FINANCIAL RELIEF TO EMPLOYER, EMPLOYEE AND INDEPENDENT CONTRACTOR
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27 to provide financial relief to small business owners, independent contractors and other unemployed Americans. The Act was unprecedented in size and was passed quickly through Congress to speed relief to those harmed by the COVID-19 crisis. There are many ambiguous provisions in the law that will be clarified by rule-making at the federal and state agencies.
April 6 Updates
The SBA has announced that lenders may begin processing loan applications as soon as April 3, 2020 for small businesses, and April 10, 2020 for independent contractors and the self-employed. If you need assistance finding a PPP lender, SBA has created a “Lender Match” tool that allows you to search for lenders based on your Zip Code.
As of April 6, Wells Fargo has stopped taking PPP loan applications. Please use the “Lender Match” tool to find another lender in your area.
Additionally, EDD provided additional guidance on their efforts to implement the Pandemic Unemployment Assistance (PUA) program to provide unemployment compensation for independent contractors and others not served by the traditional unemployment compensation system.
Those programs into three categories:
Loan Programs from the U.S. Small Business Administration (SBA)
The U.S. Small Business Administration (SBA) has several loan programs that may benefit business owners and /or independent contractor whose business has been adversely impacted by the coronavirus pandemic. The information below will help salespersons determine if they are eligible for any of these programs, as well as which program may be the best option for their circumstances.
Watch out for SBA loan scams, which have been on the rise since the release of the CARES Act.
What assistance is available for small businesses from the SBA?
The federal government, through the SBA, is providing significant relief for small businesses suffering from the impact of the COVID-19 pandemic.
· Paycheck Protection Program Loans (PPP)
· Economic Injury Disaster Loans (EIDL)
· SBA Express Bridge Loans (EBL)
Which of the SBA loans should I apply for?
As described below, Paycheck Protection Program (PPP) loans are provided on very favorable terms, and they may be the best option for most small business owners. Economic Injury Disaster Loans (EIDLs) also remain an excellent option. If you need immediate financial relief, requesting an EIDL emergency grant or arranging an SBA Express Bridge Loan (EBLs) (discussed below) with your lender are good options.
Can I apply for both a PPP loan and an EIDL loan?
Yes – but borrowers cannot take out an EIDL and a PPP loan for the same purposes. You could, if desired, get a PPP loan to cover lost income and other costs that are forgivable under the PPP, and then get an EIDL loan to cover some of your other expenses. You should carefully review the options available to select the SBA loans that will be the best fit for your needs and circumstances.
If a small business owner has already applied for or received an EIDL loan related to COVID-19 before April 3, 2020 and used the loan proceeds to cover payroll costs, the small business owner might be able to refinance the EIDL into a PPP loan for purposes of loan forgiveness. Remaining portions of the EIDL, for purposes other than those laid out as eligible for loan forgiveness under the PPP loan, will remain a non-forgivable loan. Recipients of the EIDL emergency grant will have that amount subtracted from the amount forgiven under the PPP loan.
What is a Paycheck Protection Program loan, and who qualifies?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act has created the Paycheck Protection Program (PPP), an expansion of SBA’s 7(a) loan program for providing financial assistance to small businesses.
Businesses with fewer than 500 employees — including sole proprietors, independent contractors, and other self-employed individuals — all qualify for PPP loans.
Borrowers are required to make a good faith certification that they have been affected by COVID-19 and will use funds to maintain payroll and to cover other debt obligations.
How much money can I borrow with a PPP loan, and what can I use the money for?
SBA will loan borrowers up to $10 million.
What are the benefits of a PPP loan?
PPP loans are offered on highly favorable terms for borrowers: They are forgivable, they are guaranteed by the government, and payments are deferred. Additionally, no collateral is required to obtain a loan, and there is no personal guarantee requirement.
