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CARES Act Part II – Business Stimulus

CARES Act Part II – Business Stimulus

If you haven’t read Part I and you have questions about individual stimulus provisions start here.

Recently, the government passed the CARES Act, an (estimated) $2 trillion piece of legislation aimed at supporting the U.S. economy. Apart from the numerous provisions that will directly impact working families, there are several additional resources for businesses. I will briefly outline qualification and benefits here, as well as some “boots on the ground” commentary. That being said, for information on how this would impact your particular situation, contact your Gainplan team and work closely with your tax advisor.

Paycheck Protection Program

More than any other employer stimulus endeavor, the Paycheck Protection Program has received a ton of press and subsequently generated a lot of questions.

How Do I Qualify?

The Paycheck Protection Program is a borrowing option for businesses with less than 500 employees that have been affected by the coronavirus. Specifically, in addition to completing an application (a fairly simple one) borrowers will be required to make a “good-faith” certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19. Read that again – not uncertainty of business outlook or revenue, but uncertainty of market conditions.

Under this program, the SBA will utilize the SBA (7)a program to issue partially forgivable loans. The loan will be calculated using the prior year’s average monthly payroll. Borrowers can receive up to 2.5x the prior year’s average monthly payroll or $10 million, whichever is less. The loan proceeds can be used to pay:

· Payroll costs, including salaries and commissions

· Group health insurance premiums and other healthcare costs

· Rent

· Mortgage interest (excluding amounts pre-paid)

· Utilities

· Other business interest incurred prior to February 15, 2020


The greatest benefit of these loans is the potential to have some or all of the debt forgiven. During the first 8 weeks of the loan, any amount used to fund the following items will be eligible for debt forgiveness:

· Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000

· Rent as part of a lease that existed before February 15, 2020

· Utilities (electricity, gas, water, transportation, telephone, or internet) which began before February 15, 2020

· Group health insurance premiums and other healthcare costs.

The “Payroll Protection” part of the name comes into play in the requirement that in order for the debt to be forgiven, the borrower must maintain the same number of employees for the 8 weeks following the origination of loan that it had during one of the look back periods. Businesses can use either:

· February 15, 2019 through June 30, 2019 OR

· January 1, 2020 through February 29, 2020

Additionally, the amount forgiven will be reduced if any employees with less than $100,000 in compensation have their pay cut by more than 25% from the previous quarter.

The maximum interest rate for these loans is 4% at a term of up to 10 years with payments deferred for 6-12 months. Finally, any debt forgiven under this program will not be treated as taxable income.

How to Apply

These loans will be treated as first come, first serve and are likely to be exhausted quickly. The first date to apply will be April 3rd (for small businesses and sole proprietors) and April 10th (for independent contractors). The SBA will not be able to handle the loan volume directly, so reach out to the bank that handles your business banking relationship to apply. To prepare for the application you should gather:

· The date you started your business

· Detailed information in order to calculate the average monthly payroll costs for your employees for the past 12 months, as outlined by the SBA

· Your annual revenue

· Your business mailing address

***Update: As of April 15th, the alloted funds have been used up. Government officials have indicated they are planning another round of stimulus but nothing is confirmed.

Employee Retention Credit

The second “big” resource for businesses will be the Employee Retention tax credit. This benefit serves as a tax break for businesses that “hunker down” and weather the storm while also keeping on their employees.


In order to be eligible for the tax credit, a business’ revenue must drop by at least 50% from the corresponding quarter in the prior year. For example, if a business made $500,000 in revenue during Q2 of 2019 but only made $300,000 in the second quarter of 2020 they would not qualify for the credit (even though that is a big drop!). The reduction of revenue by more than 50% “triggers” the clock for the credit and it continues to run until either:

· The end of 2020 OR

· Revenue increases to more than 80% of the prior year’s corresponding quarter


It will be vital to business operations and projections to work closely with your CPA to determine eligibility but also to determine the amount of the credit. Put simply, the credit will be equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee. There will be some nuance to this as businesses with 100 or less employees count wages differently than larger businesses (for purposes of this credit). Again, work closely with your tax professional or accountant to calculate your own tax credit.

Payroll Tax Deferment

Businesses also have the ability to defer their payroll taxes that occur through the end of 2020 until the end of 2021 and 2022. Any business that receives debt forgiveness through an SBA loan will not be eligible. Half of all payroll taxes during this time period (CARES Act enactment through the rest of 2020) will not be due until December 2021 (50% due) and December 2022 (50% due).

The same rules apply to self-employed persons, though they are applied slightly differently. In traditional, W-2 employment the worker pays half of the payroll tax, but for self-employed persons they pay 100%, both the employer and employee portion. They are only eligible to defer the “employer equivalent” amount of the tax. They will owe the deferred taxes on the same schedule with half of the differed balance due in 2021 and the remainder due in 2022.

NOL Rules

The CARES Act has also loosed the rules surrounding Net Operating Losses. Previously, (with the advent of the Tax Cuts and Jobs Act) NOLs (Net Operating Losses) could only be carried forward. The CARES Act changes those provisions and allows for a carry back of any NOL from 2018, 2019, or 2020 for 5 years. This means that companies with losses will be able to amend prior years’ tax returns to apply for a refund and garner some much needed cash in the wake of the coronavirus economic slowdown. Additionally, such losses could only offset up to 80% of taxable income. Under the CARES Act, losses can go against 100% of taxable income.


For some employers, unemployment (for themselves and/or employees) may be the best option. For a detailed explanation of this benefit, refer to this ().

Economic Injury Disaster Loan

Lastly, the SBA has additional provisions for small business owners, specifically beneficial for sole proprietors. While not really part of the CARES Act, they bear special consideration during this time. For businesses that have been severely impacted by the coronavirus and mandated economic shutdown, there is a streamlined application process available here:

These loans have (potentially) lower rates, up to 3.75% lower than the Paycheck Protection Program and allow for longer terms, up to 30 years. While no portion of these loans are eligible to be forgiven, there are some important benefits:

· The loan application includes consideration for a $10,000 immediate cash grant (does not need to be repaid) for qualifying businesses

· Loans can be issued for up to $2 million but loans for less than $200,000 do not require a personal guarantee!

· Payments are delayed for 12 months

The impact of this health crisis is not fully known, and we will be feeling the economic weight of it for some time. While the CARES Act provides some much-needed assistance for families and businesses, it will not be enough to completely stave off economic hardship for many people. If you have additional questions, please reach out to us at 248-385-3737 or [email protected]. We are here for you.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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