What Every Title Agent Needs to Know About the Latest COVID-19 Stimulus Package
March 26, 2020
The House on March 27 passed the historic $2 trillion stimulus package the Senate passed earlier this week to help companies and workers affected by the shutdown of business due to COVID-19. The bill is designed to offer relief to individuals, the health-care system and businesses that saw their revenue dramatically decline since the pandemic hit the United States.
Here are five things every title professional needs to know about the stimulus and how it can help them and their employees.
Payroll Protection Loans
The stimulus includes nearly $350 billion to create a Paycheck Protection Program (PPP) through the Small Business Administration 7(a) loan program. The PPP will provide companies with 500 employees or less zero-fee 10-year loans of up to $10 million. The loan amount is tied to payroll costs incurred by the business.
Allowable uses of the loan include payroll, paid sick or medical leave, insurance premiums, mortgage payments and any other debt obligations. Loan proceeds use to cover eight weeks of average payroll and other costs will be forgiven if the business retains its employees at their salary levels. For all borrowers, principal and interest is deferred for up to a year and all fees are waived. For amounts not forgiven, the interest rate cannot exceed 4 percent.
In lieu of requiring an ability to repay analysis, banks will have to determine whether a business was operational on Feb. 15, 2020 and had employees for whom it paid salaries and payroll taxes. Eligible borrowers will also have to make a good faith certification that they’ve been impacted by COVID-19 and will use the funds to retain workers and maintain payroll and other debt obligations. Of note, sole-proprietors, independent contractors and other self-employed individuals as eligible for loans.
For existing borrowers with SBA loans, there was $17 billion allocated to have SBA cover six months of payments for existing SBA loans.
Emergency Economic Injury Disaster Loans (EIDL)
Another loan program available is the SBA economic injury disaster loans (EIDL). The loans may be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. EIDLs are loans of up to $2 million that carry interest rates up to 3.75 percent for companies and up to 2.75 percent for nonprofits, as well as principal and interest deferment for up to four years.
To help get money in the hands of impacted business faster, the stimulus includes $10 billion for grants that let lenders advance $10,000 to small businesses and nonprofits within three days of applying for the loan. This grant does not need to be repaid, even if the grantee is subsequently denied an EIDL.
Eligible recipients must be small business, private nonprofits, sole proprietors and independent contracts that were in operation on Jan. 31, 2020. Businesses that get EIDL’s can also receive loans under the PPP.
Direct Payments to Americans
The bill provides cash payments direct to Americans of up to $1,200 per adult and $500 per child for individuals making $75,000 or less a year ($112,500 in the case of those with a head of household filing status) or families making $150,000 or less. These checks will come from the IRS through direct deposit or paper check based on your election on your most recent tax return.
For those with adjusted gross income above those thresholds on their most recent filed return, the payment is reduced until phasing out completely for single filers with incomes exceeding $99,000, $136,500 for head of household filers, and $198,000 for joint filers.
The bill also waives the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020. The bill would also defer payments for federally owned student loans through Sept. 30.
Payroll Tax Delay
Employers can election to defer payment of their portion of the social security tax paid in 2020 for their employees. For those that elect to defer, they must repay at least half by the end of 2021 and the other half by the end of 2022.The provision applies to employers and self-employed individuals
Other tax provisions include a temporary increase in the amount of interest expense businesses can deduct to 50 percent of the taxable income (with adjustments) for 2019 and 2020. There are also provisions allowing the increase use of net operating losses. Loss from 2018, 2019, or 2020 can be carried back five years and removes the taxable income limitation to allow an NOL to fully offset income. Lastly, there is also immediate expensing for qualified property improvements. Businesses can write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.
Exchange Stabilization Fund
A major component of the bill is approbation for a $425 billion fund at the Treasury to provide for loans, loan guarantees and investments in support of the Federal Reserve’s lending facilities to eligible businesses, states and municipalities. Federal Reserve 13(3) lending allows the Fed to fund short-term borrowing for businesses that use the unsecured commercial paper market. This is intended to free up lending to larger businesses through the banking sector.
This is in addition to $25 billion for U.S. airlines, $4 billion for air cargo carriers and $17 billion for other distressed companies related to critical national security.
According to Fed chair Jerome Powell it is possible that for every dollar in the fund, it could extend up to $10 in new loans to businesses. This could support more than $4 trillion in lending programs.
Contact ALTA at 202-296-3671 or [email protected].