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The CARES Act: Small Business Loan Programs

The CARES Act (short for the "Coronavirus Aid, Relief, and Econonic Security Act") was signed into law on Friday, March 27, and is being termed "Phase III" of COVID-19 legislation. The legislation includes over $2T of fiscal support and provides an additional $4T to augment what the Federal Reserve is doing on the monetary policy front. There are plenty of financial and tax planning opportunities for individuals, but we want quickly highlight the loan programs that relate to small- and medium-sized businesses (SMBs) since SMBs are facing some of the most acute pressures at this point in time.

A central component of the legislation is the "Paycheck Protection Program," which is a small-business loan program to be administered by the SBA. Importantly, the loans are forgivable (that is, the loans convert to non-taxable grants) if the employers retain or rehire a minimum percentage of employees. As of today, many banks and loan officers are not yet up to speed, but we expect loan applications can be submitted as early as later this week. The US Chamber of Commerce released a helpful infographic summarizing the program (click here for program summary).

It is important to note that the Payroll Protection Program is a new program and distinct from the  Economic Injury Disaster Loan program (which is also being expanded under the CARES Act). Any SBA lender should be able to offer either loan, although we found this graphic from Live Oak Bank helpful in comparing the two programs (click here for loan program comparison).

Lastly, the CARES Act offers meaningful payment relief for businesses that currently have an SBA loan. For those who currently have an SBA loan, we recommend contacting your lender to learn what payment options are available.

Lastly, there are additional opportunities to utilize business losses and carry back net operating losses (NOLs), as well as expanded tax credits and deferral of payroll tax payments. Every situation is different and we recommend speaking to an accountant before applying/receiving any of the above loans, as some of the tax credits to do not apply to loan recipients. Speak to you accountant to determine which strategy works best. We will be working with our business clients and their tax accountants on these topics in coming months, but we believe the above loan programs should be the primary focus for many SMBs trying to make it through the next 1-2 months while providing for their employees.