Month: April 2020

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The legislation included various provisions that assist tax-exempt organizations by providing programs and tax benefits to reduce some of the financial stress created by the COVID-19 pandemic. Unfortunately, one of the most popular parts of the Act, the Paycheck Protection Program (PPP), which makes low-interest loans available to cover payroll costs and then forgives or partially forgives those loans so long as the borrower meets certain requirements, is not available to 501(c)(6) organizations.

However, the CARES Act still provides assistance to associations. This relief is primarily limited to two categories: emergency lending in the form of Economic Injury Disaster Loans (EIDLs) and refundable payroll tax credits.

The Economic Injury Disaster Loan and Grant Program

The Economic Injury Disaster Loan Program (the Program) is a pre-existing Small Business Administration (SBA) loan program that is intended to alleviate economic injury to small businesses or private non-profits experiencing injury. In the past, these loans were commonly used after natural disasters, like Hurricane Sandy. 

The CARES Act formally declared the COVID-19 pandemic to be a “disaster” under the Small Business Act. This declaration gave small businesses, including private non-profit organizations, the ability to access the Program. Additionally, the CARES Act provided the Program with $10 billion in additional funds to assist small business owners impacted by the outbreak.  

Under Section 1110 of the CARES Act, private non-profit organizations that were in operation prior to January 31, 2020 are eligible for EIDLs up to $2,000,000, provided the loan proceeds are used for regular expenses, such as payroll and operating expenses, that could have been met but for the COVID-19 pandemic. In order to increase availability of EIDLs, the CARES Act waived certain EIDL Program eligibility requirements. Specifically, a borrower does not have to: (1) provide a personal guarantee for loans up to $200,000; (2) have been in business for at least one year prior to the onset of the disaster; or (3) be unable to obtain credit elsewhere. EIDLs are made directly by the SBA without involving a third-party lender. While these loans are ineligible for forgiveness, loan repayment can be deferred. EIDLs are offered to qualified non-profits at an interest rate of 2.75%.

One of the most attractive parts of the EIDL Program is the ability to obtain an immediate advance of cash. Private non-profit organizations in need of immediate funds may request a $10,000 emergency cash advance. Such funds shall be provided to them within three days of applying for an EIDL. If the application for the EIDL is denied, the $10,000 cash advance would not need to be repaid. This advance may be used for expenses such as paid sick leave for employees with COVID-19, maintaining payroll during business disruption or government shutdowns, rent or mortgage payments, or increased operational costs.

For more information, the COVID-19 Economic Injury Disaster Loan Application can be accessed here.

Employee Retention Credit

In an effort to encourage employers, including non-profit organizations, to keep employees on their payroll in the wake of the COVID-19 pandemic, the CARES Act included an Employee Retention Credit (ERC). The ERC is a fully refundable tax credit equal to 50% of qualified wages (including allocable qualified plan expenses) that employers pay their employees between March 13, 2020 and December 31, 2020. All tax-exempt organizations are eligible if they were operational during calendar year 2020 and either:

1. the organization’s operations were fully or partially suspended due to a government order limiting commerce, travel or group meetings due to COVID-19 (such as a ‘stay at home’ order) or
2. the organization had a reduction in revenue of at least 50% in the first quarter of 2020 compared to the first quarter of 2019. In determining an association’s decline in revenue, the organization must consider its entire operations.

If these criteria are met, an organization is entitled to a refundable payroll tax credit equal to 50% of qualified wages. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000.

We recommend that you review these options and determine if one or both could be beneficial to your organization.

For more information on how the CARES Act impacts your organization. Please contact Rich Bar (rbar@gkglaw.com) or Katie Meyer (kmeyer@gkglaw.com).

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The $2.2 trillion stimulus bill passed by Congress is the largest federal response in history designed to mitigate the impacts of the COVID-19 pandemic. As COVID-19 has greatly affected the shipping industry due to quarantines, travel restrictions, delays in processing cargo, lack of cargo storage space, and millions of containers laying idle, the CARES Act can potentially provide relief to businesses who are experiencing difficulties. The CARES Act includes measures to assist distressed industries and businesses. Although the CARES Act does not specifically provide funding and financing for the shipping industry as it has the aviation industry, the shipping industry should take note of the following provisions and key points that apply to businesses:

