Relief Options for Small Businesses in Arizona During This COVID-19 Crisis
SBA Loan Opportunity
According to Governor Doug Ducey, as of March 19th, the U.S. Small Business Administration (SBA) approved an Economic Injury Disaster Loan declaration for Arizona that will help small businesses here in the state impacted by COVID-19. Individual businesses can be eligible for up to $2 million through the program,
Up to $25,000 will be available as an unsecured loan. Any funds needed above $25,000 will need to be collateralized by either a business or personal asset.
This program can offer you some short-term and long-term financial assistance to help navigate this unique time. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of COVID-19’s impact. The interest rate is 3.75 percent for small businesses without credit available elsewhere. The interest rate for non-profits is 2.75 percent. SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years.
You can Online Apply Here
Here is more info on the 3 step process for the loan.
**Update March 30, 2020**
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
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.
Paycheck Protection Program Summary
To help keep small businesses and their employees afloat through COVID-19, the CARES Act provides “payroll protection” to businesses with fewer than 500 employees including sole proprietors and nonprofits. These are forgivable loans for 2.5 months of payroll including medical insurance.
Small Business Loans
The loans, which are referred to as “paycheck protection loans” and are fully guaranteed by the federal government through December 31, 2020 are generally limited to the LESSER OF:
- the sum of
- average monthly “payroll costs” for the 1-year period ending on the date the loan was made (an alternative calculation is available for seasonal employers) multiplied by 2.5,
- And any disaster loan (descussed above) taken out after January 31, 2020 that has beenrefinanced into a paycheck protection loan,
- And $10 million.
Payroll costs, in turn, are the sum of the following:
- wages, commissions, salary, or similar compensation to an employee or independent contractor,
- payment of a cash tip or equivalent,
- payment for vacation, parental, family, medical or sick leave,
- allowance for dismissal or separation,
- payment for group health care benefits, including premiums,
- payment of any retirement benefits, and
- payment of state or local tax assessed on the compensation of employees,
Payroll costs do not include, however
- the compensation of any individual employee in excess of an annual salary of $100,000,
- payroll taxes,
- any compensation of an employee whose principal place of residence is outside the U.S., or
- any qualified sick leave or family medical leave for which a credit is allowed under the newCoronavirus Relief Act passed last week.
Example: Betty’s Salon applies for a paycheck protection loan on May 1, 2020. The business had $60,000 in “payroll costs” for the period May 1, 2019 through May 1, 2020, for a monthly average of $5,000. Betty’s Salon is entitled to a fully guaranteed federal loan —assuming it’s made before December 31, 2020 —
Equal to the LESSER OF:
- $12,500 ($5,000 in average payroll costs x 2.5), or
- $10 million.
The loans will have a maximum maturity of 10 years and an interest rate not to exceed 4%. Proceeds may be used to cover payroll, mortgage payments, rent, utilities, and any other debt service requirements. The standard fees imposed under Section 7 of the Small Business Act are waived, and no personal guarantee is required by the business owner.
An additional provision in the CARES Act provides for possible deferment of repayment of the loans for a period of at least six months, but not to exceed a year.
Loan Forgiveness of Paycheck Protection Loans
A separate section of the CARES Act calls for a portion of the aforementioned paycheck protection loans to be forgiven on a tax-free basis. The amount to be forgiven is the sum of the following payments made by the borrower during the 8-week period beginning on the date of the loan:
- payroll costs (as defined above)
- mortgage interest,
- certain utility payments.To seek forgiveness, a borrower must submit to the lender an application that includes documentation verifying the number of employees and pay rates, and cancelled checks showing mortgage, rent, or utility payments.
Example: Continuing the previous example with Betty’s Salon, in the first 8 weeks after the business borrows the $12,500, the business pays $10,000 in payroll costs, rent, and utility payments. Betty’s Salon is eligible to have $10,000 of the $12,500 loan forgiven. The forgiveness will not create taxable income. In addition, because of the deferment rules in the CARES Act, any payments due on the remaining $2,500 will not be due for six months.
There is a provision, however, that reduces the amount that may be forgiven if the employer either:
- Reduces its workforce during the 8-week covered period when compared to other periods in either 2019 or 2020, or
- Reduces the salary or wages paid to an employee who had earned less than $100,000 in annualized salary by more than 25% during the covered period.This reduction can be avoided, however, if the employer rehires or increases the employee’s pay within an allotted time period.
To apply for these SBA 7(a) Loan you must work with a lender that is authorized to offer these types of loans. We have linked a list of the top 100 most active SBA 7(a) lenders HERE
Federal Income Tax Filing and Payment Deadline Extension
Our local State of Arizona has also offered this same extension for state income taxes for both business and individuals.