On 27 March 2020, President Trump signed into law the largest economic stimulus package in US history as part of his Coronavirus support measure, giving clear direction to small business on who is eligible and how they may benefit from the new business loans. Introduced to help them work through the crisis, the fund has been in high demand and has currently run out of money. However, another bill is yet to be approved by congress and is expected to add an additional $250 billion support package.
The support that was launched with a staggering $349 billion in funding, provided federally-guaranteed interest free, tax free loans with all repayments being deferred for a year. However, although all states and territories have access to the funds, and independent contractors, sole proprietors and the self-employed are also eligible, a business must employ less than 500 members of staff to qualify.
The fund’s conditions also clearly state that priority will be given to:
Businesses located in low traffic density and rural markets
Businesses less than two years’ old
Veterans and members of the military community
Socially and economically disadvantaged individuals
No personal guarantees are required to secure the loans but there must be a “good faith certification” stating that the business has been affected by the COVID-19 pandemic, along with an agreement that the loan will be utilised in accordance to the guidelines.
So how does it work?
The loan is a ‘forgivable loan’ with a cover period of 8 weeks, so there are no repayments for the first 8 weeks, making this period work more as a grant.
The cover period is determined by the small business owner and lending body, but must be between February 15, 2020 and June 30, 2020.
The loan total may be no more than 2.5 times the businesses’ monthly payroll.
A single company may not be granted in excess of $10 million.
The loan may be used to cover all operating costs, including interest on mortgage, rent, utilities, employee wages, other employee compensation packages, employee health care, and debt repayments.
An individual’s quarterly payroll cost may not exceed $33,333, which equates to an annual salary of $100,000
With regards to any staffing adjustments made during the cover period:
If employees are laid off, the amount of the forgivable loan will be adjusted accordingly. So, if half of the workforce are made redundant the loan will reduce by 50%.
If employee wages are lowered by more than 25%, the loan will be reduced in proportion to the decrease.
If all staff are then rehired on full salary by 30 June 2020 no reduction of the loan will be implemented.
However, should the crisis continue for longer than originally anticipated, the cover period will be reviewed with a view to being extended.
Should you have any queries regarding your U.S. Tax requirements or the ongoing updates, please contact our dedicated team on 01932 320800 or email email@example.com.