“Loan forgiveness” means that you are not required to repay your loan. Borrowers are eligible for loan forgiveness, in an amount equal to what the borrower spent during an eight-week period within the covered period (defined below), for the following expenses: (1) payroll costs; (2) interest payment on any mortgage incurred prior to February 15, 2020; (3) payment of rent on any lease in force prior to February 15, 2020; and (4) payment on any utility for which service began before February 15, 2020. According to the SBA, due to likely high subscription in the program, it is anticipated that not more than twenty-five percent (25%) of the forgiven amount may be for non-payroll costs. The covered period during which expenses can be forgiven extends from February 15, 2020 to June 30, 2020. Borrowers can choose which 8 weeks they want to count towards the covered period, which can start as early as February 15, 2020. In order to obtain loan forgiveness, you will need to carefully document your use of the loan proceeds. This includes:
· 1099-MISC form documenting your receipt of the loan proceeds.
· Receipts demonstrating use of loan proceeds for mortgage interest, rent, and/or utility payments.
Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness. If the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. The remainder of the loan that is not forgiven (if any) will operate according to the loan terms agreed upon by you and the lender.
“Government guarantee” of a loan means that the government assumes the debt obligation for the loan if the borrower defaults. A government guarantees reduces the risk to the borrower. PPP loans are 100% guaranteed by the government through December 31, 2020. After that, PPP loans are 75% guaranteed for loans exceeding $150,000 and 85% guaranteed for loans equal to or less than $150,000. PPP loans will have a 1.00% fixed interest rate.
“Payment deferment” means that you are not required to immediately begin making payments to the lender. Borrowers will receive complete payment deferment for PPP loans for six months; however, interest will continue to accrue over this period. The loan will be due two years after its origination.
Where can I apply for a PPP loan?
The United States Small Business Administration (SBA) delegates the authority to make PPP loans to numerous lenders throughout the country. These lenders will be handling the PPP application process. Because PPP is an expansion of the already-existent 7(a) program, the financial institutions that offer 7(a) loans will be offering PPP loans as well. There are thousands of banks that already participate in the SBA’s lending programs, including numerous community banks. All of the largest banks (such as JPMorgan Chase and Bank of America) will be offering PPP loans. Check with your bank - If they currently offer SBA 7(a) loans, they will be offering PPP loans very soon. Note: As of April 6, Wells Fargo has stopped taking PPP loan applications. Please use the “Lender Match” tool to find another lender in your area. (Wells Fargo may have reopened their applications again)
The SBA has announced that lenders may begin processing loan applications as soon as April 3, 2020 for small businesses, and April 10, 2020 for independent contractors and the self-employed. If you choose to apply for assistance, work with your lender to apply as soon as possible. The SBA has released a sample application form if you want to see the information that will be requested from you when you apply: https://www.sba.gov/ document/sba-form--paycheck- protection-program-ppp-sample- application-form. However, please contact your lender to apply for a PPP loan and to obtain the real application form. You cannot apply for PPP loans on the SBA website. The deadline to apply for a PPP loan is June 30th, 2020.
If you need assistance finding a PPP lender, SBA has created a “Lender Match” tool that allows you to search for lenders based on your Zip Code.
How long will it take for me to get a PPP loan after I apply?
According to the Wall Street Journal, it usually takes SBA around one month to process a 7(a) loan. However, government officials have stated that the PPP process will be significantly expedited.
Will I need to pay income tax on the PPP loan proceeds if I use the proceeds as income replacement?
Any forgiven loan amounts under the SBA 7(a) PPP program will not count as income for the borrower for tax purposes.
What is an Economic Injury Disaster Loan, and who qualifies?
Economic Injury Disaster Loans (EIDLs) are targeted, low-interest loans to small businesses that have been severely impacted by the coronavirus. They are currently available to small businesses with fewer than 500 employees, including sole proprietors, independent contractors and other self-employed individuals.
How much money can I borrow with an EIDL?
