On March 25 and March 27, 2020, the U.S. Senate and the House of Representatives respectively passed the Coronavirus Aid, Relief and Economic Security Act of 2020 or the “CARES Act.” It was signed by the President later the same day. The Act provides over $2 trillion in emergency assistance and health care response to people and businesses affected by Coronavirus Disease 2019 (“COVID-19”).
Focused on the impact on Florida businesses and workers, the below is a high-level overview of certain provisions of the CARES Act, as well as economic relief programs offered by the State of Florida. These programs will be helpful to many Florida businesses that have been disadvantaged or economically harmed by the COVID-19 pandemic.
Florida business owners should evaluate their eligibility for one or more of these programs, as they may provide a quick infusion of much-needed capital to help deal with the economic devastation that you may be encountering. Gunster has assembled a task force of corporate, commercial finance, tax, healthcare, government regulatory, and employment attorneys to assist you with the impacts of COVID-19. We are ready to help navigate the myriad of new and existing federal and state programs available during this difficult time.
I. Financial Relief for Small and Medium-Sized Businesses, Including Nonprofit Organizations
II. Tax Credits and Relief for Florida Businesses
IV. Relief Available from the State of Florida
I. Financial Relief for Small and Medium-Sized Businesses, Including Nonprofit Organizations
The Paycheck Protection Program
The CARES Act creates a new Paycheck Protection Program (“PPP”), which provides up to $349 billion of federally guaranteed SBA loans to small and medium sized businesses and nonprofits. The goals of the Paycheck Protection Program are to keep workers employed and enable businesses to survive the negative impacts caused by COVID-19 pandemic. Under the SBA’s current 7(a) loan program, the SBA partially guarantees loans made by banks to qualifying small businesses. The CARES Act by modifies the 7(a) guaranteed loan program in the following key areas:
- Expands the types and sizes of businesses eligible for an SBA loan;
- Eases loan terms;
- Makes all or a portion of the loans forgivable under certain conditions;
- Provides incentives for lenders to simplify and accelerate the making of new loans.
Eligibility:
The Paycheck Protection Program significantly expands the persons eligible for an SBA guaranteed loan. The following is a summary of the key eligibility requirements.
Generally, any business and certain nonprofit organizations are eligible for a PPP loan, as long as the business or nonprofit:
- Does not have more than 500 employees, including employees of affiliate companies, (or if higher, does not have more than the applicable SBA size standard for its industry);
- Was operational on March 1, 2020; and
- Had employees on payroll for whom it paid taxes (or paid independent contractors).
The CARES Act waives the 500-employee limitation for businesses with multiple locations (hotels and restaurants, for example), provided there are no more than 500 employees per physical location.
Certain sole proprietorships, independent contractors and other self-employed persons are also eligible for loans under the Paycheck Protection Program. For many Florida businesses, determining eligibility for a PPP loan will require careful analysis of the statute, which contains rules concerning the number of employees of a business and the nature of the business. All businesses seeking relief under the Paycheck Protection Program must fall under the SBA’s definition of a “business concern.”
Loan Terms:
Grant, Fees, Collateral, Interest. The SBA can guarantee loans during the covered period of March 1, 2020 to December 31, 2020. All SBA application fees are waived, and businesses will not be required to provide collateral or personal guarantees. The maximum interest rate is set at 4%.
Loan Amount. Generally, PPP loan awards loan awards will be an amount equal to 250 percent of an employer’s average monthly payroll, with a maximum of $10 million per business. Loan awards for seasonal employers and businesses having less than a year of operations will be subject to an alternative formula. Payroll costs include salaries, wages, cash tips, certain employee benefits, and state and local taxes, and can vary with respect to sole proprietors and independent contractors.
Use of Proceeds. Loans awarded under the Paycheck Protection Program may be used to pay payroll costs, paid sick leave, medical or family leave; costs of group healthcare benefits, insurance premiums, mortgage payments, rent, utilities, and debt obligations incurred before the covered period. There are certain payments that cannot be made with PPP loan money, such as employee compensation over $100,000 and the prepayment of debt.
