DOWNERS GROVE, ILLINOIS (March 27, 2020) - The National Sporting Goods Association (NSGA) is sharing some of the most important provisions independent sporting goods retailers and dealers need to know to secure Emergency Loans via the Small Business Administration (SBA) through the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
Paycheck Protection Program
The CARES Act would expand the SBA's authority to issue loans to small businesses to respond to the economic uncertainties that have arisen from the COVID-19 pandemic. The emergency relief bill would allow SBA to issue short-term, forgivable loans to cover payroll costs and other expenses under a new program, the “Paycheck Protection Program.”
Eligible entities which can apply for the loans include:
- Any business concern that employs less than 500 employees (full and part-time); or if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern operates.
- 501(c)(3) nonprofit organizations
- Sole proprietors, independent contractors and self-employed individual
The Paycheck Protection loans can be used to pay for the following expenses:
- Payroll costs (defined below)
- Costs related to the continuation of group health care benefits AND insurance premiums
- Salaries, commissions, or similar compensations
- Interest on mortgage obligations (not to include any prepayment of said obligation nor any principal)
- Interest on any other debt obligations incurred prior to February 15, 2020
The interest rate on these loans cannot exceed 4%.
As mentioned above, these loans can be forgiven. Loan recipients can calculate the amount to be forgiven by calculating the sum total of the following “costs incurred and payments made” during the 8-week period beginning on the date of the covered loan origination:
- Payroll costs (defined below)
- Interest on mortgage obligation (which shall not include any prepayment of or payment of principal)
- Utility payments
The total amount for forgiveness must not exceed the original principal amount. The amount of loan forgiveness can be reduced if the recipient reduces the number of employees or reduces salaries during the 8 weeks following the origination date.
Payroll costs are defined as the sum of all payments for employees’:
- Salaries, wages, commissions, or similar compensation (up to $100,000 annual compensation as prorated for the covered period);
- Payment of cash tip or equivalent
- Vacation, parental, family medical, or sick leave;
- Severance payment;
- Health care benefits, including insurance premiums;
- Retirement benefits;
- State or local tax assessed on said compensation; and
- Payments of wages, commission, or similar compensation to any independent contractors that is $100,000 or less per year (as prorated for the covered period).
Payroll costs would not include:
- Federal income tax and payroll tax contributions;
- Compensation of any employee whose principal residence is outside the US;
- Qualified sick and family leave wages covered by tax credits under the Families First Coronavirus Response Act.
Lenders can impose the following minimum qualifications for a loan:
- Borrower must have been in operation as of February 15, 2020, and
- Paid salaries and payroll taxes, or, paid independent contractors
Eligible entities must certify on an application to the SBA, or other lender, that:
- The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
- Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
- The eligible recipient does not have an application pending for an SBA economic injury disaster loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and
- During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts for an SBA economic injury disaster loan for the same purpose and duplicative of amounts applied for or received under a covered loan.
Loans can be issued directly by SBA or through private sector institutions in cooperation with SBA on an immediate or guaranteed (deferred) basis.
Level of Participation: A guaranteed SBA Paycheck Protection loan would cover 100% of a small business’ payroll costs through the covered period.
The Covered Period for the loans would retroactively start on February 15, 2020 and end on June 30, 2020.
Documentation requirements on independent contractors and sole proprietors and self-employed:
- Documentation that is necessary to establish eligibility, including payroll tax fillings, 1099 forms, and income and expenses documents and records.
The Maximum Loan Amount will equal the lesser of:
- The average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date the loan is made, times 2.5.
- The outstanding amount of a loan made to the business concern by the SBA in February.
If an eligible recipient was not in business in the period from February 15, 2019 to June 30, 2019, the maximum amount will be the average total monthly payments for payroll costs from January 1, 2020 to February 29, 2020, or $10 million.
The outstanding amount on any other SBA loans that were made to an eligible recipient from January 31, 2020 until the enactment of the Paycheck Protection Program will be available to be refinanced under the new covered loan.
The fees normally applicable to SBA loans would be waived for the loans made under the Paycheck Protection Program.
Eligible entities need not prove to SBA that credit was sought elsewhere prior to applying for the new loans. This old SBA requirement is waived under this new loan program.
Eligible recipients of a covered loan under this program shall not be eligible to receive an economic injury disaster loan under the Small Business Act for the same purpose.
The CARES Act authorizes $349 billion to SBA for all loan programs from February 15, 2020 through June 30, 2020.
Employee Retention Credit
The bill includes a refundable tax credit for businesses to incentivize them to maintain idle workers on their payroll during the pandemic, if the business meets certain criteria. This credit is also available to all 501(c) non-profits.
The bill provides a tax credit of 50% of the wages paid to the employee, up to $5,000 per quarter. This credit is available to a business who must fully or partially suspend operations due to COVID-19 and can prove that as a result they’ve had 50% or greater loss in gross receipts compared to the same quarter of the last calendar year. The credit stops the quarter after the business has gross receipts greater than 80% of the same quarter in the previous calendar year. This tax credit expires at the end of 2020.
