The Coronavirus Aid, Relief & Economic Security Act (CARES Act) will help comics industry businesses, employees, and creative professionals affected by the emergency manage their immediate financial needs. The rescue bill passed into law last week expands unemployment insurance coverage to include independent contractors and the self-employed, providing a modest safety net for many creative professionals. The bill also provides low-interest loans with expansive forgiveness opportunities that will help retailers, publishers and independent contractors meet needs like payroll, rent, and utility payments. Additionally, stimulus checks are being sent to taxpaying citizens earning less than $99,000.
While long-term economic conditions remain uncertain, taking advantage of the benefits provided by this bill will help comics industry people weather the storm. We’ve rounded up some analysis to help you make sense of the bill, what it can do for you, and how you can take advantage of its provisions.
Expanded Unemployment Benefits for Creators, Employees, and Independent Contractors
The CARES Act adds money to regular unemployment benefits and creates “Pandemic Unemployment Assistance,” a new benefit that includes self-employed 1099 workers. The expansion of benefits is good news for independent contractors, including most creative professionals.
Here’s an infographic describing the situation at a glance:
Creative professionals and other independent contractors affected by the crisis will be eligible for “Pandemic Unemployment Assistance,” which provides funds to people suffering work losses as a result of the outbreak. Claimants in this category will receive the federally guaranteed $600, plus half the unemployment benefit in their state.
For individuals who lost their jobs because of the crisis, the Act provides an additional $600 on top of your existing unemployment benefits until July. The bill also provides a 13-week extension on unemployment benefits beyond the maximum duration your state provides.
This resource is a useful starting point for understanding how to apply for unemployment benefits.
In addition to unemployment benefits, the CARES Act also provides a stimulus payment to individuals earning up to $99,000 per year. A full payment of $1,200, plus $500 per child, will be sent to people earning less than $75,000 with reduced checks sent to people making up to $99,000. The Washington Post provided this useful calculator to help you estimate your stimulus check payment.
Loans for Retailers, Publishers & Independent Contractors
The CARES Act provides two categories of Small Business Administration (SBA) loans that can help comics industry businesses maintain continuity: Payroll Protection Loans, as an expansion of the SBA’s 7(a) loan program, and Economic Injury Disaster Loans. The 7(a) Payroll Protection Loans include forgiveness provisions.
7(a) Payroll Protection Loans
The CARES Act offers 7(a) loans to cover operational expenses for small businesses and independent contractors. The loans don’t require personal guarantees or collateral, and offer potential forgiveness for some operational expenses. Loans are available for up to $10 million, with a repayment term of up to ten years, payable monthly, with deferral of payment allowed for six months to one year.
The Act also provides for SBA Express Loans — loans whose applications will be processed within 36 hours — for up to $1 million through December 31, 2020.
Small business owners are permitted to use these loans to cover business costs including:
- Payroll costs, including taxes
- Employee benefits and leave
- Insurance premiums and costs associated with healthcare benefits
- Mortgage interest
- Debt refinancing and interest on debt incurred before the covered period
The loan program is intended to offset damages related to business disruptions, lost earnings, closures, and staffing challenges related to the pandemic. For comic book stores and small publishers, this includes: supply chain disruptions, such as the cessation of new comics printing and distribution; decline in revenue related to COVID-19 precautions, quarantines, and government mandates; and business closures required by law or deemed necessary for the public safety.
Borrowers are required to make good faith certification that they have been impacted by Coronavirus, and will use the loan to retain workers, maintain payroll, and other debt obligations.
Small businesses with fewer than 500 employees operating as of February 15, 2020, and who pay payroll taxes are eligible for the loans.
Self-employed business owners, sole proprietors and independent contractors can also use these loans to finance their wages. Qualifying documents include payroll tax filings, 1099-MISC forms, and income and expense verification from the sole proprietorship.
The Act stipulates that lenders and agents ensure that the processing and disbursement of covered loans prioritizes:
- Small business concerns;
- Entities in underserved and rural markets;
- Small business concerns owned by socially and economically disadvantaged individuals;
- Women; and
- Businesses in operation for less than two years.
