Updated April 2, 2020 2:45 pm PDT
The President signed the heftiest economic rescue bill in modern history today, providing $2.2 trillion to help Americans, hospitals and businesses withstand the consequences of the coronavirus. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed in a bipartisan 96-0 Senate vote on Wednesday, while the House passed the bill today with a quorum of more than 216 members present.
See below for an overview of the bill, learn what relief the economic package offers restaurant businesses, as well as eligibility requirements and instructions for submitting a loan application. Check back for updates.
Provisions offered in the measure include $360 billion in loans and grants to small businesses.
The emergency aid package also includes an employee retention tax credit that’s estimated to provide $50 billion to companies that retain employees on payroll and cover 50% of workers’ paycheck up to $10,000. Companies would also be able to defer payment of the 6.2% Social Security payroll tax.
These employee provisions in the bill are welcome relief for restaurant businesses that have been struggling with the decision to either close their doors altogether or possibly operate at a loss in a limited capacity in order to ensure their employees were paid.
This blog post summarizes the major provisions affecting the restaurant industry: 1) the Paycheck Protection Loan Program, 2) Economic Injury Disaster Loan (EIDL) and loan advance, and 3) Tax relief and other benefits. Information on eligibility requirements and how to apply is also included.
Paycheck protection loan and partial loan forgiveness
The CARES Act’s Paycheck Protection Program Loan Guarantee is designed to provide a direct incentive for restaurants (and other small business) to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. Under this program, the Small Business Administration (SBA) backs small-business loans through local lenders. Small businesses can borrow up to 2.5 times their monthly payroll, based on prior year numbers or $10 million, whichever is less. For example, an employer with an average monthly payroll of $700,000 will be eligible for a loan of $1.75 million. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
This loan has a maturity of 2 years. Loan payments will be deferred for six months. No collateral or personal guarantees are required.
Loan forgiveness: The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
Eligibility: Operational as of February 15, 2020 and having a payroll with applicable payroll taxes. Businesses with fewer than 500 employees, however, restaurants are exempt from 500-employee limits.
When to apply: Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses. Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020.
Where to apply: You may apply for a Paycheck Protection Loan through existing SBA lenders. To find an SBA lender near you, visit the SBA List of Lenders and select your state from the drop down menu.
What information is required: Download a Paycheck Protection Program SAMPLE application form to see the information that will be requested from you.
How to apply: You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
If you’re ready to apply through a participating SBA lender, download the application form, then submit the completed application with the required documentation to an approved lender by June 30, 2020.
More information on the Paycheck Protection Program is available at https://www.sba.gov/funding-programs/loans/paycheck-protection-program.
Economic Injury Disaster Loans and Loan Advance
The SBA’s Economic Injury Disaster Loan (EIDL) program provides restaurants and other small businesses with working capital loans of up to $2 million that can provide vital economic support to help these businesses overcome the temporary loss of revenue they are experiencing.
A separate $10 billion in emergency small business loan advance (grant) of up to $10,000 is also set aside under the bill — an unprecedented measure from the Small Business Administration (SBA). As part of the EIDL, Borrowers can receive an emergency cash advance that can be forgiven if spent on maintaining payroll, paid leave, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.
Eligibility: Businesses with fewer than 500 employees, however, restaurants are exempt from 500-employee limits. Businesses must be located in one of the U.S. 50 states, Northern Mariana Islands, Guam American Samoa, Puerto Rico and U.S. Virgin Islands.
How to apply: To apply for the Economic Injury Disaster Loan and the $10,000 cash advance grant, apply directly on the SBA website at https://covid19relief.sba.gov/#/.
For more information on the EIDL loan and loan advance, visit https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.
More information on the Paycheck Protection Loan Program is available at https://www.sba.gov/funding-programs/loans/paycheck-protection-program.
Additional economic relief provided to restaurant operators through the CARES Act
Deferred Payroll Taxes and Tax Credit
Restaurants that continue to pay employees during the COVID-19 outbreak will receive a refund in the form of a tax credit of payroll taxes paid on 50% of the wages.
The first half of the 6.2% Social Security payroll tax will be due on December 31, 2021, and the remaining half will be due on December 31, 2022.
Eligibility: Restaurant business that have been forced to close or have suffered a 50% drop in revenues from a year ago. Businesses with 100 or more employees get the break on wages paid while they were closed. Small restaurant operators get the credit on all wages paid.
Concessions for tipped employees
The bill enables full-service establishments to base their payroll and forgiveness calculations on wages servers are currently being paid, rather than the wages plus gratuities they collected waiting tables prior to the COVID-19 pandemic. This provision was added since table service is currently prohibited in most states, preventing servers from earning tips.
Increase in unemployment payments
The package helps replace the salaries of furloughed workers for four months. Furloughed workers will get whatever amount a state usually provides for unemployment, plus a $600-per-week add-on.
Yet to be determined
Keep an eye out for issues still to be determined, including how this new law interacts with existing laws such as the Family and Medical Leave Act; whether or not employers that furloughed their employees before April 1, 2020 will be eligible for some of these benefits; what documentation will be required from employers in order to receive some of the benefits, and how medical privacy law (HIPPA) will affect the new bill.