The CARES Act establishes an emergency grant to allow an eligible applicant who has applied for an EIDL to request an advance on that loan of up to $10,000. SBA must then distribute the emergency grant within three days. An applicant would not be required to repay the emergency grant even if they are subsequently denied an EIDL loan. Other resources may refer to an EIDL emergency grant as (1) an EIDLA; (2) an Emergency Economic Injury Grant; or (3) an EIDL Grant. An SBA official has stated in an interview that whether you receive the full $10,000 EIDL advance depends on the size of the business. Businesses with fewer than 10 employees and independent contractors are not going to receive $10,000.
When applying for an EIDL loan, the applicant must certify that the emergency grant funds will be used to provide paid sick leave to employees unable to work due to the direct effect of the COVID–19 pandemic, maintain payroll to retain employees during business disruptions or substantial slowdowns, meet increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains, make rent or mortgage payments and repay obligations that cannot be met due to revenue losses.
The full amount of the loan can be up to $2 million, with interest rates of 3.75% for contractors. You cannot request the specific amount of the loan — instead, the SBA determines how much you can borrow using a formula intended to approximate six months of your operating expenses. Keep in mind that although the emergency grant does not need to be repaid, the remainder of the EIDL loan is not forgivable. Repayment plans are available — up to 30 years — as determined on a case-by-case basis. EIDLs may be used for working capital purposes, including payments of fixed debts, payroll, and accounts payable. They may not be used to refinance long term debt.
Where can I apply for an EIDL, and what information do I need?
A streamlined online application for EIDL loans has been made available by SBA at the following link: https://covid19relief. sba.gov/
You will need to provide the following information as part of the application process:
· General information about the business, including EIN (or SSN for a sole proprietorship)
· Gross revenues for the 12 months prior to the date of the disaster (which SBA designates as Jan. 31, 2020)
· Cost of goods sold for the 12 months prior to the date of the disaster
· Personal and contact information for business owners
· Information about where to send funds (bank name, account number, and routing number)
When applying, you will need to supply the following documents:
· SBA Form 5 (or SBA Form 5C if you are a sole proprietor)
· Tax Information Authorization (IRS Form 4506T)
· Complete copies of your most recent Federal income tax returns
· Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant
· Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used)
How long will it take for me to get an EIDL after I apply?
EIDL emergency grants must be disbursed within three days of receipt of the application. According to the New York Times, it typically takes one to two weeks for the SBA to make a decision on an application, and up to a week after that for the full loan check to be disbursed.
Where can I find more information about EIDLs?
The SBA has an online guide, which is available here:
What is an SBA Express Bridge Loan, and who qualifies?
The Express Bridge Loan (EBL) program authorizes SBA express lenders to provide expedited guaranteed bridge loan financing on an emergency basis for disaster-related purposes to small businesses (including sole proprietors, independent contractors and other self-employed individuals) while those small businesses apply for and await long-term financing. Effective March 25, 2020, SBA expanded the program to apply nationwide. Independent contractors who have been adversely impacted by the COVID-19 emergency are eligible. The contractor must have been engaging in business when the declared disaster commenced and must meet all other 7(a) loan eligibility requirements.
SBA express lenders are only allowed to make EBL loans to eligible borrowers with which the lender had an existing banking relationship on or before the date of the applicable disaster. Check with your bank to determine if it is currently offering EBLs and to see if you qualify. Applying for an EBL will be done through your lender.
How much money can I borrow with an EBL, and what are the terms of the loan?
You can borrow up to $25,000, which can be used for “disaster-related purposes” to support the survival and/or reopening of your business. The maximum EBL loan term is seven years. The lender may require the EBL borrower to pay the loan, in part or in full, if the borrower is approved for long-term disaster financing (such as an EIDL) that allows loan proceeds to be used for EBL loan reimbursement.
How long will it take for me to get an EBL after I apply?
Because an EBL loan is a bridge loan, first disbursement of the EBL loan must occur within 45 days of the lender’s receipt of an SBA loan number. If the first disbursement is not made within 90 days from receipt of an SBA loan number, the EBL loan will be canceled.
Where can I find more information about EBLs?
SBA’s EBL program guide is available here:
Unemployment Compensation for Independent Contractor – PUA Program
The CARES Act also includes a new Pandemic Unemployment Assistance (PUA) program expanding unemployment benefits eligibility to business owners, self-employed workers, freelancers, and independent contractors and part-time workers. This means if you’re unable to work as a direct result of the pandemic and you aren’t eligible for ordinary unemployment insurance benefits, you may be entitled to PUA benefits.
What are some of the criteria an independent contractor needs to meet to qualify for PUA?
· Person isn’t traditionally eligible for unemployment compensation because he/she is an independent contractor or is self-employed.
· Person has exhausted any other unemployment benefits, if applicable.
· Person isn’t receiving paid sick leave or other paid leave benefits.
· Person doesn’t have the ability to work remotely with pay.
· Person is unable to work because of COVID-19.
What does it mean to be unable to work because of COVID-19?
Here are some circumstances that constitute inability to work due to COVID-19:
· You can’t reach your place of work because of a quarantine imposed as a direct result of the COVID-19 public health emergency.
· You or a household member have been diagnosed with COVID-19.
· You’re providing care for a family member who has been diagnosed with COVID–19.
· You’ve been advised by a health care provider to self-quarantine.
· You had to quit your job as a direct result of COVID–19.
· Your place of employment is closed as a direct result of the COVID–19 public health emergency.
· You have a child who’s unable to attend school that’s closed as a direct result of COVID-19.
· You have become the head of household or breadwinner.
· You have been forced to suspend operations as a direct result of the COVID-19 public health emergency, such as if an emergency order restricting movement that makes continued operations unsustainable. Or the COVID-19 public health emergency has severely limited your ability to continue performing your customary work activities and has thereby forced you to suspend such activities.
· The Secretary of Labor has discretion to establish additional criteria, meaning, these listed reasons may be further limited or possibly expanded.
Do I have to be completely unemployed to qualify?
No. You may receive PUA benefits based on being unemployed, partially unemployed or unable or unavailable to work. The California Employment Development Department (“EDD”) defines partial unemployment as a period when a worker was employed by a regular employer, worked less than his or her normal customary full-time hours because of lack of full-time work, and there was no severance of the employer-employee relationship. PUA benefits may be reduced by any partial earnings.
How much PUA will I get if I'm eligible?
Benefit amounts are calculated based on previous earnings, using a formula from the Disaster Unemployment Assistance program under the Stafford Act.
Those who are eligible for PUA can also receive $600 per week through July 31, 2020, under the Federal Pandemic Unemployment Compensation program.
States may not be ready to process claims for freelancers, gig workers, and independent contractors for awhile, but workers will be eligible for retroactive benefits and can receive benefits for up to 39 weeks.
Are PUA benefits likely to be taxable?
Yes. Regular unemployment insurance is counted as income and taxed on individual tax returns, and these expansions of unemployment insurance are also likely to be counted as taxable income. Taxpayers will likely be required to disclose all of their unemployment insurance benefits when they file their taxes.
How long will assistance be provided?
Up to 39 weeks (between January 27, 2020 and December 31, 2020). However, the $600 additional per week benefit will only be available through July 31, 2020.
There could be an additional 13 weeks of unemployment benefits through December 31, 2020, to help those who remain unemployed after weeks of state unemployment benefits are no longer available.
How are the criteria for PUA eligibility checked?
The PUA requires you to self-certify. In order to ensure the efficacy and integrity of the process however, the self-certification paperwork will include 1) a certification under penalty of perjury; 2) a warning that lying about meeting any of the listed criteria may be fraud; and 3) a statement that fraud is subject to criminal prosecution.
Can the EDD audit you?
Yes. Under the PUA program, each state must take reasonable and customary precautions to deter and detect fraud, such as, for example, a random audit of a sample of claims to detect fraud.
