ON ANY GIVEN week, I speak to numerous retailers and vendors, so it’s not surprising that during my most recent conversations, I have been asked many questions about the CARES (Coronavirus Aid, Relief, and Economic Security) Act. There’s so much information coming at us so quickly, it’s no wonder some of us might have difficulty keeping up. Even now, a fourth stimulus package is being worked on.
Currently, the three most common questions coming from retailers are:
- Am I better off laying off my employees or keeping them on paid leave?
- If I have already laid them off, will I be ineligible for loan forgiveness?
- Can I use these funds toward vendor payables?
While these are only a few of the questions, I’ll start by addressing these and then highlight some key points from CARES.
Question 1 will be unique to your store. I have had a few retailers tell me that their staff are actually better off collecting unemployment, especially with the additional $600 per week from the federal government.
However, that will not be the case for everyone. This will equate to a reduction in wages for many.
And most retailers simply aren’t in the position to offer paid leave without using up their cash reserves (if they’re fortunate enough to have cash reserves) and potentially putting their business in a precarious position.
In fact, almost half of U.S. small businesses don’t have enough liquid reserves to handle two weeks of expenses, according to a 2019 JPMorgan Chase & Co. Institute study.
Question 2 is an interesting one because I’ve seen various messages out there regarding loan forgiveness.
If you have temporarily laid off your employees, this does not mean you’re ineligible for loan forgiveness. As with most legislation, there will be certain requirements in order to qualify for loan forgiveness.
In this case you would have to rehire your employees no later than June 30, 2020, for at least the same wages.
The loan used for payroll will cover an eight-week period from the origination date of the loan. For a more in-depth review, visit Inside the CARES Act: COVID-19 Loan Forgiveness Relief—a Section 1106 Primer.
As to question three, the reality is you are taking a loan and in theory, it’s your decision on where you use these funds.
However, if you’re looking to apply for loan forgiveness, then the funds must be used for mortgage, rent, utilities and payroll.
If you’re a retailer opting to take advantage of loan forgiveness, you can contact SBA or your local bank to see if they’re currently working with SBA.
The feedback that I have received from retailers is that it is taking a long time to apply online, although still a somewhat easier process.
It can take as long as 2-3 weeks to receive the funds.
There are also provisions where “Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.” Visit Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know for more information on business tax changes and changes to paid sick leave and paid FMLA.
Surprisingly, I haven’t heard much discussion from anyone around NOLS (net operating losses).
This means a business will be able to take losses from 2018, 2019, or 2020 and carry back those losses 5 years.
That means you can use those NOLS (net operating losses) to offset taxable income. This can also be very beneficial to small businesses as it’s another potential influx of cash. For more detailed information, read Congress Approves Economic Relief Plan for Individuals and Businesses.
Be sure to weigh all of your options and consider what position you want your business to be in on the other side of this pandemic.
Make a list. Formulate your questions and think sustainability.
And, as always, it’s imperative that you consult with your CPA and your corporate attorney, as they work for you, will be the most versed and are in the best position to advise you.