Jul 06, 2020
On Saturday, July 4, President Trump signed legislation extending the application deadline for the Paycheck Protection Program (PPP) enacted in the weeks following the economic shutdown as a result of COVID-19.
The original deadline to apply was Tuesday, June 30, but with more than $130 billion still available in the fund, both houses of Congress approved the extension unanimously earlier in the week. With the President’s signature Saturday, businesses will now have until August 8 to apply for the assistance.
The PPP provides loans to small businesses to be used for certain payroll and non-payroll costs they may otherwise have difficulty funding due to the coronavirus pandemic. Such loans may be forgiven in part or in whole.
You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. For more information on the federally funded program, visit the SBA website or connect with your William Vaughan Company advisor for additional guidance and recommendations based on your specific situation.
Mar 28, 2020
Late Friday, the President signed a bipartisan relief bill entitled the “Coronavirus Aid, Relief, and Economic Security Act” or the CARES Act. The $2 trillion coronavirus response Act is intended to provide relief across America and to keep businesses and individuals afloat during the unprecedented freeze on most American life.
Key Provisions for Businesses
$10,000 Grant awarded within three days under Expansion of SBA Disaster Loan Program (SBA 7(b))
For eligible applicants, small businesses with 500 or fewer employees, sole proprietors, and independent contractors, the CARES Act makes changes to the SBA Disaster Loan program by waiving: 1) rules related to personal guarantees on loans of up to $200,000, 2) the 1 year in business requirement and 3) the requirement that an applicant is unable to find credit elsewhere; and allows lenders to approve applicants based solely on credit scores or other appropriate methods to determine ability to repay.
Applicants can request an emergency advance of up to $10,000 which does not have to be repaid, even if the loan is later denied. Advances are to be awarded within three days of application.
Forgivable Loans under SBA 7(a) Payroll Protection Program
For small businesses, one of the more important sections of the CARES Act is the Paycheck Protection Program. This program gives the SBA the ability to guarantee $350 billion in loans to small businesses via a network of more than 800 banks. The program provides eight weeks of cash-flow assistance to small businesses with 500 employees or fewer, and administration will be handled by banks. Businesses would be well advised to communicate with their lending institutions soon, and all qualifying businesses are eligible without regard to entity type, including sole proprietors and independent contractors.
The low-interest loans are meant to cover payroll costs, paid sick leave, employee salaries, health-insurance premiums, utilities, and rent or mortgage payments. The maximum loan amount is $10 million, maximum maturity is 10 years, and the interest rate on the loans can’t surpass 4%. There is $17 billion available to cover six months of payments for small businesses already using SBA loans. Requirements and further details:
- A borrower can get an SBA 7(a) forgivable loan and add the outstanding amount of a loan made under the SBA’s Disaster Loan Program (SBA 7(b)) between January 31, 2020, and the date on which such loan may be refinanced as part of this new program.
- Increased eligibility is eligible for certain small businesses that employ less than 500 employees per physical location of the business. Generally speaking, this provision applies to accommodation and foodservice businesses.
- Loans are calculated on a formula of the average monthly payroll costs times 2.5 plus any outstanding amount made under the SBA’s disaster loan program as referenced above.
- SBA will waive the guarantee fee required for a 7(a) loan.
- SBA will eliminate the requirement that a small business concern is unable to obtain credit elsewhere.
- A good faith certification from the eligible recipient will be required, stating that the uncertainty of the economic conditions make the loan request necessary to support the ongoing operations of the recipient, acknowledge that the funds will be used to retain workers and maintain a pre-crisis level of full-time equivalent employees or make mortgage payments, lease payments and utility payments.
- The new program provides a process to allow borrowers to be eligible for loan forgiveness in the amount equal to their payroll costs, health benefits, the interest portion of mortgage payments, rent and utility costs during the 8-week period that begins on the origination date of the 7(a) loan.
- The amount of debt forgiveness will be reduced proportionally by the number of employees laid off during this time. Any staffing reductions made after February 15, 2020, that are remedied no later than June 30, 2020, shall not impact the amount forgiven.
- Any amount forgiven shall be excluded from gross income. For most borrowers, these provisions will convert the loan into a tax-free grant upon certification of the incurred costs.
Employee Retention Credit
- A 50 percent employee retention payroll tax credit for wages paid to employees during the COVID-19 emergency. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of forced closure due to a federal, state or local government directive or as a result of quarantining of employees. The credit would also be available to any business that has seen a 50 percent drop in gross receipts.
