IDAHO FALLS -- Coronavirus, COVID-19, SARS-CoV-2. No matter what we call it or how hard it’s hit our particular community, the impacts on both individual Idaho businesses are universal.
For many, the assistance provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will be key to financial survival. However, the particulars of this 374-page document are not readily clear, and our phones ring with constant questions about how this Act is relevant for businesses in Southeastern Idaho.
The CARES ACT was signed into law by President Trump on March 27, 2020 and provides more than $2 trillion of economic relief for American workers, families, and small businesses by providing direct and fast relief to individuals and families, preserving jobs by assisting with payroll and Social Security tax, and by providing small businesses with resources to maintain payroll, hire back employees who may have been laid off, and cover overhead.
Preserving Jobs for the American Industry
In an effort to preserve jobs, the CARES ACT provides for a three-prong approach: 1) an employee retention credit that will pay up to 50% of employee wages up to $10,000 for the businesses who have been impacted by COVID-19, 2) deferment of the employer’s share of Social Security tax (that will still be required to be paid over next two years), and 3) payroll support for air carriers and contractors. Of these, the most applicable for businesses in Southeastern Idaho will be the employee retention credit and payroll tax deferral.
Loan Assistance for Small Businesses
Small businesses, defined as those with 500 or fewer employees, (including non-profits), are eligible to apply for assistance apart from April 3 through June 30, 2020. However, there is a funding cap of $349 billion. Congress may expand the program to deal with the demand. The benefit of these loans are: 1) some of the loan amounts will be forgiven (8 weeks following the loan as long as it is used to cover payroll, mortgage, interest, or utility costs, and employee and compensation levels are maintained, and 2) the terms will be the same for all businesses and there is NO SBA requirement that some or all of the loan funds come from other sources, 3) 1% fixed interest rate with 6 month payment deferral with no prepayment penalties, and 4) no collateral or personal guarantees required. Additionally, there are economic injury disaster loans that do NOT require repayment that are also available to businesses that are currently experiencing a temporary loss of revenue.
Bankruptcy Provisions
For those in more serious financial distress Congress also has decided to provide relief through the bankruptcy process. Those with debts up to $7.5 million, either an individual or business, can file a new kind of bankruptcy known as a subchapter V chapter 11 that is both much faster and cheaper. A debtor can restructure debts, reducing their out-of-pocket expenses. That is done through a plan of reorganization. The business owners can maintain their ownership. An individual can even use this new subchapter to remove debts from their personal home related to business activities. Farm operations also have powerful tools under both chapter 11 and chapter 12 bankruptcies to improve their financial viability.
Whatever the size of your business, acting proactively can flatten the harmful economic impact of this pandemic.
Mr. Cornelison is part of the team at Maynes Taggart PLLC, an Idaho Falls law firm that specializes in creditor/debtor issues including bankruptcy. More information can be found at www.maynestaggart.com.