Planning for the Financial Health of Your Company During the COVID-19 Crisis

The following is a Q&A provided to Promo Marketing's sister publication, Printing Impressions, by Bart Krupnick, CPA, CVA, principal at The Becker Group/TMDL CPAs and Consultants. It is in reference to the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was signed into law March 27, 2020.

Krupnick gives an overview of federal loan and other provisions in the Act for owners of businesses with less than 500 employees, but notes that specific planning should be based on an individual company’s distress level, financial needs, resources and access to capital.

Question: Given the swift adverse effect on my business, should I borrow money from other sources (other than this forgivable loan) to keep my employees?

Answer: NO. The federal government will be providing forgivable (employee retention) loans totaling 2.5 months of your payroll costs, based on average monthly payroll costs for the one-year period before the loan, times 2.5.

Payroll costs are defined as gross pay up to $100,000 per employee, plus state and local payroll taxes, group health benefits and premiums, and retirement benefits.

Q: When will the federal government provide cash relief for my company?

A: The “Cares Package” was signed March 27, 2020. t is expected to be several weeks before a same-day application/cash transfer can take place.

Q: Will 100 percent of the loan be forgiven?

A: Possibly, as long as you retain the same level of (FTE) employees as before the COVID-19 crisis and not reduce salaries by more than 25 percent (excluding employees with salaries over $100,000 per year). If you have less (FTE) employees by June 30, 2020, or have cut pay by more than 25 percent, then the amount forgiven will be a pro-rata percent of the loan (For example: if you receive a $1 million loan and retain only 80 percent of employees, then 80 percent, or $800,000, will be forgiven).

Details:

• The amount of the loan to be forgiven is based on the lesser of, subsequent expenditures for payroll costs, interest, rent, and utilities for eight weeks after the loan date, or the loan amount.
• The calculation for change in number of (FTE) employees is based on a comparison of (FTE) employees for the period Feb. 15, 2019 through June 30, 2019 or the period Jan. 1, 2020 through Feb. 29, 2020, then compared with the period Feb. 15, 2020 through June 30, 2020 or 30 days after when the CARES Act was signed through June 30, 2020 (which allows a benefit for rehires).
• Repayment terms on the balance not forgiven, if any, are up to 10 years, maximum of 4 percent interest, no payment for six months to one year, no prepayment penalties, no collateral, and no personal guarantees.

Q: How do I apply for this federal government forgivable loan?

A: These are SBA-funded loans to be administered and applied for through your bank. It is expected that the application and funding will occur on the same day, within several weeks after the CARES act was signed by the President.

Q: Should I pursue loans and/or grants being offered by my state government or loans that currently are offered through the SBA?

A: Perhaps, but first assess the amount of federal government funding that may be forgiven, then pursue other options if there are remaining needs. Most of the state and SBA “disaster funding loans” at this time are subject to normal lending criteria, fixed repayment terms, interest, and personal guarantees if the loan is more than $200,000. There are state grants available, but at much smaller amounts.

Q: What should I be doing in the meantime before federal government money is available to my company?

A: Suggest downsizing as much as possible to meet your cash inflows while also gauging prospective sales. Also limit cash payments wherever possible to vendors and for all non-essential items.

Q: Should I furlough employees while awaiting the forgivable loans?

A: That’s a close call. It is helpful to know that the CARES Act provides for significant increases in unemployment benefits, so the pain to furloughed employees will be lessened and possibly eliminated. It may also be beneficial to rehire furloughed employees by April 27, 2020, to maximize the loan forgiveness.

Q: Are banks and other note holders offering any help with payments, if I ask?

A: Yes, most will provide 60 to 90 days of interest only and some are providing “forbearance” (no payment at all) for 60 to 90 days, though the interest will be added to the principal balance.

Q: How should I plan for the “other side of the curve,” when activity is expected pick back up?

A: LIQUIDITY, LIQUIDITY, LIQUIDITY

Your goal is to maximize cash and credit now, in order to be able to fund working capital for inventory and labor when the business comes back.

Q: Any other helpful provisions in the CARES Act for my business?

A: Yes

1. If your company is losing more than 50 percent of revenue or had to close because of the crisis, then special payroll tax reduction provisions and deferrals are available when you reopen
2. Tax losses in 2018, 2019, or 2020 can now be carried back five years and without a limitation against income
3. Building improvements can be expensed (fully depreciated in year incurred) and prior year tax returns can be amended
4. C-Corp estimated taxes for 2020 are deferred until Oct. 15, 2020

As a CPA firm that specializes in management consulting, tax and accounting primarily in the printing and packaging industry, The Becker Group/TMDL CPAs and Consultants can help printing business owners navigate the myriad of financing options, loan applications, and planning considerations. Email Bart Krupnick at bkrupnick@tmdlcpa.com