What Construction Contractors Need to Know About the CARES Act

President Donald J. Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) into law on Friday, March 27th, 2020.  This massive $2 Trillion aid package is intended to speed relief to the economy for the damages brought on by the ongoing COVID-19 pandemic.  There are many excellent summaries available online that go into much more detail than what we'll be covering here but we want to focus on how this stimulus package can help America's construction industry and our many contractor customers.

Paycheck Protection Program (PPP)

One of the biggest components affecting small-business construction contractors is the creation of the Paycheck Protection Program.  This program will guarantee almost $350 billion to help businesses retain employees during the downturn. These funds will be offered through an extension of the Small Business Administration (SBA) 7(a) loan program.  Businesses that were in operation on February 15, 2020 and have fewer than 500 employees can contact an approved SBA lender on or after April 3rd, 2020 to apply. The maximum loan amount will be 2.5 times the average monthly payroll costs for the business.  The loan may be used to cover payroll costs (with some exceptions), rent, utilities, and interest on mortgages or other debt.

What makes this program very attractive is that any portion of the loan amount that is used to pay for these expenses during the covered 8-week period will be forgiven and not have to be paid back.  If the small business has already decreased headcount, they can rehire their employees before June 30, 2020 and take advantage of the loan forgiveness without any reductions.  Any funds not forgiven would have a maximum 4% annual rate for a maximum of ten years.

The US Senate Committee on Small Business and Entrepreneurship has put together an excellent FAQ on the PPP for small businesses.

Economic Injury Disaster Loans (EIDL)

The CARES Act provides an additional $10 billion to expand the SBA's Economic Injury Disaster Loan (EIDL) program for small businesses affected  by the COVID-19 pandemic.  The bill will allow for companies that apply for an EIDL to request an Emergency Grant that will be made available within three days.  This $10,000 advance can be used for payroll, paid sick leave or other debt obligations.

To apply, visit the SBA Coronavirus Disaster Assistance page.  Even if you're planning on applying for a PPP loan, it still may make sense for you to apply for an EIDL as long as you're planning on using the funds to pay for different expenses.  The EIDL terms cap the interest rate to a maximum of 4% and the period to 30 years.  With the expected slowdown in construction that we're hearing about, getting this type of low-interest loan may make sense in order to be able to weather the storm.

Unemployment Benefits

Many of our smaller contractor customers are considered self-employed or independent contractors.  These individuals are typically not qualified for unemployment benefits under state law.  The CARES Act establishes a Pandemic Unemployment Assistance (PUA) program that expands unemployment benefits to these types of contractors.  Individuals that have insufficient work history or typically seek part-time work are also covered.  There are certain requirements for this expanded unemployment coverage, but there is no waiting period as is typical for unemployment claims.  Consult with your local agencies for more details.

Federal Job Sites

The CARES Act authorizes federal agencies to use existing funds to pay contractors whose employees or subcontractors cannot perform work on facilities that have been closed due to the COVID-19 health emergency and whose job duties cannot be performed remotely.  This includes construction contractors and related trades.  Payments have certain limits for full-time and part-time employees but typically would cover their regular (non-overtime) pay excluding any credits contractors may receive through other programs.

Provisions Affecting Retirement Plans

If you need to access your retirement funds in order to make it through this period, the CARES Act waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement plans.  While this income is taxable, the payment of the tax is stretched out and you can recontribute what you withdrew without being subject to the caps normally in place for contributions.

We Know Lighting, So...

As you would expect, we're lighting people.  The above is a summary of what we have learned after careful research and discussions with others in the community.  We encourage you to seek additional help from your legal and financial professionals.  If there's anything we can help with during this crazy time, please don't hesitate to contact us.