By Patrick O’Brien, JD, legal coordinator, American Med Spa Association
UPDATE: At 12:28 CT on Friday, March 27, the House passed the CARES Act by voice vote. It is unchanged from the version the Senate passed this last Wednesday. From here, it heads to the president’s desk to sign into law. The president has already voiced his approval of the CARES Act, so there is little question of its passage at this point. In the coming days, we will provide more details on the relief measures contained in the act and how they can help your aesthetic practice to weather this storm.
ORIGINAL POST: The Coronavirus Aid, Relief and Economic Security (CARES) Act, which is meant to provide economic relief from the hardships caused by the COVID-19 pandemic, has passed the U.S. Senate and now heads to the House of Representatives. We discussed the original version of the CARES Act in this post; however, the current version is substantially changed and expanded. This bill is moving very quickly through the legislative process and may be passed by the end of this week. As it stands now, the House has indicated that it will try to pass the bill without any changes. Here is a link to the current version of the bill. It is 880 pages long, so we have pulled out some of the key points that will be of interest to medical aesthetic practices.
Paycheck Protection Loan Program
The CARES Act makes changes to loans made under the Small Business Administration’s (SBA) 7(a) program that are issued between February 20, 2020, and June 30, 2020. Loans are made through participating commercial lenders to eligible small businesses with fewer than 500 employees. The process is designed to be easy, with relaxed documentation requirements. Here are the characteristics of loans issued under the Paycheck Protection Loan Program:
- The loan value is 2.5 times the total average monthly employment expenses, up to a maximum of $10 million; “employment expenses” include an employee’s wages, paid leave, insurance and taxes, up to a total of $100,000.
- The loan has an interest rate of 4% or less.
- The loan’s term can be up to 10 years.
- Applicants cannot participate in this program and the Economic Injury Disaster Loan program for the same purpose.
- Applicants are eligible for loan forgiveness for approved expenses for eight weeks following loan origination.
- SBA Disaster Loans made after January 31, 2020, can be refinanced into this program.
Eligible loans made under the Paycheck Protection Loan Program can have a portion of their principle forgiven for paying covered business expenses during the eight weeks following the loan issuance; covered expenses include payroll costs, mortgage and rent payments, and utility payments. The forgiven amount can be up to 100% of these covered costs. However, that total can be reduced based on the percentage of employees you retained before and after this crisis, with a provision to rehire recent employees. For example, if your covered expenses for these eight weeks were $10,000 and you had to lay off half your workforce, then your maximum forgiveness amount would be $5,000. The forgiveness amount also can be reduced by the amount equal to the amount an employee’s regular compensation were reduced if it is more than 25%.
Loan Deferral and Subsidy
Businesses in operation on February 15, 2020, who had an approved or pending SBA program loan will qualify for between six and 12 months of complete payment deferment. Loans under certain SBA loan programs—including the Advantage Pilot and Micro loan programs, but not the new Payroll Protection Loan—are for six months of subsidized payments including principle, interest and fees.
Emergency Economic Injury Disaster Loan Grants
For those applying for an SBA Economic Injury Disaster Loan, you can request an emergency advance up to $10,000 that is paid with three days of submitting your application. These funds do not need to be repaid but would reduce the total loan forgiveness amount if the loan were converted to a 7(a) loan.
Payroll Tax Credit for Employee Retention
Employers who are impacted by the pandemic would get a credit against their required employer tax payments; “impacted,” in this context, means that the businesses’ gross receipts dropped 50% or more compared with the same quarter last year. They remain eligible for this credit until their quarterly gross receipts return to 80% of the same quarter in the prior year. The credit amount is equal to 50% of the qualified employee wages, up to $10,000 per employee. If the credit exceeds the businesses’ tax payment amounts, it is treated as an overpayment and “returned” to the employer. Please note that a business is not eligible to take this credit if it also is applying for the SBA 7(a) loan.
Compensation Limits on Paid Sick Leave
The total amounts of sick leave compensation would be capped under the Families First Coronavirus Response Act. The bill would limit the amount of sick leave the employer would be required to pay to $511 per day (to a total of $5,110) if the employee is sick or subject to a quarantine order (reasons 1, 2 or 3 under the act), or $200 per day (to a total of $2,000) for employees who are caring for someone under quarantine or children displaced from school (reasons 4, 5 or 6).