- The credit is equal to 50% of “qualified wages,” which includes both actual wages paid plus qualified health plan expenses allocable to those wages. However, the credit ceases when qualified wages exceed $10,000 per employee. The maximum credit per employee then is $5,000.
- The Treasury Department would provide advance payments to get money to businesses more quickly.
- A special rule applies to eligible small employers (those with 100 employees or less) that provides a 50 percent credit for all wages paid, regardless of whether employees are furloughed or not.
- The credit would be available to businesses that do not receive the 7(a) payroll protection Small Business Administration loan described above. Business owners would be able to choose whether that SBA loan or employee retention credit is better suited to their situation. Disaster loans under 7(b) are still able to be received in conjunction with the credit.
Delayed Payment of Employer Payroll Tax and Self-Employment Tax
For those businesses who do not receive a 7(a) payroll protection loan from the SBA, a delay of employer Social Security tax (6.2%) and one-half of the self-employment tax (6.2%) is available. Payments that would have been due from the date of the law’s enactment through December 31, 2020, are delayed and split into two equal payments due December 31, 2021, and December 31, 2022.
Net Operating Losses
Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income. The Act also modifies loss limitations for non-corporate taxpayers, including rules governing excess farm losses, and makes a technical correction to the treatment of NOLs for the 2017 and 2018 tax years.
Alternative Minimum Tax (AMT)
Firms with tax credit carryforwards and previous alternative minimum tax (AMT) liability can claim larger refundable tax credits than they otherwise could.
Qualified Improvement Property
The CARES act contains a technical correction to a drafting error within the Tax Cuts and Jobs Act (TCJA). This correction changes the life of Qualified Improvement Property (QIP) from 39 years to 15 years and now eligible for 100% bonus depreciation, or immediate expenses. This retroactive for 2018 tax years. This is a substantial retroactive change for any business that had these additions.
Net Interest Deduction
Currently, this limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA). The Act expands it to 50 percent of EBITDA for 2019 and 2020. This will help businesses increase liquidity if they have debt or must take on more debt during the crisis.
Key Provisions for Individuals
Recovery Rebate Checks
Most single individuals earning less than $75,000 can expect a one-time cash payment of $1,200, with “earning” defined as adjusted gross income. Married couples would each receive a check for $1,200 ($2,400 in total) and families would get $500 per child. That means a family of four earning less than $150,000 can expect a total payment of $3,400. The checks start to “phase down” in amount and disappear completely for single individuals with no children making more than $99,000 and couples without children making more than $198,000. A married couple with two children wouldn’t lose all of their payment until their adjusted gross income exceeded $218,000. The cash payments are based on either your 2018 or 2019 tax filings. People who receive Social Security benefits but don’t file a tax return are still eligible, too.
Extended Unemployment Program
Major changes have been made to unemployment assistance, increasing the benefits and broadening who is eligible. States will continue to pay unemployment to people who qualify. That amount varies state by state. So does the amount of time people can claim it. The Act adds $600 per week from the federal government on top of whatever base amount a worker receives from the state, without a cap based on what the worker actually earned prior to unemployment (meaning an unemployed individual could receive more on unemployment than they earned while working). That boosted payment will last for 4 months. In addition, a new, temporary Pandemic Unemployment Assistance program has been created through the end of this year to help people who lose work as a direct result of the public health emergency. This is designed to aid contractors and freelancers who typically are unable to apply for unemployment.
There are several provisions to help individuals who experience financial hardships and disruptions due to COVID-19 to access their own money without penalty. Taxpayers can now take a “coronavirus-related distribution” of up to $100,000 in the year 2020, free from penalty, from their retirement account. Amounts distributed may be repaid at any time over the 3-year period commencing on the date of the distribution. To the extent that amounts are not repaid, the income inclusion can be made ratably over three taxable years beginning with the year of the distribution. Plan participants should very carefully consider whether the use of this provision is in their best interest, particularly considering that a distribution would occur while retirement plan assets are likely at low market valuations. Plan sponsors will need to review plan documents to ensure that their hardship provisions are up-to-date and will allow for emergency withdrawals by individual participants.
In addition, there is a temporary elimination of required minimum distributions. By waiving the required minimum distributions from retirement accounts for individuals who are 72 and older, the CARES Act provides the opportunity for individuals who do not need their money now to hopefully recoup some of what they’ve lost when the markets recover.
The CARES Act encourages individuals to contribute to churches and charitable organizations in 2020 by allowing a deduction of up to $300 of cash contributions regardless of whether they itemize deductions or not.
The Act allows student-loan borrowers to take a 6-month break from making payments on their federally backed student loans. Until Sept. 30, borrowers will not be penalized for late payments. If your employer pays student loans as an employee benefit, they can now provide up to $5,250 in tax-free student loan repayment benefits. That means an employer could contribute to loan payments and workers wouldn’t have to include that money as income. Finally, the Act also stops the involuntary collection of student loan debt during this period, including the garnishment of wages, tax refunds, and Social Security benefits.
Health Savings Accounts
Users of health savings accounts or flexible spending accounts will be able to use funds to cover over-the-counter medical products.
Delayed Tax Filings
Individuals have three additional months to file their taxes, with the April 15 deadline pushed back to July 15. No payments are required until July 15, 2020. Individuals who expect refunds would be wise to file quickly, without regard to the July 15 deadline.
Mar 23, 2020
Monday, March 23, 2020
The Federal Reserve announced today an unlimited expansion of bond purchasing programs to help the U.S. economy due to the near-total shutdown to fight the coronavirus.
Treasury Secretary Steven Mnuchin said is he working closely with the Fed to ensure small businesses get the money they need quickly to survive. The bill in Congress would enable small businesses with 500 or fewer employees to get an SBA-backed grant to cover approximately two months’ payroll and some overhead expenses. Methods to distribute the money quickly are being debated, including an option to route the funds through payroll companies. About 40% of all U.S. businesses use a payroll service to process their employees’ payroll.
Businesses in all U.S. states and territories are currently eligible to apply.
The SBA’s Economic Injury Disaster Loan program (in addition to the potential grant) provides small businesses with working capital loans of up to $2 million to provide economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
The Fed also announced Monday it will buy certain corporate bonds and said it will “soon” announce a Main Street Business Lending Program. These programs are meant to provide ample availability of loans to small and large businesses on top of any efforts Congress does.
Many businesses have business interruption insurance although there is debate on whether a pandemic would be considered since it is not an act of God. Now is the time to contact your insurance agent to review your policy to understand precisely what you are and are not covered for in the event of an extended incident.
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Mar 18, 2020
Provided By BDO Alliance, USA
A Checklist for Organizational Leaders
On March 11, the World Health Organization (WHO) declared the novel coronavirus (COVID-19) outbreak a pandemic, with numerous countries—including China, the Czech Republic, Hong Kong, Italy, Slovakia and the U.S.—announcing travel restrictions and social distancing measures.
Beyond the immense impacts the outbreak is having on public health, the pandemic directly impacts economic activity and poses unique challenges to businesses across industries because of its potentially compounding and unpredictable consequences.
With massive quarantines, travel restrictions and factory shutdowns, companies are struggling to quantify potential exposure. Attempting to mitigate potential losses from an unknown number of variables is daunting, especially when the situation is changing daily. Business owners and risk managers will face not only tactical execution and recovery challenges, but also the prospect of navigating a lengthy insurance claim process.
Understanding how to determine and capture lost revenue and income stemming from this unpredictable outbreak is critical to minimize financial implications. To do that, business leaders must determine their infectious disease risk profile:
Here are the key questions organizational leaders need to ask to evaluate their risk profile and the corresponding action items to navigate the ongoing outbreak:
1) How prepared is my organization? What does “prepared” look like to our organization?
- Conduct a business continuity risk assessment to identify potential internal operational, financial and market risks; determine direct and indirect impacts; and generate an action plan. Third-party vulnerabilities should be incorporated into action plans.
- Identify a response team to lead ongoing crisis management efforts, coordinating with appropriate federal, state and local authorities. These efforts should include regular communication to internal and external stakeholders.
- Communicate with internal and external stakeholders—as well as their surrounding communities—about what coronavirus is and key protective measures people can employ. Leveraging information from WHO’s dedicated public advice page is a good place to start.
2) What are our organization’s capabilities, strengths and weaknesses, including across the supply chain? Which third-party risks do we have, and where are they concentrated?
- Build scenario models to determine ways to mitigate any additional risks to your supply chain, working closely with your suppliers.
- Insulate your supply chain from disruption. Identify ways to diversify your supply chain if possible and assess the cost-benefit of maintaining duplicate facilities or routes on an ongoing basis.
- Create a backup plan. Identify alternate sources should your primary source of supply be unable to deliver on services.
3) Have we clearly communicated to our workforce what steps they should take and how they should respond to different scenarios identified?
