The CARES Act was signed into law on March 27, 2020, providing $2 trillion in economic relief for both workers and employers. Similarly, the Families First Coronavirus Response Act (FFCRA) was signed on March 18, 2020, to provide financial credits to individuals who need to take care of themselves or family members as a result of the Coronavirus pandemic. This U.S. Government relief comes at a time when small businesses are genuinely suffering and are fighting to stay alive and without assistance, most likely will have to close their doors.

The latest COVID-19 statistics on the impact to small businesses from The National Federation of Independent Businesses (NFIB) released on April 2, 2020, paints a grim picture. Many businesses at that time estimated that assuming nothing changed, they would have to go out of business within two months. Other findings included:

  • COVID-19 negatively impacts 92% of small businesses

  • 80% of small businesses report slower sales

  • 31% of small businesses report supply chain disruptions

  • 23% of small businesses report concerns over sick employees

As a small business owner, you have likely taken some unprecedented steps to try and keep your business afloat during this unique downturn. Out of those businesses that hadn’t closed at the time, 56% of them had scaled down operations, while 26% delayed payment to creditors. Thankfully, the CARES Act provides provisions for debt restructuring for businesses affected by COVID-19.

Along with the opportunity for debt restructuring, you have likely looked into both the Paycheck Protection Program (PPP) as a means to retain employees, as well as the low-interest Economic Injury Disaster Loans (EIDL). Many of these programs have been so popular that they have stalled taking applications (PPP) or stopped altogether (EIDL, except for agricultural businesses).

With so much at stake and no one right answer on how to manage your business’ finances, you need to ensure you discuss all your options with your financial advisor.

A breakdown of programs included in The CARES Act, FFCRA, and related considerations

Employee Retention Credits – The Paycheck Protection Program (PPP)

Many small businesses have turned to the Paycheck Protection Program (PPP) to help them keep employees on their payroll as well as cover other costs. PPP loans are low interest, require no collateral or guarantee, and—if used as the program intended—don’t need to be paid back.

The PPP program has resumed taking applications as of April 27, 2020.

The terms of the PPP loan are a bit unclear to some, and it is essential to understand how you are allowed to utilize the loan proceeds to ensure the loan is fully forgiven. The expectation is that you spend 75% of your PPP Loan to cover payroll costs, and you can spend up to 25% on rent, utilities, and other essential expenses. But make sure you meticulously document all loan expenses, including salaries and wages, as well as all canceled checks, payment receipts, or account statements. And don’t forget that you cannot pay any employee over $100,000 annually with the PPP loan proceeds.

You can choose to utilize more of your PPP funds towards rent/utilities/business expenses, or permanently lay off staff, but it would result in less of your PPP loan to be forgiven. For more information, read our related article: Paycheck Protection Program Loan Forgiveness.

Layoffs vs. Furloughs

No small business really wants to resort to layoffs but sadly many employers currently do not have a choice. Furloughing staff may be a suitable option for some, though there are some important factors to keep in mind.

When an employee is laid off, they are no longer considered an employee of the company. Their employment is in effect terminated. If you are going to lay off some employees, make sure you consult an employment attorney to make sure you are in compliance with Federal, state, and local employment laws. And, make sure you do not forget to provide your laid-off employees their final paycheck and to provide all required separation notices upon termination. As mentioned above, laying off employees under the provision of a PPP loan would result in a reduction in the amount of your loan forgiveness.

When an employee is furloughed, they experience either a full or partial reduction in hours worked. Furloughed employees should be provided a notice that clearly states the start and end dates of their furlough period as well as any other adjustments to their employment status (i.e. salary, hours worked, etc.). Furloughing staff will not result in loan forgiveness reduction, provided the furloughed staff are brought back to work normal hours by June 30, 2020. One thing to remember about furloughed staff is these employees retain some or all of their benefits, dependent upon your employment policies, collective bargaining, or applicable laws.

Furloughs and layoffs both carry different pros and cons in terms of your employee relations and company’s finances. For more information, read our related article: Coronavirus-Related Human Resource Questions

Finances and Debt Management/Restructuring

Managing finances during this time is very tricky, and it’s essential to make sure you know of and use every tool you have at your disposal.

  • Check your business interruption insurance policy

  • Implement an emergency budget

  • Apply for PPP, EIDL, or other low-interest government loans

  • Don’t forget to also check your state programs as many of them have different plans (i.e. California’s tax relief program)

The CARES Act also provides provisions for business owners to renegotiate the terms of their existing business loans with their financial institution without the loan being designated a Troubled Debt Restructuring (TDR). You would also need to fulfill the additional requirements as outlined in The CARES Act below:

  • The restructuring request must be directly related to the loss of income from COVID-19 impact,

  • The loan is not more than 30 days past due as of December 31, 2019,

  • The restructuring is implemented within 60-days of the end of the national

Read our related article SMB Guide to Debt Restructuring For COVID-19 for more information.

Payroll and Tax Programs for SMBs

Both The CARES Act and the FFCRA spell out tax credits and payment deferrals to assist businesses during this pandemic.

These programs include the following:

FFCRA Emergency Sick Leave Payroll Tax Credit

  • Who is eligible: Businesses with fewer than 500 employees per entity

  • Must pay your employees up to 80 hours of leave pay for COVID-19 related, self or family care.

FFCRA Emergency Family Medical Leave Payroll Tax Credit

  • Who is eligible: Businesses with fewer than 500 employees including affiliates

  • Covers pay for employees who need up to 12 weeks of leave to care for a child under 18

CARES Payroll Tax Deferral

  • Who is eligible: All employers

  • Defer payment of the employer portion of Social Security taxes between March 27, 2020, and December 31, 2020

CARES Employee Retention Payroll Tax Credit

  • Eligible if:

    • Your operations were fully or partially suspended due to COVID-19 related government order; or

    • Your gross receipts for the first quarter of 2020 declined by more than 50% when compared to the same period in 2019. Your eligibility continues through the rest of 2020 in which gross receipts are higher than 80% of gross receipts in the same quarter in 2019

    • Your company did not receive a PPP Loan

  • The amount of your credit varies depending on the number of employees in your company and how much your employees are working

Consult with a California Financial Advisor Today

The COVID-19 pandemic impact on businesses has a lot of moving parts and the financial guidelines are continually shifting as the U.S. Government begins to define more details of each program. Even though some state lockdowns are beginning to be slowly eased, there is no telling if we’ll see further waves of illness, or when we’ll be able to reach a state of normality. With so much financial uncertainty, having a part-time accountant or CFO with decades of experience provides much-needed stability and guidance during these challenging times. Their relationships with lenders, financial institutions and legal experts can be leveraged on your behalf. Their experience from filing many applications across all of their clients provides them with more insight and learnings.

Greenough Group’s CFO consultants and accounting talent can help you manage your debt restructuring, filing for SBA loans, and assist you with the following services during this trying time:

  • Financial and accounting oversight and management

  • Managing employee layoffs, furloughs, or salary reductions

  • Managing finances to meet the requirements of an SBA Economic Interference Disaster Loan or PPP Loan

  • Uncover and implement novel ways to cut your expenses

  • Documenting all loan payments for loan forgiveness consideration

  • Fielding your employees’ questions about financial matters

  • Updating employees on the rapid changes to the laws

We also encourage you to look into these additional resources. California and the Federal Government are providing broad assistance to small businesses and employers impacted by COVID-19. This assistance includes but is not limited to the following: