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A Word with Peter J. Smith IV of Smith + Malek on the CARES Act

COVID-19 has presented unprecedented challenges to many small business owners, but fortunately, the recently passed CARES Act is offering a lifeline. Still, the federal stimulus bill and the legal implications of the outbreak can be complicated to navigate.

Idaho law firm Smith + Malek, which has offices in Boise, Sandpoint, and Coeur d’Alene, is helping the small business community with a pro-bono service that includes a 30-minute video or telephone call with a business law attorney. The firm’s attorneys also are prepared to discuss the contractual implications of COVID-19, which render some contracts void if they contain an “act of God” clause.

Each of Smith + Malek’s 11 attorneys will take on one appointment per day for as long as the service is needed.

The Idaho Business Review recently spoke to Peter J. Smith IV, one of the firm’s attorneys, for an overview of the CARES Act and its implications for the state’s small business owners.

Peter J. Smith IV. Photo courtesy of Brady Campbell

What’s the most significant part of the CARES Act for Idaho businesses?

The CARES Act provides a $2 trillion emergency relief fund, including $377 billion that is allocated to small businesses. With about 80% of Idaho’s economy driven by small businesses, the CARES Act makes a significant impact on the decision for an employer to keep their doors open.

The most significant portions of the CARES Act for small businesses are: 1) the Paycheck Protection Program Loan Guarantee, mentioned above; and 2) Economic Injury Disaster Loans. The Paycheck Protection Program Loan Guarantee provides $349 million to guarantee loans through section 7(a) of the Small Business Act (“SBA”). These SBA loans are provided through private banks. In circumstances listed below, these loans will convert to grants, meaning the loan amounts will be forgiven. The funds from the program can be used for expenses incurred prior to February 15, 2020 and will end on June 30, 2020.

The Paycheck Protection Program is available to all businesses with 500 or fewer employees, so long as the business was in operation before February 15, 2020. This includes 501(c)(3) non-profit entities, select types of businesses with fewer than 1,500 employees that meet SBA industry standards, select veteran organizations, self employed individuals, sole proprietors, and freelance and gig economy workers.

Personal guarantees or collateral are not required to qualify for the loan. The maximum loan amount under the Program is $10 million, with an interest rate cap of 4%. Lenders are expected to defer fees, interest and principal for 6 months.

Small businesses in Idaho benefit from applying for this Program because of the eligibility for loan forgiveness if the loan becomes a grant if: Employee and compensation levels are maintained; and 2) The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utilities costs over the 8-week period after the loan is made.

Economic Injury Disaster Loans (“EIDL”) are available to all businesses in Idaho based on the national emergency status of the COVID-19 pandemic. EIDLs are unique because they provide relief to businesses that experience a temporary loss of revenue. EIDLs are intended to cover immediate operating costs. As the pandemic has been termed a national emergency, EIDL opportunities are open to all businesses.

To qualify, an Idaho business or nonprofit must have been in business as of January 31, 2020. EIDLs are available for up to $2 million, with interest rates for small businesses at 3.75% and non-profit entities at 2.75%. The first month’s payments are deferred for 1 year.

The CARES Act expands EIDLs and additionally provides $10 billion for grants up to $10,000 in the form of EIDL advances. Applicants may receive a $10,000 EIDL advance and if it is spent on paid leave, payroll, increased costs pursuant to supply chain disruption, mortgage or rent payments, or repayment obligations that cannot be overcome due to revenue loss it is forgiven. EIDLs pre-date the coronavirus, but based on the CARES Act, these loans have been significantly expanded. They are still based on an applicant’s credit score, and those smaller than $200,000 may be approved without a personal guarantee.  No real estate is required as collateral. Applicants may receive the $10,000 advance even if they are not approved for other funds.

Any small business may apply for an EIDL advance of up to $10,000, including sole proprietors, independent contractors, Tribal businesses, cooperatives, and all non-profit entities. Funds are available within three days of a successful application.

This loan advance is another great option for Idaho small business owners as it will not have to be repaid and is offered as a reprieve for small businesses as they overcome operational challenges created by the pandemic.

Self-employed people are also eligible for this. What do they need to know?

Self-employed workers are eligible for unemployment benefits under the CARES Act. The Act allows self-employed individuals to claim unemployment benefits for up to 4 months and waives the standard waiting period. Further, it increases payouts by $600.

Depending on the self-employed individual’s adjusted gross income, he/she may be eligible for a one time direct cash payout. Further, the CARES Act allows for a deferment to pay estimated taxes until October 15, 2020. Self-employed individuals also have the opportunity to delay payroll taxes.

As noted, self-employed individuals may take advantage of both the Paycheck Protection Program Loan Guarantee and EIDLs.

How can Idaho small businesses best take advantage of the various SBA loan programs?

Apply for the right type of loan for your business. Small businesses are under no obligation to take the loan, and there are no guarantee, servicing, or repayment fees. It is important to keep in mind that while both loans are available to small businesses, they may not have a duplicative purpose and must cover separate expenses.

Under the Paycheck Protection Program, starting April 3, 2020 small businesses and sole proprietorships can apply for and receive loans to cover payroll and other certain expenses. On April 10, 2020 independent contractors and self-employed individuals can apply to cover the same.

Businesses can apply now for the $10,000 EIDL advance at https://covid19relief.sba.gov/ #/. Be sure to utilize the COVID-19 Economic Injury Disaster Loan Application to capture the advantages listed above.  If you have additional questions, talk to your attorney, banker, or accountant.

How can small businesses protect themselves from COVID-19-related lawsuits by customers and employees?

Small businesses can protect themselves from litigation by complying with the updated regulations. This includes any city, state, or federal stay-at-home orders, ensuring that employees can telework, and following the new rules under the Families First Coronavirus Response Act (“FFCRA”). This includes offering paid leave under the Emergency Sick Leave Act and Expanded Family and Medical Leave Act.

Employers must also remain in compliance with all new notice requirements – including employees’ rights to take leave under FFCRA – in a conspicuous location on the premises. If not all employees enter the same building, notice must be posted in all other buildings as reasonably necessary to guarantee that all employees see said notice. If your office is now teleworking, email the notice, which you can find here: https://www.dol.gov/sites/ dolgov/files/WHD/posters/ FFCRA_Poster_WH1422_Non- Federal.pdf

FFRCA provides Idaho with additional funding for unemployment. It requires employers to provide notification of the availability of unemployment compensation to employees at the time of separation from employment, either through a poster or by email. The link below provides posters to be printed and displayed that meet both Idaho and FFCRA requirements. https://www.labor.idaho.gov/ dnn/Portals/0/Publications/ requiredposters.pdf

Small businesses should be sure to keep apprised of the current regulations, and keep an open discussion with their customers and employees.

Will the CARES Act be enough? There’s talk of further recovery bills.

CARES Act was the third aid package from Congress. As Senate Majority Leader Mitch McConnell said on the floor: “No economic policy can fully end the hardship so long as the public health requires that we put so much of our commerce on ice. This isn’t even a stimulus package. It is emergency relief.”

House Democrats are currently outlining what they would like to see in the fourth COVID-19 relief bill, particularly as it relates to economic recovery. Stay tuned. More help is likely on the way.

Peter J. Smith IV is an attorney at Smith + Malek. His practice focuses on real estate and business law. He lives in Coeur d’Alene with his wife Anna and three kids. Smith + Malek’s website contains regular updates on business resources for COVID-19. To book an appointment, visit www.smithmalek.com/covid-19-support/ or call (208) 215-2411.

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