- Evaluate work-from-home arrangements and options for remote meetings and videoconferencing. Employees working remotely, meanwhile, will need secure remote access to necessary files and services, likely using a VPN, as well as collaboration tools including instant-messaging apps, project management platforms and shared documents.
- Review remote working policies and guidelines. Remote workers should only use their work computers and not their personal computers, and managers should be trained on how to be virtual leaders by setting clear expectations and emphasizing regular communication.
- Review policies for paid time off, sick leave and short-term disability. Employees should be reassured that they will not be penalized for taking sick leave, and they should not come into the workplace while sick because they are worried about losing out on income. Policies for payment if the workplace is temporarily closed or employees are furloughed will also need to be reviewed and clarified.
4) What is our organization’s insurance coverage, and do we have funds to support this crisis? Does your organization have coverage for an insurance claim?
- Evaluate your insurance coverage for business interruptions. Identify the impact from civil authority and ingress/egress coverage, service interruption, supply chain interruptions, loss mitigation, and extra expenses like increased logistics and redistribution costs, higher costs related to workforce disruption as well as shifting productions to potentially higher-cost locations, and others.
- Establish milestones for claim recovery. Resources are likely going to be stretched thin for the foreseeable future. It is important to create milestones and hold all members — from the adjusting team to internal stakeholders — accountable for achieving those goals.
5) How can this threat unfold and evolve, and what scenarios do we need to consider for our organization?
- Regularly monitor announcements from the WHO and the Centers for Disease Control and Prevention to determine other potential impacts that could be coming down the pike for your organization.
- Establish various versions of your enterprise risk plan that can be adapted to help mitigate risk should other waves of the outbreak take place, taking into consideration where they might unfold.
- Consider accounting implications and total tax liability changes. For example, COVID-19 could complicate how businesses comply with Current Expected Credit Losses (CECL) accounting given the complication to forecasting credit losses. Total tax liability, meanwhile, could be impacted in several ways depending on individual circumstances and the actions taken by national and local governments.
Following this checklist can better enable you to make informed operational and strategic decisions while balancing the risks inherent to an infectious disease pandemic. Beyond that, you can use the intel gained from your self-evaluation to build your capabilities over time and support the business case for future investments in resiliency.
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Mar 18, 2020
Amid the growing cases of coronavirus (CODVID-19), many state governments including Ohio and Michigan have instituted a mandatory shutdown of all bars and restaurants leaving many operators scrambling to figure out how to stay afloat. More recently, dental offices, spas, gyms and other businesses have been forced to close their doors to promote “social distancing.” Here are tips for staying healthy—and staying in business—during this unprecedented period:
Communication is Key
It is essential to communicate the latest information and advisories from your local state health departments to your team of employees. Make sure preventative measures such as sanitization, hand washing, and employee sick leave is conveyed and well understood. If your employees are able to work from home, remember to keep open lines of communication—check in regularly and communicate frequently; this applies to both the client and internal team members.
Many owners are communicating reassuring messages to their customers, providing confidence in their understanding of the severity of the virus. Make sure your customers know you are taking the proper steps to maintain a healthy work environment to protect not only your employees but your consumers as well.
Apply for a Small Business Loan
The SBA will work directly with state Governors to provide targeted, low-interest loans to small businesses and non-profits that have been severely impacted by the Coronavirus (COVID-19). The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. Find more information on the SBA’s Economic Injury Disaster Loans here.
Dust off your business continuity plan
The objective of the business continuity plan (BCP) is to help a business to efficiently return to normal activities after a major incident that directly affects operations. Items to consider, if not already done so include:
- Establish an Emergency Action Plan (EAP) and team
- Have the EAP team assess the situation and agree to an appropriate action plan based on demand, available supplies, and available labor
- Implement appropriate prevention methods and procedures to reduce risk
- Have management staff review and take appropriate action regarding sick-leave absences unique to a pandemic, including policies that define when a previously ill person is no longer infectious and can return to work
- Work closely with the local health department to monitor the situation and to deploy appropriate control measures
- Identify backups for each job position and alternate manufacturing sites in pandemic response planning
Shift your marketing strategy
Don’t stop marketing your business, instead now is the time to be creative. For example, if you are a restaurant, try to experiment with different third-party delivery providers or encourage customers to find any way to receive your product such as curbside pick-up. Compromised populations, such as senior citizens can benefit from meal delivery. If you have a restaurant app, consider providing a meal deal for a family. Thinking outside the box will ultimately help you stay afloat during this highly volatile time.
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