The Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act was signed into law on Friday March 27, 2020 and establishes two federal programs to assist small businesses during the Coronavirus crisis. Our business attorneys at Levine Staller are available to assist you with any questions you may have.
Below is an overview of the programs being administered by the Small Business Administration and the New Jersey Economic Development Authority.
Paycheck Protection Program
The Payroll Protection Program
(“PPP”) is a small business loan program intended to help companies maintain payroll and certain other expenses for eight weeks. The loans are available until June 30, 2020 to cover:
• Employee compensation (capped for employees with salaries over $100,000)
• Employee’s vacation and sick leave (except for leave granted under the Families First Act)
• Health care benefits and other insurance premiums
• Retirement contributions
• Mortgage interest obligations (and not principal)
The maximum loan available to a business is the smaller of $10 million, or 2.5 times the company’s average monthly payroll costs.
• Business with 500 or fewer employees
• Certain 501(c)(3) nonprofits that have 500 or fewer employees
• Restaurants and hotels that have 500 or fewer employees at each independent location
• Certain self-employed workers, independent contractors and sole proprietors
Businesses who receive a PPP loan are eligible for loan forgiveness for monies spent during the 8 week period after the loan origination date if the loan is used for certain expenses. It is important to note that companies will not be eligible for complete loan forgives if they have reduced the number of employees or cut employee salaries by more than 25 percent between February 15 and April 26, 2020. However, businesses will be eligible to receive loan forgiveness if they hire back the same number of employees by June 30, 2020. In other words, the loan will be forgiven if your business either (i) does not lay off any employees or (ii) if you rehire the same number of employees by June 30, 2020.
We note that recent guidance from the SBA indicates that no more than 25 percent of the loan forgiveness can be attributed to non-payroll costs.
In the event that the entire loan balance is not given, repayment can be deferred for up to 6 months and will have an interest rate starting at 1 percent. The maximum term of repayment is 2 years.
Applications Are Now Being Accepted:
We suggest that eligible companies immediately contact their bank to start the application process. SBA approved lenders are accepting applications, which can be completed online.
You will need your 2019 quarterly payroll tax reports, and other documents evidencing payroll expenditures such as health insurance premiums, retirement funding and the like, as well as 2020 interim financial statements, and any business organizational documents, such as your organization’s operating or shareholder agreement.
Economic Injury Disaster Loan Program:
The CARES Act also expands the existing SBA Economic Injury Disaster Loan (“EIDL”) program. The EDIL provides low-interest loans for companies to cover operating expenses.
Under the EIDL, loans can be used to pay:
• Mortgage payments
• Rent payments
• Payroll (but cannot overlap with the PPP)
• Business operation expenses.
Because the loan is not forgivable, there is more flexibility for what the loans can be used for. EDIL loans will have a 3.75 percent interest rate and a 2.75 percent interest rate for nonprofits. The repayment of an EDIL loan can be deferred for six months. The maximum term of repayment is 30 years.
The EDIL program also provides a $10,000 emergency “advance” that eligible companies will not have to pay back, except that the $10,000 has to be deducted from any loan forgiveness amounts received under a PPP loan.
Applications Are Now Being Accepted:
Eligible businesses can apply directly for the EDIL directly with the Small Business Administration by going to the SBA’s website. Businesses that are interested in the $10,000 grant can apply at the same time.
New Jersey Programs:
The NJ Economic Development AUthority (“EDA”) has also approved a number of programs for small businesses.
Small Business Emergency Assistance Grant Program – A $5 million dollar program that will provide small businesses with 1-10 employees with a grant ranging from $1,000-$5,000 to stabilize their operations.
Small Business Emergency Assistance Loan Program– A $10 million dollar program that provides loans of up to $100,000 to small businesses with less than $5 million dollars in revenues. The loans have a 10 year term, with zero percent interest for the first 5 years and then reset by the EDA’s prevailing rate, capped at 3 percent for the remainder of the loan.
More information about EDA grants and loans can be found at https://www.njeda.com/about/Public-Information/Coronavirus-Information
The EDA has also created an “assistance eligibility wizard” which allows businesses to quickly assess what support may be available to them. The wizard can be found here.
For employees, including those who are self-employed and 1099 independent contractors, who can no longer work due to COVID-19, you may be eligible for unemployment. Under the CARES Act, the weekly benefit for all unemployed workers was increased by $600 per week for 4 months. More information can be found at here
Contact an Experienced Business Attorney
Our experienced business attorneys can assist you in these uncertain economic times. We represent clients throughout New Jersey including Atlantic County, Cape May County, Camden County, and Ocean County. Contact us or call 609-348-1300