Paycheck Protection Program

• The Paycheck Protection Program (PPP) authorizes $349 billion in forgivable loans for small businesses and their workforce. The PPP defines a small business as one with no more than 500 employees (“employee” includes individuals employed on a full-time, part-time and other basis). Sole proprietors, independent contractors, and certain self-employed individuals are also included.
• The PPP is meant to incentivize small businesses to keep employees on their payroll. Loans issued under PPP will be forgiven if the business’s employee and compensation levels are maintained, and the funds are used for payroll costs, rent, utilities and interest on mortgages for the eight-week period after the loan is made; 75% of the forgiven amount must be used for payroll. Additionally, loan payments will be deferred for six months.
• The PPP provides for up to $10 million in small business loans as part of the Small Business Administration’s (SBA) 7(a) loan guaranty program for the covered period of February 15, 2020 through June 30, 2020. Additionally, loans under the SBA’s Express loan program have been increased from $350,000 to $1 million until December 31, 2020. SBA Express Loans can be processed within 36 hours.
• The maximum loan amount under the 7(a) loan guaranty program is $10 million and can be used to cover “payroll costs” (e.g. salaries, wages, commissions, costs related to the continuation of group health care benefits, rent, utilities, etc.). “Payroll costs” does not include compensation for an individual employee in excess of $100,000 per year, prorated for the covered period, employees whose principal residence is outside the United States, certain taxes and qualified sick and family leave subject to certain credits.
• Under the PPP, borrowers must certify the following: that the loan request is necessary due to the uncertainty of the current economic conditions; that the funds will be used to retain workers and maintain payroll; that borrower does not already have an application pending; and that borrower has not already received funds under this section for the same purpose. Additionally, lenders are required to confirm whether the borrower was in operation on February 15, 2020 and had paid salaries and payroll taxes for its employees (or independent contractors).
• Small businesses can apply through any existing SBA 7(a) lender, federally insured depository institution, federally insured credit union, and any participating Farm Credit system institution.
• Lenders can begin processing applications on April 3, 2020 until June 30, 2020. Additional information on the PPP can be found here. The application for a PPP loan is relatively simple and can be found here.

Emergency EIDL Grants

• Provides $10 billion in small business loans as part of the SBA’s economic injury disaster loan (EIDL) program for small businesses, private nonprofit organizations and small agricultural cooperatives.
• The maximum EIDL loans is a $2 million working capital loan with a 3.75% interest rate for small businesses and a 2.75% interest rate for non-profits with up to a 30-year term. Payments on an EIDL loan are deferred for one year.
• EIDL loans can be used to pay fixed debts, payroll, accounts payable, and other financial obligations for ordinary and necessary operating expenses. However, it should be noted that a borrower that has received a PPP loan for employee salaries, payroll support, etc., cannot then receive an EIDL loan for the same purpose.
• Under the EIDL grant, a borrower can request an advance on the loan up to $10,000, which will be distributed by the SBA within three days after the application has been submitted. There is no obligation to pay the $10,000 advance. However, unlike the PPP, the remainder of the EIDL loans is not forgivable.
• Applications for an EIDL loan are currently being accepted until December 31, 2020. Additional information on the EIDL can be found here and the EIDL application can be found here.

Coronavirus Economic Stabilization Act of 2020

• Under the Coronavirus Economic Stabilization Act, $500 billion has been allocated to the Department of Treasury’s exchange stabilization fund for use in loans, loan guarantees, and other investments for businesses that do not qualify for small business relief. The $500 billion has been allocated as follows: $25 billion for passenger air carriers; $4 billion for cargo air carriers; $17 billion for businesses determined to be important to national security; and the remaining $454 billion is eligible for direct lending to distressed business, states, and municipalities.
• Under this section, the government cannot issue loans or loan guarantees unless the business has issued securities that are traded on a national securities exchange and the Secretary of the Treasury receives a warrant or equity interest in the eligible business.
• Loans and Loan guarantees under this section will be subject to certain requirements, which include: borrower must be an eligible business that does not have reasonably available access to credit; loans or guarantees must be sufficiently secured; duration of the loan is as short as practicable and no longer than five years; borrower and its affiliates cannot engage in stock buybacks; borrower must maintain its employment levels as of March 2020, to the extent practicable, until September 30, 2020; borrower must certify that it is a United States domiciled business or has significant operations in and a majority of their employees based in the United States; and the loan cannot be forgiven.

It’s likely that the CARES Act will not be the final action passed by Congress to address the impact that COVID-19 has had on the health and economic well-being of the nation. Future legislation is highly likely in order to provide additional economic assistance to distressed sectors of the economy in order to facilitate long-term recovery.

If you have any questions, please contact Edward D. Greenberg (egreenberg@gkglaw.com; 202-342-5277); David K. Monroe (dmonroe@gkglaw.com; 202-342-5235); Brendan Collins (bcollins@gkglaw.com; 202-342-6793); or Kristine O. Little (klittle@gkglaw.com; 202-342-6751).