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COVID 19 Roadmap For Your Small Business

Posted on March 30th, 2020

COVID-19 Roadmap For Your Small Business


Are you struggling to develop a COVID-19 plan of action? Unsure of the best strategy for managing payroll and whether you should be laying off employees? Looking for financial relief to help cover regular operating expenses amid the Shutdown? We will answer these questions below, plus give you a roadmap to emerge out of this crisis ready to get back on track with your business.


  1. Talk to your CPA. Congress just adopted Phase 3 of the Coronavirus Aid, Relief, and Economic Security Act (CARES). Phase 2 (called the Families First Act) provided tax credits to small businesses to cover, on a per dollar basis, any paid employee leave for employees who are away from work due to illness or quarantine, or who are caring for family members or children who are home due to lack of day care or school closure. Employees who are away to care for family members receive 80% of their regular pay, and those who are away due to illness or quarantine are entitled to 100% of their pay. These employees are entitled to this paid sick time, and the Act offers the 100% tax credit. There are some exemptions for businesses with less than 50 employees. NOTE this Bill doesn’t become effective until April 1. It is expected that a Phase 4 relief plan will be forthcoming. Make sure to check in with your CPA to stay abreast of the changing tax landscape and to develop your company’s financial plan.


  1. Talk to your Bank. Both Phase 2 and Phase 3 of the CARES Act provide for emergency funds to help businesses cover their operating costs. The Small Business Administration has been authorized to extend SBA loans through its established Disaster Loan program. These are 30-year loans with a 3.75% interest rate, with first loan payment due 1 year after signing. Businesses are eligible if they have been in existence for 1 year, but there are exceptions as long as the business was running by January 31, 2020. Any loan amounts that are used for payroll, to keep employees on the books, or pay for rent, mortgage and existing debt service should be forgiven. Loan forgiveness is available for 2 months only, and you must keep those employees on the books through June 2020 to have their payroll forgiven. This provision was included in the Plan to incentivize employers to keep their employees on the books.


Phase 3 also provides for emergency grants, up to $10,000.00 per business, to use for operating expenses. These funds have been promised to be disbursed within 3 days of successful application so that you have access to more immediate funds, and do not need to be repaid. These grants are also issued via the SBA Disaster Loan program and are requested as part of that application process. Even if you don’t qualify for the SBA Disaster Loan, you could still be entitled to the emergency grant. Any banker that is authorized to handle SBA loans can help you through this process.


  1. Talk to your Financial Planner. Make sure your financial planner is in the loop, as your business situation may influence decisions on handling of your personal portfolio. You want to make sure that your advisors are working in conjunction to ensure a comprehensive and coordinated approach. The CARES Act includes provisions affecting retirement accounts – there is a suspension of required distributions from retirement funds for retirees, and also a wavier of the 10% penalty on IRAs and other defined contribution plans for individuals experiencing financial hardship due to COVID-19 business disruption or COVID-19 illness. Withdrawals from these accounts up to $100,000.00 will not incur the 10% penalty, and payment of any other tax burden from withdrawal of retirement funds can be delayed up to 3 years.


  1. Make an Employment Plan. With the various forms of relief available from the state and federal government to handle your work force, consider what options will work best for you, the business, and your employees. The CARES Act is promising that average workers in the U.S. should expect that 100% of their salary will be covered for the next several months.


  • Temporary layoff and furlough benefits are available for any Montana employees who are laid off due to COVID business disruption or reduction of work. The employee is immediately eligible for 28 weeks of state unemployment benefits. Phase 2 of the CARES Act tacks an extra 13 weeks on top of that, and payment of $600 per week in addition to the state unemployment benefit (nicknamed “Unemployment on Steroids” by Congress). These furloughed employees are considered to be “job attached,” and not permanently terminated from the employer, and therefore the employer does not need to pay out any accrued PTO or benefits upon layoff. These employees will lose health insurance coverage according to the employer’s Health Plan, but the CARES Act does provide that COVID-19 diagnosis and treatment will be covered.  With the temporary layoff, employees are required to stay in contact with their employer so that they can return to work when recalled. If you keep some employees on but are reducing their hours, they are also entitled to unemployment benefits.


  • Alternatively, you can choose to keep your payroll intact and finance payroll expenses with an SBA Disaster Loan and emergency grant funds. Any emergency grant funds do not need to be repaid, however only 2 months of payroll expenses and operating costs will be forgiven on the SBA Disaster Loan, after which time the business would need to pay principal and interest on the remainder of the loan. Business owners who are on payroll can also have their payroll expenses forgiven for any compensation up to $100,000.00 per year. NOTE that loan forgiveness may create taxable income due to discharge of indebtedness down the road – there is still uncertainty as to tax treatment of this loan forgiveness.


  1. Talk to the Administrator of your Company’s Health Plan. If you have a health plan in place for your employees, reach out to the Plan Administrator or the health insurance provider to discuss coverage issues relating to employees who are furloughed or who remain on the books but aren’t working. Employees whose coverage will be ending will need to be offered COBRA benefits.


  1. Evaluate you and your family’s individual benefits. The CARES Act is also providing relief to any U.S. individuals with a social security number. The amount of benefit will be determined based on 2018 or 2019 tax return, and any person earning less than $75,000.00 will receive a one-time check in the amount of $1,200.00. Families will receive a payment of $500.00 per child, regardless of income. The U.S. is promising these checks will be disbursed within 3 weeks.




**This publication does not constitute legal advice. Please contact either the Bozeman or Helena locations of Silverman Law Office with questions about your specific situation. We are here to help!**


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