COVID-19 Update: Beaird Harris has shifted a significant number of our team members to work remotely.
We continue to serve and care for our clients, just as we always have, and are available by phone, video or email.

Beaird Harris will be closed on Friday, July 3rd in observance of the Independence Day holiday.

The “CARES” Act and Paycheck Protection Program 7a SBA loan Q&A for Business Owners

Updated April 1, 2020

We know there is an overwhelming amount of information out there on new legislation and what steps to take as a small business owner. Here is a quick summary of the most frequent client questions we are receiving.  

***Note: The information within is subject to change with final regulations and guidelines. Many of these issues are related to labor law. We are not labor law specialists and are sharing information as we understand it. This is a highly fluid environment. For any labor and HR issue, you should consult with your attorney before taking any action.***  

1) The CARES Act was signed into law on March 27, 2020. The information herein is a good faith interpretation of the Senate’s version of the bill as it existed on March 26, 2020. The two most powerful aspects of the bill for small businesses are:

  • The federal government provides extra unemployment funds of up to $600 per week to employees, including independent contractors and sole proprietors not traditionally covered. This provides “supercharged” unemployment benefits.  The additional funds are over and above state unemployment benefits. It is presumed that this additional $600 will be paid directly by the state.
  • Small Business Administration (“SBA”) loan modifications to section 7(a) where loans can be forgiven if the funds are used in accordance with the new provisions.  These loans are different from the disaster, or EIDL loans, in place now. Section 7(a) loans will be administered by local banks, rather than through the SBA website.

2) If I have had to close my business due to COVID-19, should I layoff employees or furlough them?
Consider the following and consult with your attorney on any HR or labor issues before acting.   

  • A layoff implies they are no longer an employee and you may or may not bring them back.  If you wish for someone to work reduced hours after a layoff, you would rehire them at an hourly rate.
  • In a furlough situation they are still employees, but will have no work or reduced hours. 
  • Before doing either, check with your health insurance carrier to see if one or the other is better for your group health plan.

Note: for simplicity throughout the rest of this email we will use the term layoff. 

3) I have closed my business due to COVID-19.  If I have not laid off my employees, should I wait or do so now?
Consider the following and consult with your attorney on any HR or labor issues before acting.   

  • If you are closed or running a very limited operation, layoff now.
  • As needed, rehire essential employees at reduced hourly rates. 
  • See HR/Employee Issues for more information on this strategy.

4) Do I need to rehire all of my staff by April 1, 2020 in order to be eligible for benefits under the CARES Act? 
Consider the following and consult with your attorney on any HR or labor issues before acting.   

  • No, you won’t need to rehire your staff until you need them.
  • You WILL need to hire your full team back by June 30, 2020  in order for your 7(a) loan to be forgiven in full.
  • You must also rehire your full team at 75% or more of prior pay rates for full loan forgiveness.
  • That should allow you to rehire people as needed when your business re-opens, with the goal of rehiring your full team by June 30, 2020. 

5) Should I (as the owner of the business) file for unemployment?
Consider the following and consult with your attorney on any HR or labor issues before acting.   

  • Yes. 
  • If you need cash from your business, hold off on taking W-2 income and consider a loan from the business or a draw instead.
  • Sole proprietors and independent contractors, who are not traditionally eligible for unemployment benefits, are covered under the Title II of the CARES Act and will receive the new federal unemployment benefits, administered through the states.

6) Should my staff apply for unemployment?
Consider the following and consult with your attorney on any HR or labor issues before acting.   

  • Yes.
  • If your employees file for unemployment they should receive both Texas unemployment benefits and federal funds provided under the CARES Act.  
  • Unemployment benefits are separate from the recovery rebate available to individuals through the CARES Act. 
  • The combination of these three benefits should provide a strong economic benefit to them until you are able to rehire them at full hours. 

7) Will these unemployment claims affect my tax record? 

  • At this point, Texas has said claims resulting from COVID-19 will NOT adversely affect you like “regular” claims do. 
  • Further, the Texas Workforce Commission has indicated that closures due to shutdown orders from local governmental entities will have chargeback protection.  You should retain a copy of the order.

8)  How does the SBA 7(a) (Paycheck Protection Program – or PPP) loan work?

  • These loans are different from the EIDL loans previously offered.  
  • You will apply for the 7(a) loans at a bank that is a qualified lender with the SBA.
  • We have spoken to several lenders and they are in a holding pattern.  Now that the CARES Act is signed, the SBA will need to give the banks guidance on how to process these loans.  
  • Section 7(a) loans can be forgiven completely while EIDL loans are more traditional in their repayment terms. 
  • Visit our resource center for detailed information on both types of loans.  
  • Be prepared with information that will be needed for the loan application.  Our resource center has a section on the SBA Loan Program and contains a standard list of documents needed and links to the SBA website. It’s important to note that banks may require different forms and information for the Section 7(a) loans.

9) What is the $10,000 grant provision on the EIDL loan? 

  • There is a grant that should be paid out to any applicant of the EIDL loan within three days of application.
  • While this amount is a grant, it will REDUCE the amount of 7(a) loan that can be forgiven. 
  • The net impact if you use both the grant and 7(a) loan, you will have a net loan at the end of this of $10k that must be repaid.
  • So that negates the benefit of the $10k loan, other than from a timing standpoint.
  • If you need short term cash, apply for this grant now.

10) What about the existing benefits under the Families First Coronavirus Response Act (“FFCRA”)? Do I have to pay these to my employees? 

  • The FFCRA provisions are still in effect.
  • They will apply to any employees you have on payroll as of April 1, 2020, the date the law goes into effect. 
  • These would NOT apply to employees who are laid off or furloughed prior to April 1, 2020.
  • If your employees are not laid off, there are payroll credits available under FFCRA.  The Department of Labor (“DOL”) and The U.S. Treasury will be issuing regulations addressing the implementation of these payroll credits.  
  • The FFCRA includes provisions that provide relief to employers with less than 50 employees.  The DOL has indicated it will issue guidance in April on how to request relief under these provisions.  

Beaird Harris will continue to analyze tax information in this rapidly changing environment and keep you informed. Our COVID-19 Resource Center will also be updated regularly with relevant information. Please reach out to us if we can be of assistance during this difficult time. As we like to say at Beaird Harris, “It is what we do together that sets us apart!” Now, more than ever, that rings true.

Return to COVID-19 Response & Resources

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