To our valuable clients,
In response to the COVID-19 pandemic, our thoughts are genuinely with all of you who have been impacted. By being part of the St. Louis community and touching so many of your lives, Intelica CRE stands ready to help you get your business back on track. Below is a brief list of resources that can help you in these challenging times.
A $2.2 trillion federal stimulus package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act was recently passed by Congress and signed by the President on Friday, March 27th, 2020 in response to the coronavirus (COVID-19) pandemic.
There are parts of this bill that will have a direct impact on real estate. Below are the points that are most relevant:
SBA 7(a) Paycheck Protection Program
The CARES Act includes a Paycheck Protection Program (PPP) which authorizes up to $349 billion of federally guaranteed loans to qualifying small businesses. This new loan program is based on the architecture of the SBA’s existing 7(a) loan program and will make forgivable loans of up to $10 million available to qualifying small businesses. It’s important to note that businesses that qualify and accept the Economic Injury Disaster Loan (EIDL -see below) through the SBA would not be able to receive the PPP loan for the same purpose. Please see guidelines for the PPP from the U.S. Chamber of Commerce.
Emergency Economic Injury Disaster Loan (EIDL)
Earlier this month, the SBA announced that in designated states and territories small businesses and private, non-profit organizations that are suffering substantial economic injury as a result of COVID-19 may qualify for EIDLs. EIDLs are low-interest working capital loans—up to $2,000,000—made directly by the SBA. In connection with this stimulus package:
- Tribal businesses, cooperatives, and companies that are owned by an ESOP with fewer than 500 employees, as well as sole proprietors and independent contractors, are also now eligible for EIDLs;
- personal guarantees on advances and loans under $200,000 are not required (but will still be required on advances and loans over $200,000);
- the requirement that an applicant must have been in business for one year is waived; and
- the credit-elsewhere test is waived, meaning that small businesses that have credit available elsewhere are now eligible for EIDLs.
You can apply for EIDL directly on the SBA website here.
SBA subsidy of existing small business loans
Small businesses with existing SBA loans through the SBA 7(a), 504 and Microloan programs are also afforded relief under the CARES Act. The SBA will be subsidizing those loans, up to an estimated amount of $17 billion. Key details about this subsidy program include:
- the SBA will pay the principal, interest, and any associated fees that are owed on existing covered loans for a six (6) month period, starting on the next payment due date;
- for covered existing loans that are already on deferment, the SBA will begin making these payments with the first payment after the deferral; and
- SBA loans that are made under these programs—not including the Paycheck Protection Program—within the next six (6) months will also receive a full six (6) months of loan payments by the SBA.
Small businesses with these existing covered loans should contact their lender directly for additional details regarding this SBA subsidy program.
Emergency EIDL grant
The stimulus package also establishes an estimated $10 billion Emergency Grant under the EIDL Program. Key details about this emergency grant include:
- an eligible entity that has applied for an EIDL due to COVID-19 may request an advance on that loan, up to $10,000;
- the applicant must certify that it is an eligible entity under the SBA guidelines;
- the SBA is required to distribute the emergency advance to the applicant within three (3) days of the applicant’s request;
- the advance may be used towards paid sick leave to employees, payroll, increased costs of materials, rent or mortgage payments, and repayment of other obligations that cannot be met due to revenue losses; and
- the advance does not need to be repaid, even if the applicant is subsequently denied for an EIDL loan.
You can apply for EIDL grant directly on the SBA website here.
Gateway Resilience Fund
The new Gateway Resilience Fund provides short-term financial help to employees as well as owners of St. Louis-area independent bars, restaurants, shops and other small businesses. To be eligible, applicants must both:
Be an employee, essential local contractor or owner of an independent bar, restaurant, entertainment venue, retail establishment or other small, locally-owned business in the St. Louis region; and
Have experienced financial burden due to the coronavirus pandemic.
You can apply for the Gateway Resilience Fund here.
OTHER USEFUL CARES ACT PROVISIONS
Employee Retention Credit for Employers (Payroll Tax Credit)
To help employers (including tax-exempt organizations) affected by the COVID-19 pandemic, the CARES Act provides for an employer federal tax credit against the Social Security portion of payroll tax that the employer pays. The act applies to wages paid from March 13, 2020, through December 31, 2020, and is available to qualified employers, which are employers who carried on a trade or business during 2020 and whose:
- operations were fully or partially suspended due to a COVID-19-related shut-down order or
- gross receipts declined by more than 50% compared to the same quarter in the prior year. A significant decline begins with the quarter in which the gross receipts for the quarter were less than 50% of those in the same quarter in the prior calendar year. The decline ends with the quarter in which gross receipts are greater than 80% of the gross receipts for the same quarter in the prior calendar year.
The amount of the tax credit is equal to 50% of the first $10,000 in qualified wages (including health benefits) paid to each employee, up to a maximum tax credit of $5,000 per employee. For eligible employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit. Qualified wages do not include sick leave wages or family leave wages paid pursuant to the Families First Coronavirus Response Act.
Business Interest Deduction to Offset Effects of COVID-19
The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. Partnerships still remain subject to the 30% limitation for tax years beginning in 2019.
Taxpayers eligible for the 50% limitation may elect to instead use the 30% limitation. All taxpayers, including partnerships, may elect to use their ATI for a tax year beginning in 2019 to compute their Section 163(j) interest deduction limitation for their tax year beginning in 2020. This election will be very beneficial for many businesses.
Partners that are allocated excess business interest expense (EBIE) for tax years beginning in 2019 are able to deduct 50% of that EBIE in tax years beginning in 2020 and the remaining 50% of the 2019 EBIE is subject to the normal Section 163(j) rules.
Technical Correction for Qualified Improvement Property (QIP)
The TCJA eliminated pre-existing definitions for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property and replaced those definitions with one category called qualified improvement property (“QI Property”). Under the TCJA, QI Property falls into the 39-year recovery period for nonresidential rental property, making the QI Property category ineligible for 100% Bonus Depreciation.
The CARES Act provides a technical correction to the TCJA, designating QIP as 15-year property and eligible for 100% Bonus Depreciation. For alternative depreciative system (ADS) purposes, QIP is recovered over 20 years.