A. Companies of all types and sizes are likely able to leverage some aspect of the economic stimulus packages passed by the federal government. For small businesses and nonprofits, the CARES Act includes two disaster loan programs, The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan program (EIDL), which are available through the Small Business Administration (SBA).
The PPP is a forgivable loan program that significantly expands which organizations are eligible for SBA loans. Small government contractors (as determined by SBA standards per NAICS codes) seeking assistance can work with a participating SBA 7(a) lender, bank or credit union to apply for a loan. The federal government also released a second round of funding aimed at assisting small businesses in April. For GCs facing financial strain as a result of COVID-19, these loans can help offset a variety of costs. Significantly, the loans will be forgiven so long as the funds are used to keep employees on the payroll and for certain other expenses. This is a key benefit for GCs, which often employ people with highly specialized skills. The PPP can help ensure the retention of those critical employees and the competitiveness of small businesses in the federal market.
Employers who don’t take advantage of the PPP would be eligible for a 50% credit on qualifying wages paid to employees between March 13 through December 31, 2020, if they either:
- Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) as a result of COVID-19; or
- Experience a significant decline in gross receipts during the calendar quarter, relative to a comparable quarter in 2019.
All employers are eligible to defer their social security tax liability due March 27 through the earlier of PPP loan forgiveness, if applicable, or December 31, 2020.
The CARES Act also provides funds for the EIDL program, which is available to small businesses and nonprofits in a declared disaster area. Currently, all 50 states, the District of Columbia, Puerto Rico, Guam and the Northern Mariana Islands have all been declared disaster areas for purposes of the EIDL Program. These loans are processed directly through the SBA. Government contractors can apply for loans under both SBA programs, as long as they don’t cover the same expenses.
In addition to these loans, the CARES Act also includes a number of tax savings opportunities, including AMT credits, net operating loss carryovers/carrybacks, and tax-deductible charitable contributions.
While there are many opportunities available in the stimulus bills, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other implications, such as cost allowability. Given the level of complexity in deciding which relief measures to pursue and in securing them, it is critical that organizations consult with professionals in order to maximize their savings and direct relief where it will matter most.
To learn more, view our webinar: COVID-19: An Update for Government Contractors.