Forgiveness & Costs
Section 1106 of the CARES Act provides loan forgiveness for documented payroll costs, rent, utility payments, and mortgage interest payments incurred and paid from February 15 through June 30, 2020. If your loan is more than enough to cover these expenses, they will be deducted from the total you will have to repay, and your loan will be repayable under the following terms:
- Fees: None
- Interest rate: Up to 4%, charged only on any remainder after forgiveness
- SBA Guarantee fee: Waived
- Prepayment penalties: None
- Personal guarantee: None
- Collateral: None
Calculating How Much to Borrow for Forgiveness (Source: FitSmallBusiness)
Small business owners wanting to estimate how much they can borrow while fitting within the parameters of forgiveness have a few options.
- Most small businesses: Multiply average total monthly payroll costs for a one-year period before the date of the loan by 2.5
- Seasonal small businesses: Calculate average total monthly payroll for a 12-week period from Feb. 15, 2019, to June 30, 2019, and multiply by 2.5
- Businesses formed after Feb. 15, 2019: Calculate monthly payments from Jan. 1, 2020, to Feb. 29, 2020, and multiply by 2.5
- Businesses refinancing loans: Small business owners can also refinance an outstanding loan made between Jan. 31, 2020, and the date upon which they receive a Paycheck Protection Program Loan if the previous loan’s proceeds were used to cover a qualified expense
How to Apply
7(a) Payroll Protection Loans will be offered by banks, credit unions, and other financial institutions that offer SBA financing. For more information on loans or how to connect with a lender, visit: https://www.sba.gov/funding-programs/loans.
COVID-19 Economic Injury Disaster Loans (EIDL)
These low-interest loans are being made available to help overcome temporary loss of revenue and other adverse effects caused by COVID-19. The relief loans can be used for payroll, accounts payable, fixed debts, and other bills you can’t pay because of the economic impact of Coronavirus on your business.
- Loans are available for up to $2 million.
- Interest rate: 3.75%
- Payments are deferred for the first year. The loan does accrue interest during this period.
- Long-term loans are available, up to 30 years. Specific terms will be based on your situation.
- The loans can be secured by physical inventory.
Entities applying for loans under the Disaster Loan Program in response to COVID-19 may, during the covered period, request an emergency advance from the Administrator of up to $10,000, which does not have to be repaid, even if the loan application is later denied. The Administrator is charged with verifying an applicant’s eligibility by accepting a “self-certification.” Advances are to be awarded within three days of an application.
Advances may be used for purposes already authorized under the SBA Disaster Loan Program, including:
- Providing sick leave to employees unable to work due to direct effect of COVID-19;
- Maintaining payroll during business disruptions during slow-downs;
- Meeting increased supply chain costs;
- Making rent or mortgage payments; and
- Repaying debts that cannot be paid due to lost revenue.
Businesses in all states and territories are eligible for Coronavirus EIDL Assistance from the Federal Government. With changes made by the CARES Act, businesses eligible for these loans include:
- A business with 500 or fewer employees
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives with 500 or fewer employees
- ESOPs with 500 or fewer employees
- Tribal small business concerns
(From Steptoe) The CARES Act makes the following additional changes to the SBA Disaster Loan program during the covered period for loans made in response to COVID-19:
- Waives rules related to personal guarantees on advances and loans of $200,000 or less for all applicants;
- Waives the “1 year in business prior to the disaster” requirement (except the business must have been in operation on January 31, 2020);
- Waives the requirement that an applicant be unable to find credit elsewhere; and
- Allows lenders to approve applicants based solely on credit scores (no tax return submission required) or “alternative appropriate methods to determine an applicant’s ability to repay.”
Applying for Your Loan
Applying for the loan is a 3-step process.
- Apply for loan here: https://covid19relief.sba.gov/#/ Due to high traffic, the SBA is recommending that you apply online at non-peak hours, from 7 pm to 7 am EDT.
- Property is verified and a loan processing decision is made
- Loan closed and funds dispersed
The SBA indicates that loan decisions are typically made within 2 to 3 weeks, but because of the current extent of the COVID-19 situation, it may take longer for them to deal with the amount of disaster loan applications.
If your loan is approved they will send you Loan Closing Documents. Once those are submitted an initial disbursement of disaster loan funds will be made within five days.
Documents You’ll Need
(From Business Washington) FOR ALL APPLICATIONS THE FOLLOWING ITEMS MUST BE SUBMITTED. For your convenience, we have links to several of these documents so you can have the information gathered prior to going to the loan portal.
- Loan application (SBA Form 5), completed and signed (this is electronic/online in the portal) but is included here so you can see what information is asked prior to going to the portal.