Maturity. The term of a loan will be up to ten years. To the extent that any portion of a loan is not forgiven, it will be repayable over the term of the loan, generally in fixed monthly principal and interest payments.
Loan Forgiveness:
The amount by which a loan will be forgiven will be equal to the amount spent by the business during the 8-week period following the loan origination date for qualifying payroll costs (discussed above), and qualifying mortgage interest, lease, and utility payments. Loan forgiveness will be reduced proportionately by employee reductions during the covered period, as compared with the business’ workforce in prior period. A reduction in employee compensation in excess of 25% will decrease the amount of the loan eligible for forgiveness. As an incentive to re-hire employees laid off due to the COVID-19 pandemic, payroll costs associated with such re-hires will be eligible for loan forgiveness. Borrowers will be required to provide documentation to be eligible for loan forgiveness. The amount of any loan forgiveness will not be taxable income to the Borrower.
Lender Incentives:
The CARES Act provides incentives to Lenders to encourage their participation in the Paycheck Protection Program and speed the delivery of loans to eligible businesses. Some of the incentives include that the SBA will guaranty 100% for the remainder of 2020 and lenders have limited due diligence requirements for assessing borrower eligibility.
In addition, the CARES Act gives all current and new lenders participating in the PPP the ability to make determinations on borrower eligibility and creditworthiness, without going through all of SBA’s channels.
Borrower Considerations:
Business owners considering a PPP loan should carefully evaluate and seek appropriate guidance to ensure eligibility under the program, their receipt of the correct loan amount, the proper use of proceeds, and the full amount of loan forgiveness. Existing loan and other material agreements should be reviewed to ensure that assistance under the CARES Act is permitted under such contract and what, if any, third-party consents are needed. Business owners should also review their insurance policies and ascertain whether they have business interruption coverage.
Loan Accessibility:
Loans will be available through more than 800 existing SBA-certified lenders, including banks, credit unions, and other financial institutions. The Act requires the SBA to streamline the process to bring additional lenders into the program.
Other Small Business Relief Provisions of the CARES Act
Economic Injury Disaster Loan Program
The Economic Injury Disaster Loan (“EIDL”) Program currently provides loans, up to $2 million, to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations with their financial obligations and operating expenses after the occurrence of a disaster. EIDL assistance must first be requested by a state or governor, and borrower eligibility is based on applicants’ credit history, ability to repay the loan, and collateral for EIDL loans over $25,000.
On March 16, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, expressly extended the EIDL program to economic injuries arising from the COVID-19 pandemic. The CARES Act expands the EIDL in the following important ways:
- Extends eligibility to cooperatives, independent contractors, sole proprietors, and others;
- Waives the “no credit available elsewhere” restrictions;
- Eliminates the personal guarantee requirement for advances and loans under $200,000;
- Allows the SBA, during the covered period (January 31, 2020 to December 31, 2020), to approve EIDL loans based solely on an applicant’s credit score or other method for determining an applicant’s ability to repay;
- Allows borrowers who have applied for an EIDL loan to request an advance of no more than $10,000 on that loan. If the borrower’s underlying loan application is denied, the applicant is not required to repay the advanced payment; and
- Permits borrowers to use advanced payments for purposes including rent, mortgage payments, payroll, paid sick leave, etc. Several changes to the EIDL program apply only to the covered period (January 31, 2020 to December 31, 2020).
Subsidy for Certain Loan Payments
In an effort to provide relief to small business borrowers with existing SBA loans, stabilize the SBA’s loan portfolio, and enable lenders to focus on making the new emergency loans, the SBA will make principal and interest payments on existing SBA 7(a), 504, Community Advantage and microloans for six months, relieving approximately 320,000 small business borrowers impacted by the COVID-19 pandemic from having to pay back SBA loans during this time. For covered loans currently in deferment, the six months of payments will begin at the end of the deferral period. Requires the SBA to encourage lenders to provide deferments.
