What CARES Act Can Do to Start-ups?

Okay, March 27, 2020, the House of Representatives passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). So what's next!?

It depends on who is the one asking this question. In essence, the CARES Act covers aid and relief not only for entrepreneurs, small business owners, but also includes the health care workforce, student loan borrowers, as well as residential mortgagors. This article cannot provide a comprehensive summary of the CARES Act, but this article can provide some information and summaries for entrepreneurs, self-employed professionals, and small business owners in plain English.

What Loan? Forgivable SBA Loan (Paycheck Protection Program)

• The loan is fully forgiven if the money is used for payroll costs, mortgage interest, rent, and utilities;

• Loan payments are deferred for 6 months. No collateral or personal guarantees are required; and

• No fees (2-year Maturity and .5% interest rate)

Remember, the key is that forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if you reduce full-time headcount, or you decrease your employees' salaries.

The CARES Act states that the maximum maturity is 10 years, and the maximum interest rate is 4%. Go figure!

Who Can Apply?

• Any small business with less than 500 employees.

Okay, even it is still a loan, the perk (yes, I choose to use this word) is that it is available to independent contractors, self-employed individuals subject to additional requirements. Slow down! What requirements? You have to have (1) IRS payroll tax filing (Forms 1099-MISC). Generally, you file a Form 1099-MISC when you had paid at least $600 in rents or services performed by someone who is not your employee in the previous fiscal year; (2) income and expenses determined by SBA and the Secretary of the Treasury.

How Much?

• Letter of $10 million AND 2.5 times the average monthly payroll costs incurred in the 1-year period before the loan origination date.

Payroll costs include pretty much everything you can think of (i.e., paid sick, medical, family leave...) BUT, the cap is $100,000 for any particular employee (Sorry, if you were your own boss, this is the cap for you)

Forgiveness (The Heart of the Matter)

• 8-week period (2 months) beginning on the loan origination date.

• Forgivable times: payroll costs, mortgage interest payment, rent, and utility bills.

• Forgiveness is REDUCED, if (1) you reduce your employee headcounts compared to historical levels, and (2) payroll decrease more than 25% of your historical compensation, during the "Covered Period" (2/15/2020 - 6/30/2020)

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Unemployment Compensation Benefits

For whatever reason, for instance, you don't like Don Henley (how can you not to), you decide not to take the LOAN. Federal funding is still available for unemployment benefits for your workers (or your prior workers)

• Employees that are not eligible for workers' comp; or

• Employees who have exhausted such benefits will be eligible to receive the same amount of assistance.

The covered period is from 1/27/2020 to 12/31/2020.

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Mr. Wang is bilingual in English and Chinese. As authorized to practice laws in Taiwan, the State of California, and some United States Federal Courts.