How do I file a claim?
Clear guidance has yet to be released. It appears the administration of PUA funds will be administered through the existing state agencies as soon as the federal government unlocks the funds. In California, claim filing and administration of PUA funds will probably be through the California EDD. C.A.R. will provide step-by-step guidance on how to apply for PUA funds as soon as the application process is announced.
Will there be a waiting period to apply?
No. California will waive the one-week waiting period, but it isn’t clear as to how long it’ll take for payments to be approved and processed.
Can I get PUA if I'm receiving social security benefits?
Yes. In California receipt of social security benefits are not reportable to the EDD as wages and do not reduce any unemployment benefits received.
When should I expect to receive my first PUA payment and payments thereafter?
If your claim is approved, it will likely take at least 3 weeks (if not longer) before you receive your first PUA payment (with the exception primarily of wage and identity issues). But after that first benefit payment, you may have to answer basic certification questions every two weeks to receive bi-weekly payments as long as you remain eligible.
Three New Unemployment Programs Under the CARES Act
In addition to the PUA program, the CARES Act extends unemployment benefits through two other initiatives: the Pandemic Emergency Unemployment Compensation (PEUC) program and the Federal Pandemic Unemployment Compensation (FPUC) program. FPUC is a flat amount given to people who are receiving unemployment insurance, including those who get a partial unemployment benefit check. It applies to people who receive benefits under PUA and PEUC.
If I get sick with COVID-19, is paid sick leave available to me?
Yes, in the form of tax credits. Under the newly enacted federal Families First Coronavirus Response Act (FFCRA), employees who must self-isolate or are diagnosed with COVID-19 are now able to claim a tax credit for two weeks of sick leave.
What if I need to care for an ill family member or a child whose school or daycare has closed?
The two weeks of tax-creditable sick leave provided under the FFCRA, discussed above, can be used for these purposes.
Are disability benefits available to me if I get sick or need to care for a sick family member?
It depends. If you have enrolled in California’s optional Disability Insurance Elective Coverage (DIEC) program for self-employed individuals and independent contractors, you may be eligible to receive disability or paid family leave benefits if you are unable to work due to being sick or if you are caring for a sick family member. More information about the DIEC program can be found here: https://www.edd.ca.gov/ disability/Self-Employed.htm. If you have not enrolled in the DIEC, however, as an independent contractor you are not eligible for disability benefits.
Are unemployment benefits available to me if I get sick and am unable to work?
Yes. As discussed above, the new Pandemic Unemployment Assistance program (PUA) expands unemployment benefits to workers, including independent contractors, who are unemployed or partially unemployed as a result of the coronavirus pandemic. See here for details. Additionally, if you were previously an employee instead of an independent contractor, or have a side job where you are an employee, you may be eligible for unemployment benefits from the State of California if your employer paid taxes for such benefits. You should file an unemployment claim with the California EDD here, and they will determine your eligibility.
Direct Payments to Taxpayers
Additionally, the bill provides tax rebate payments of $1,200 per adult and $500 per child to taxpayers whose adjusted gross income was $75,000 or less for individuals or double that amount for joint return filers. For income levels above those thresholds, the payments would be phased out. Individual taxpayers with annual gross incomes above $99,000 and joint filers with annual gross incomes above $198,000 are not expected to receive any payments.
Financial Resources for Rental Housing Property Owners
The ongoing economic crisis resulting from COVID-19, as well as the passing of eviction moratoria by the Governor and many local jurisdictions, has created a number of financial issues for rental property owners. While large corporate property owners can often absorb the loss of rent for a short period of time, it can be a substantial hardship for non-corporate owners.
For guidance on state and local eviction and rent moratoria, as well as other rental housing issues related to the COVID-19 pandemic. Also, all of the information provided below entails dealing with your loan servicers. Please note that the demand for information, coupled with the personnel issues created by Covid-19, will likely require waiting on hold, or for an email reply, for long periods of time.