II. Tax Credits and Relief for Florida Businesses
Employee Retention Credit for Employers of All Sizes. Subject to Closure due to COVID-19
The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer's full or partial cessation of business or a significant decline in gross receipts. The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed, is limited to $10,000 in the aggregate, per employee, for all calendar quarters. The provision contains several requirements defining qualified wages, qualified employees, and qualified employers. The credit applies to wages paid after March 12, 2020, and before January 1, 2021. The following are importation details regarding the tax credit:
- A partial cessation means the business stops operating dues to orders from a government authority limiting commerce, travel, or group meetings due to COVID-19.
- A significant decline in gross receipts means the gross receipts for the calendar quarter are less than 50% of the gross receipts for the same calendar quarter in the prior years.
- The credit is refundable under certain circumstances.
- An employer that receives small business interruption loan under the CARES Act may not claim the employee retention credit.
Delay of Payment of Employer Payroll Taxes
The CARES Act defers the payment of payroll taxes. Payroll taxes due from the period beginning on the date the CARES Act is signed into law and ending on December 31, 2020, are deferred. The entirety of payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.
The purpose of this provision is to free up business cash flow and incentivize the retention of employees, and applies only to the employer’s share of employment taxes. The share of employment taxes withheld from employee compensation must be collected and remitted. The deferral does not apply if a taxpayer has had a business interruption loan forgiven.
Tax Modifications Applicable to Businesses
Net Operating Losses
The CARES Act allows for a five-year carryback of net operating losses (NOLs) arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback.
The 2017 tax reform act provided that NOL carryovers could be used to offset a maximum of 80% of a taxpayer’s taxable income. The CARES Act would lift that restriction for 2020 and reinstate it (with modifications) for tax years beginning after December 31, 2020.
Modification of Limitation on Losses for Taxpayers Other Than Corporations
The CARES Act modifies loss limitation rules applicable to sole proprietors and pass-through entities to allow them to take advantage of the NOL carryback.
Modification of Credit for Prior Year Minimum Tax Liability of Corporations
The 2017 tax reform act eliminated the alternative minimum tax for corporations for tax years after 2017 but allowed corporations to claim a refundable portion of any unused minimum tax credits through 2021. The amount of the refundable credit is limited to 50 percent of any excess minimum tax in 2018 through 2020, before being fully refundable in 2021. The CARES Act accelerates the year for which a fully refundable credit can be claimed to 2019 and allows corporations to elect to claim the fully refundable minimum tax credits in 2018.
Modifications of Limitation on Business Interest
The 2017 tax reform act limited the amount of allowable deductions for business interest (regardless of the type of entity) for tax years beginning after 2017. The limitation is generally the amount of business interest income for the year plus 30 percent of the taxpayer's adjusted taxable income for the year. The limitation does not apply to taxpayers with average annual gross receipts for the prior three year below an inflation-adjusted amount. For 2020, this amount is $26 million or less.
III. Assistance for Severely Distressed Sections of the Economy, Including the Airline Industry and Nonprofits
The CARES Act authorizes the Secretary of the Treasury (the “Secretary”) to make loans, loan guarantees, and investments in financial support of eligible businesses, States, and municipalities that do not, in the aggregate, exceed $500 billion, as well as subsidy amounts for such loans and guarantees.
Support for shall be made available as follows:
a) Up to $25 billion will be allocated for funds to passenger air carriers and certain others in related commercial airline businesses;
b) Up to $4 billion for cargo air carriers;
c) Up to $17 billion for businesses critical to maintaining national security; and
d) Up to $454 billion, and any amounts remaining from the above categories, which will be allocated to provide loan funds to programs or facilities established by the Board of Governors of the Federal Reserve System to provide liquidity to the system that supports lending to eligible businesses, States, and municipalities.
The Act further provides that financial support shall be made on terms and conditions deemed appropriate by the Secretary and instructs the Secretary to establish procedures and minimum requirements within 10 days of enactment of the Act.
Importantly, the CARE Act mandates that, in order to receive loans, eligible businesses must agree to certain employee compensation parameters for those at the highest compensation levels.
