Thursday, 09 April 2020 15:32

New Pro Training Series Opens with 'COVID-19 Stimulus Package – What’s in the New Law for Small Businesses'

Written by
Hunt Demarest Hunt Demarest


In an effort to keep the collision repair community moving forward through the current challenges, Carquest Technical Institute (CTI) and Worldpac Training Institute (WTI) collaboratively developed a series of technical and management classes focused on necessary topics for navigating business operations during the COVID-19 pandemic.

More than 1,000 attendees tuned in April 7 for the first free training session, “COVID-19 Stimulus Package---What’s in the New Law for Small Businesses,” presented by Hunt Demarest, CPA/ABV, of Paar, Melisa & Associates.


Bob Cushing, executive vice president, professional, at Advance Auto Parts, welcomed attendees and explained the webinars were scheduled to meet the demands of the current environment.


“We are going to be better and stronger than ever when we get through this. The automotive industry is positioned to rebound quickly,” Cushing encouraged, before introducing Demarest.


Demarest began by noting the automotive and collision industry is among the many communities that have been impacted by the coronavirus.


“Automotive is considered an essential service because you guys are there to help people and support the community, but you also want to take care of your team,” Demarest said.


The Coronavirus Aid, Relief and Economic Security (CARES) Act is a $2.1 trillion stimulus package, and of those funds, 30% have been allocated to individuals/families, 25% to big business, 19% to small business, 17% to state/local government and 9% to public services, Demarest explained.


The Small Business Administration (SBA) will provide up to $2 million in disaster assistance loans to small businesses impacted by the coronavirus.

The Family and Medical Leave Act (FMLA) has been expanded to businesses of all sizes during this crisis, requiring businesses to pay employees forced to quarantine due to their symptoms or someone’s within their household, as well as for childcare needs related to COVID-19; however, there will be a tax credit available to businesses for this expense.


Demarest recommended contacting an accountant for specifics if this situation arises, since each state has its own unique requirements related to FMLA.


According to Demarest, the CARES Act is designed to provide financial assistance to Americans, stabilize the economy, bring relief to small businesses and workers and support health care workers and patients.


The first part of the CARES Act allots $1,200 to each single individual making up to $75,000 annually, or $2,400 for married couples earning up to $150,000, plus $500 per child; reductions apply after those income thresholds.


The IRS will be making direct deposits to anyone who is eligible and completed a tax return with direct deposit in 2018 or 2019. Those who did not use direct deposit will receive a check in the mail.

The IRS will prioritize low-income individuals who are most impacted by the coronavirus situation.


“There’s no way to update them with direct deposit information currently,” Demarest said.


Demarest warned to be careful providing that information to anyone claiming to be the IRS, as scams and identity theft have become prevalent in this unfortunate situation.


"For those who don’t know, the IRS doesn’t call you---that’s not how they work---so if something seems off or too good to be true, don’t believe it.”

Another aspect of the CARES Act allows individuals the option to withdraw tax-free money from a retirement account, such as an IRA or 401K, which must be paid back within the next three years.


“No matter what you decide to do, you should evaluate all your options, but I would encourage you to use this as a last resort since there are stiff penalties if you don’t repay it,” Demarest cautioned.


The government is also offering new student aid flexibilities for students, parents and borrowers. All federally-backed student loans are automatically being deferred for six months in an attempt to “stimulate the economy and make sure people have cash in their pockets,” Demarest said.


“While this might not affect your family personally, you should be aware of it because it is affecting your customers.”


Demarest said everyone should at least apply for the Economic Injury Disaster Loan (EIDL) and the accompanying $10,000 grant, because it's an option.


“Most of the form is fairly routine, and it only asks for basic financial information: the business’s sales and cost of goods sold for last year," Demarest said. "For most shops, this isn’t going to fix all your problems, but it could help get you over the hill.”


There are two parts of the CARES Act Demarest recommended only as a last resort, since they both make shops ineligible for the Payroll Protection Program (PPP.)


Employers with significantly reduced volume that maintain their employees will be eligible for the Employee Retention Credit. Businesses also have the option of deferring payroll taxes for a full year, beginning payment at the end of 2021.


“This is not a grant,” Demarest stressed. “It’s not free money or forgiving taxes. You’ll still owe this money, and the last thing we want is to come out of this and have a payroll tax issue that puts us back to where we are now.


"You are ineligible for the PPP if you use either of these options, so I’m advising everyone to use these as an absolute last resort. I believe the PPP loans is what will push shops through this crisis.”


The PPP loans are being processed through local banks and backed by the SBA. Demarest encouraged shop owners to contact their banker to find out how to get started because, while the money is unlikely to run out tomorrow, he expressed doubts it will still be available by the end of April.


“If the coronavirus hasn’t impacted you yet but you know it’s coming, take all the steps to prepare yourself,” he urged, warning many banks are not processing PPP loans for new customers. He said Kabbage has been accepting new customers for this purpose.


There are no personal guarantees on the PPP loans. Instead of looking at available credit or cash flow to determine eligibility, the business is signing for its own credit. Participating banks will disperse the funds directly, and the SBA will reimburse them at a later date.

“This is speeding up the process, and we’re already seeing people get funded,” Demarest said.


Eligible businesses can obtain up to 250% of their average monthly payroll costs through the PPP. Some banks are calculating payroll based on a trailing 12-month period, while others are using the figures from the 2019 calendar year.


Payroll costs include total gross wages for all employees for the full year, the portion of health benefits paid by the business, the retirement account matches paid by the business and the state unemployment tax, which is 100% a company cost.


For employees who earn more than $100,000 annually, their wages must be capped at $100,000 when calculating the payroll cost.


Adding those four items provides the annual cost, which should be divided by 12 to calculate a monthly cost. Multiplying the monthly cost by 2.5 supplies the PPP loan amount for which a shop is eligible.


While the PPP is a loan, “the beauty of it is that it’s a forgivable loan,” Demarest said.


“If used for qualifying expenses within eight weeks of getting funded, the amount used on qualifying expenses will be forgiven. You won’t have to repay the bank or the SBA, and it won’t be taxable to you; it’s as close to free money as things get if you use it correctly.”


Some clarification has yet to be released, but qualifying expenses include the four items used to calculate monthly payroll costs, as well as up to 25% on utilities, rent and interest on qualified mortgages or loans.


“What they’re really trying to do is bring people back into the workforce or keep them there. They want to see you maintaining your employees,” Demarest said. “If you laid people off, bring them back to maximize the forgiveness amount of the PPP. If you use it for qualifying expenses, the majority of this loan will be forgivable.”


For any amount of the PPP used on unqualified expenses and non-forgivable, shops will have to repay the 10-year loan at a rate of 4%.


Quelling rumors the EIDL makes a business ineligible for the PPP, Demarest assured attendees they can apply for both, though the $10,000 grant through the EIDL would lower the forgivable amount of the PPP.


During the Q&A session, Demarest confirmed sole proprietors are still eligible for the PPP; one-man shops would use the portion of their income subject to self-employment tax for the wage estimate. He said applying for state/local grants will not make a business ineligible for the EIDL or the PPP, which he anticipates will start being funded very soon.


Demarest also provided clarification on FMLA, how utilities may be defined, the process for newer businesses and the possibility of using the PPP for backpay or back rent if those things were delayed in order to continue funding employees’ paychecks.


Although 1099s are not eligible to be included under a company’s PPP loan, the 1099 employee can apply for the PPP on their own.


“We’ve seen a lot of terrible things during this crisis, but the good is that small business are getting together," Demarest concluded. "We’re all going to get through this by sticking together and taking care of our teams.”


“Stay safe, stay healthy, and please join our future webinars," Cushing added. "We’ll come out of this stronger, together.”


A complete webinar schedule is available here or here.


A free copy of Demarest’s book, "Your Perfect Shop: How to Start, Run & Sell a Profitable Shop," is available here.