During a call with a business owner client last week, while discussing the massive stimulus package that was then headed toward approval, my client said something that hit home hard:
“$2 Trillion of stimulus, yet somehow I have a feeling none of it will help me”
Well, for a change, get ready for some potentially good, government-oriented news.
In the interest of keeping this brief, I will give you a highlight reel version of the portion of this program that every business owner should be looking at right now.
Basically, $350 billion has been appropriated to provide business owners with guaranteed, low-interest, no-fee loans. And, are you ready for the real kicker? A significant amount of the loans may be cancelled with no tax consequences. So, essentially it is a tax-free loan that converts into a grant.
Who is eligible?
In general, any business concern with fewer than 500 employees that has been economically impacted by the Coronavirus pandemic.
What amount can be accessed?
The maximum amount of the loan offered under the program is equal to 2.5 times your average monthly payroll costs, not to exceed $10 million (certain exclusions apply).
What can the funds be used for?
Salaries and other payroll costs, including sick and family leave, and continuation of employee-related health care costs; mortgage payments; rent payments; utilities; and, interest on other pre-pandemic debt obligations.
Payment Deferral
During the “Covered Period”, all principal and interest payments will be deferred for a period of not more than one year.
Loan Forgiveness
Again, a significant component of this program is that a portion of the debt incurred will be forgiven and cancelled. Also, by way of further benefit, unlike the typical rules of debt forgiveness, the taxpayer will not be subject to any income tax resulting from the debt cancellation.
The amount forgiven is reduced on a pro-rata basis for any reduction in the number of employees as compared to the same period in 2019. You will also want to consider that there is a special “Employee Retention” tax credit built into this stimulus package, but you are not allowed to double-dip and take the credit along with loan forgiveness. You may want to calculate the benefit under each alternative before putting borrowed funds to use.
Please remember also, that while this content is intended only as a summary and not specific advice, you should not let the seeming complexity of this opportunity get in the way. As always, our team is available to help with navigation, along with introduction to quality banking relationships to do the heavy lifting.
While my college student daughter may be excited about the idea of a stimulus check coming her way, I’m thinking about the guy that owns the restaurant she works for between classes.
This may finally be something that benefits both of them!