If the employer has more than 100 full-time employees, the credit is available for wages paid to employees when they weren’t providing services due to COVID-19 circumstances. However, for employers with 100 or fewer full-time employees, employee wages qualify whether the employer was open for business or closed due to COVID-19.
If a business opts to take advantage of this credit, they will not also be allowed to access the special SBA loans created in this legislation and discussed above.
Delay of Payment of Employer Payroll Taxes
The bill allows employers and self-employed individuals to defer payment of the employer share of Social Security tax. The employer must pay 50% of the deferred taxes by December 31, 2021 and the remaining deferred amounts by December 31, 2022.
QIP Deduction Fix
The 2017 Tax Cut and Jobs Act (TCJA) accidentally excluded “qualified improvement property (QIP)” i.e. interior renovations to a non-residential building, from a 100% first-year bonus depreciation for property placed in service between September 28, 2017, and December 31, 2022. The CARES Act fixes this by giving QIP a normal depreciation period of 15 months as initially intended.
Net Operating Loss Carryback
The CARES Act further amended the business tax code by allowing businesses to take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. In addition, the NOL limit of 80 percent of taxable income is also suspended, which means that companies can use NOLs to fully offset their taxable income.
Net Interest Deduction Limitation
The net interest deduction limitation has been expanded to 50 percent of EBITDA for 2019 and 2020. This will help increase liquidity for some businesses almost immediately.
Changes to the Charitable Deduction
Starting with the 2020 taxable year, up to $300 in cash charitable contributions will be allowed as an above the line deduction.
For individuals who itemize the 50% of AGI limitation is suspended for 2020. For corporations the limitation increases to 25% of taxable income.
In the case of any charitable contribution of food during 2020, the limit is changed from 15% to 25%.
Expansion of Unemployment Insurance
The bill expands unemployment insurance eligibility to those who are not eligible for regular compensation or extended benefits under State or Federal law, or previously passed pandemic emergency unemployment compensation. To qualify, an individual must self-certify they are otherwise able and available to work but cannot for one of the following reasons:
- Diagnosis of COVID-19 or is experiencing the symptoms and seeking a medical diagnosis
- Member of household has COVID-19
- Individual is providing care for a family member or member of household who has been diagnosed with COVID-19
- Child or other person in household for whom the individual is the primary caregiver is unable to attend school or other facility because of COVID-19 and such attendance is necessary for that individual to attend work
- Individual is unable to reach place of employment because of mandatory quarantine
- Individual has been advised by a medical professional to self-quarantine due to COVID-19 concerns
- Individual was scheduled to start a job and doesn’t have a job or unable to reach job due to COVID-19
- Individual has become the primary source of income or major support for household due to head of household dying due to COVID-19
- Individual has quit job as a direct result of COVID-19
- Place of business is closed due to COVID-19
- Individual is self-employed, is seeking part-time employment, doesn’t have sufficient work history, or otherwise doesn’t qualify for regular unemployment or extended benefits
This does not include individuals who can telework with pay or who are receiving paid sick leave or other leave benefits due to other provisions in COVID-19 relief.
This assistance is available beginning January 27, 2020 and goes until December 31, 2020 with a 39-week maximum for an individual receiving assistance.
The bill also allows for states to waive their one-week waiting period for unemployment benefits and the federal government will reimburse them for that week, thus incentivizing states to provide an immediate benefit.
Changes to Sick Leave and Family Leave Benefits
Paid Leave for Rehired Employees
The CARES Act amends the expanded paid leave requirements for employers in the “Round 2” Families First Coronavirus Response Act to include employees who are laid off and then rehired by an employer.
Specifically, an employee who was laid off by their employer on March 1, 2020 or later, had worked for the employer for at least 30 of the previous 60 days before being laid off, and was then rehired by the employer, will be eligible for the paid family and sick leave benefits under the Round 2 legislation.
Support for Manufacturing
$50 million is provided for the Hollings Manufacturing Extension Partnership to help small- and medium-sized manufacturers recover by finding value within the supply chain and expanding markets. For every one dollar of federal investment, MEP generates $27.20 in new sales growth for manufacturers. The bill also includes an additional $10 million for the National Institute for Innovation in Manufacturing Biopharmaceuticals to support the development and manufacture of new medical countermeasures and biomedical supplies to combat the coronavirus.
Department of the Interior, Office of the Secretary
Provides $158.4 million in centralized, flexible resources to allow the Secretary of the Interior to allocate resources to address coronavirus response needs for national parks, wildlife refuges, and other public lands and other bureaus. Includes funding for equipment and supplies for cleaning buildings and public areas; support for law enforcement and emergency personnel deployed to critical areas; support for scientific needs; increased telework capacity; and other prevention, mitigation, or recovery activities associated with the coronavirus outbreak.