- Tax Information Authorization (IRS Form 4506-T), completed and signed by each applicant, each principal owning 20 percent or more of the applicant business, each general partner or managing member; and, for any owner who has more than 50 percent ownership in an affiliate business. Affiliates include but are not limited to; business partners, subsidiaries, and/or other businesses with common ownership or management — Also attached here.
- Complete copies, including all schedules, of the most recently filed Federal income tax returns for the applicant business; an explanation if not available
- Personal Financial Statement (SBA Form 413) completed, signed, and dated by the applicant, each principal owning 20 percent or more of the applicant business, and each general partner or managing member
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used)
Can You Get Both SBA Disaster and Relief Loans? (Source: FitSmallBusiness)
Yes, in fact the Act states that nothing should prevent a borrower from getting both SBA Disaster and Relief Loans. If you got an SBA Disaster Loan for anything other than payroll between Jan. 31, 2020, and when relief loans became available, you can still qualify for a relief loan. If you receive an advance and later qualify for a 7(a) loan, the advance will reduce the amount of forgiveness that you can receive.
For more guidance and deeper analysis, we found the following resources to be helpful.
Small Business Administration: COVID-19 Loan Resource Center
Steptoe: In-depth legal and policy analysis of the law in full
FitSmallBusiness: Streamlined explanation of the bill’s impact on small businesses
Tax Benefits for Businesses
The CARES Act also provides certain tax benefits to support businesses, including an Employee Retention Credit, a delay of payroll taxes, and changes in loss provisions. Please consult with your tax professional for more information about these provisions.
Employee Retention Credit
Eligible employers may receive a credit against payroll taxes for 50% of the first $10,000 in wages per employee that is paid during a period where gross receipts dropped by 50% or more compared to the same quarter in 2019, or where business activity was fully or partially suspended by government order. “If the credit exceeds your payroll tax liability for the quarter, the excess will be treated as an overpayment and refunded,” according to FitSmallBusiness.
Steptoe notes, “For employers with more than 100 full-time employees, only employees who are currently not providing services for the employer due to COVID-19 causes are eligible for the credit. The employee retention credit is effective for wages paid after March 12, 2020, and before January 1, 2021.”
Employer Payroll Tax Delay (Source: Steptoe)
The CARES Act postpones the due date for depositing employer payroll taxes and 50% of self-employment taxes related to Social Security and Railroad Retirement and attributable to wages paid during 2020. The deferred amounts would be payable over the next two years — half due December 31, 2021, and half due December 31, 2022.
Treatment of Losses (Source: Steptoe)
Certain changes to the loss provisions made by the Tax Cuts and Jobs Act (TCJA) are suspended in an effort to allow companies to utilize greater losses as well as to claim refunds for certain losses. Specifically, the CARES Act:
- Suspends the TCJA’s 80% of taxable income limit on net operating loss (NOL) carryovers for three years, so that the limit would not apply to tax years beginning in 2018, 2019, and 2020;
- Allows NOLs arising in 2018, 2019, and 2020 to be carried back five years; and
- Suspends the limitations on excess farm losses and on the use of a pass-through business’ losses against non-business income for three years, so that the limits would not apply to tax years beginning in 2018, 2019, and 2020.
Here are some additional resources CBLDF has prepared to assist comic stores
A comprehensive state-by-state clearinghouse resource for financial aid, training tools, and other information to support industry businesses. http://cbldf.org/2020/03/
resources-for-comics-industry- businesses-impacted-by- coronavirus/
A new directory of CBLDF Member stores with links and details about what they’re doing to engage with their customers during the crisis. http://cbldf.org/2020/03/
Tips on how retailers can best navigate a state shutdown order and jumpstart their recovery during the downtime. http://cbldf.org/2020/03/what-
- A brief checklist of some important steps you should take if you are required to temporarily close your shop. http://cbldf.org/2020/03/retailer-checklist-for-temporary-store-closures/
Remote Retailing: ‘Sales Strategies for Stores Affected by a Shutdown’ shares sales and marketing solutions stores can put in place to ride out the crisis. http://cbldf.org/2020/03/
Remote Retailing webinar, featuring Atom Freeman, Owner-Operator, Prana: Direct Market Solutions; Jen King, Owner-Operator, Space Cadets Collection; and Morgan Perry, Retail Sales Coordinator, Boom Studios and moderated by CBLDF’s Community Development Manager Siena Fallon. This training webinar provides practical strategies and best practices for helping retailers adapt their businesses. http://cbldf.org/2020/03/
Georgia Nelson & Ted Adams contributed to this story.