In addition to the previously summarized provisions, the Act also directs the Secretary to implement a program that provides financing to banks and other lenders that make direct loans to eligible businesses, including, to the extent possible, nonprofit organizations, with between 500 and 10,000 employees. The loans to these entities would be subject to an interest rate of 2% or less, annually; and at least a 6-month grace period with no principal or interest due. To receive these funds, eligible borrowers must certify that they need the loan as a result of their current economic condition and that they will use the funds to retain at least 90% of their workforce, at full compensation and benefits, until September 30, 2020, among other things.
Important Note Regarding the CARES Act
The CARES Act was signed into law just hours ago, and the U.S. Small Business Administration (“SBA”), the U.S. Department of Treasury (“Treasury”), and other federal regulators, as well as states, will issue new rules and detailed guidance in the days and weeks after the Act becomes law. Accordingly, the process of pursuing the assistance provided by the Act may require efforts different from and additional to those discussed in this interim Alert. You should not rely on the information in this Alert without consulting a Gunster attorney.
IV. Relief Available from the State of Florida
Florida Emergency Bridge Loan Program
In response to the unprecedented economic damage sustained by small businesses in Florida due to the rapid spread of the COVID-19 Coronavirus, Governor Ron DeSantis has opened the Florida Small Business Emergency Bridge Loan Program (the “Bridge Loan Program”) to certain qualified small businesses.
This Bridge Loan Program was first enacted in 1992 following Hurricane Andrew. It is administered by the Florida Department of Economic Opportunity and has been utilized on 26 prior occasions, although the COVID-19 crisis may present the direst financial circumstances faced by small businesses in the Bridge Loan Program’s history. The State has allocated $50 million to the Bridge Loan Program.
Terms and Requirements of the Bridge Loan Program
- Provides interest-free loans to qualifying Florida businesses that have been negatively impacted by the COVID-19 outbreak;
- Borrowers must be privately held, for profit businesses;
- Must have a Florida business presence;
- Must have 2 to 100 employees;
- Maximum loan amount: $50,000 (although $100,000 loans will be considered in special circumstances);
- One-year term;
- Initial interest rate: 0%;
- Business must have been formed prior to March 9, 2020;
- Economic harm from COVID-19 outbreak must be demonstrated; and
- Limit is one loan to each small business, and all prior loans under the Bridge Loan Program must be repaid
Important Caveats and Considerations
It is very important to realize that this Bridge Loan Program only provides actual loan funds – it is not a grant program and the loans will not be forgiven at a later date.
If a borrower does not repay the loan funds when due, the annual interest rate on the loan will increase from zero to 12%. The Bridge Loan Program will also utilize standard commercial collection efforts to recover funds not repaid when due.
If you are considering applying for a bridge loan or would like assistance with your application, please contact Gunster attorney Bob White.
Rebuild Florida Business Loan Fund
In May 2019, Florida Governor Ron DeSantis announced the launch of the Rebuild Florida Business Loan program, which makes a total of $40 million in Florida and federal funds available to Florida businesses. The loan program helps Florida businesses with recovery and resiliency in the aftermath of Hurricane Irma and later disasters.
The loan program resulted from a partnership between the U.S. Economic Development Administration (EDA) and the Florida Department of Economic Opportunity, which administers the program. The EDA provided $32 million to the program and the State of Florida provided $8 million. The loan program assists existing and new businesses that were impacted directly or indirectly by a disaster to rebuild and expand. The program was intended to help close the gap in available, affordable capital for Florida businesses by providing longer term loans of up to $500,000 at market interest rates.
Loans under this program are for a broad number of purposes, including:
- Inventory Purchases;
- Construction or renovation;
- Working capital needs;
- Capital start-up loans;
- Machinery and equipment purchases; and
- Equipment financing.
Gunster stands ready to help you with any questions or concerns regarding the Rebuild Florida Business Loan program or its application process.
- Click here for an appropriations summary (by agency and division) related to the CARES Act, assembled by the U.S. Senate Appropriations Committee Vice-chair, Patrick Leahy.
- Click here for the appropriations breakdown (by subcommittee) of the CARES Act, distributed by the Senate Appropriations Committee
Learn more:
