If you own your practice and wonder how it will survive the next couple of months, consider the Coronavirus Aid, Relief and Economic Security (CARES) Act that President Trump just approved on Tuesday.
CARES created a special Payroll Protection Program designed to provide immediate cash in loan payments to small businesses to help them cover business financial needs associated with payroll costs, explains Paul Neiffer, agribusiness CPA and business adviser. Neiffer specializes in income taxation and accounting services specific to the agricultural community.
The government approved a total of $350 billion for the loans, which are a one-time deal. They are designed to help small business owners weather the fall-out from the COVID-19 pandemic, between now and the eight weeks after they receive the loan.
The loan limit for individual business owners is $10 million, but the amount granted to owners is limited to a maximum based on 20.833% of their annual payroll.
“I tell people, ‘take your annual payroll and multiply it by 21%,’” Neiffer says. “So if your annual payroll costs are $1 million, multiply that by 21% and you’ll see you would qualify for a $210,000 loan.”
The use of the word loan is somewhat of a misnomer, he adds, because if you spend the $210,000 on payroll costs as outlined by the Trump administration, the loan will be completely forgiven. Plus, the forgiven amount is tax-free.
“At that point, it becomes a grant,” Neiffer explains.
Neiffer says government-approved payroll costs include employee payroll, payroll taxes at the state and local levels, group health payments, including health insurance that you pay for employees. Also included are any required retirement contributions such as matching funds on 401k contributions, state unemployment costs and workers’ compensation.
Costs not included are FICA, Medicare, or any income tax withholding at the federal level.
Small business owners need to work with a local bank to sign up for the one-time loan payment, Neiffer says.
“This is not a Small Business Administration (SBA) loan,” he notes. “The SBA is simply administering it. Any bank can handle your application as long as it deals with SBA loans. Even the farm credit banks appear to be doing this.
“There's no collateral, no security, and no personal guarantee needed, but you still have to deal with whatever paperwork the banks are going to require,” he adds.
You likely already have the tax return information the banks will require for documentation.
Neiffer says the coverage period is February 15, 2020, through June 30, 2020.
“But I don't know if the funds will last that long,” he says. “They’re available on a first come, first serve basis.”