2020, and eligible businesses should apply as soon as possible once the application period opens to maximize their chances of obtaining funding.  The following chart addresses some common questions we have received about eligibility and the scope of the PPP, but if you have specific questions, please contact us to let us know.

B.     Economic Injury Disaster Loans (EIDL) and Emergency Grants

In addition to the Paycheck Protection Program, small business owners are also eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000, as well as a loan of up to $2 million to provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing as a result of COVID-19.

The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid. The following addresses the parameters of the EIDL program:

Question:       Who is eligible for EIDLs?

Answer:          The following entities with 500 or fewer employees:

Sole proprietorships, with or without employees

Independent contractors

Cooperatives and employee owned businesses

Tribal small businesses

Most private non-profits

Question:       What is the advance and who is eligible?

Answer:          These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 and must be distributed within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance (including if you are denied for the EIDL itself), and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

Question:       Can I receive both a PPP and an EIDL?

Answer:          Yes. Whether you’ve already received an EIDL unrelated to COVID-19 or you  receive a COVID19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it in other months.

Question:       How long are the loans and grants available?

Answer:          January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.

Question:       What are the loan terms?

Answer:          Since EIDLs are subject to credit approval, some terms will vary from borrower to borrower. However, in general the following terms will apply:

Interest rate is 3.75% for small businesses and 2.75% for non-profits

Maximum 30-year terms

C.    Small Business Tax Credit

This provision provides a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis. Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit.

For employers with 100 or fewer fulltime employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave (IRC sec. 45S). The credit is not available to employers receiving assistance through the Paycheck Protection Program. The credit is provided through December 31, 2020.

D.    Delay of Payment of Employer Payroll Taxes

This provision allows small businesses to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability. Deferral is not provided to employers receiving assistance through the Paycheck Protection Program. All deferred amounts in 2020 must be repaid in two equal installments, due at the end of 2021 and end of 2022.