The $2.2 trillion Coronavirus Aid, Relief and Economic Security Act that passed March 27 set in motion several measures in attempts to financially stabilize staggering businesses affected by social distancing and sheltered-at-home consumers.

To weave through the complexities of the CARES Act and the collection of economic relief programs put in place, the Business Times reached out to our region’s business experts from an array of industries to learn their initial takeaways from the economic package, and the impact it’ll have on the business community.

Joe Bishop, partner at Nasif, Hicks, Harris & Co.

CARES’ $350 billion in small business loans is a big number, but I don’t think these funds will last long. Businesses that can get to the top of bankers’ lists with applications will get funding. Loans will be forgiven if allocated to two and a half months of payroll, rent, utilities or interest payments.

As for the CARES Act, it provides significant changes to the income tax code. Nasif, Hicks, Harris & Co. has identified 14 related planning opportunities that the firm will be working with its clients to determine which changes should be implemented — on a client by client basis. This is a massive amount of planning that needs to be done during a time that is traditionally only devoted to tax-return preparation. This does not include changes to other tax regimes such as payroll or sales tax. There is a lot of work to be done to help business owners understand and implement these incentives.

Kathleen Fellows, attorney at LightGabler

The Paycheck Protection Program provides for small business loans up to $10 million and that are tied to payroll costs, and may be forgiven if conditions are met.

The CARES Act also expands the SBA’s Disaster Loan Program through the end of this year for small businesses. Companies applying for loans in response to COVID-19 may request an emergency advance of up to $10,000. This advance does not have to be repaid, even if the loan application is denied.

Also jumping out is that eligible employers will be entitled to a credit against the applicable employment taxes of 50 percent of qualifying wages paid to employees during a COVID-19-related shutdown for each calendar quarter from March 13 to Dec. 31, 2020. The credit is available to employers with operations fully or partially suspended, as well as businesses with year-over-year reduction in gross quarterly receipts of at least 50 percent. This credit is not available to employers who take advantage of PPP loans.

Bridget Foreman, partner at Bartlett, Pringle & Wolf

The big takeaways are the immediate need for financial assistance, as well as new tax and economic provisions providing much-needed liquidity both short and long term.

For immediate assistance, SBA PPP loans will provide instant liquidity for small businesses. If the business was operating on Feb. 15, 2020, some or all of the loan may be untaxed, ultimately allowing retention or rehiring of employees.

In the less immediate realm, the CARES Act reversed, or corrected, several provisions of the Tax Cuts and Jobs Act, including expansion of net operating losses, business losses to offset other taxable income, increase in business interest deductibility, a new refundable credit against payroll taxes, and the ability to take bonus depreciation for qualified improvement property. These changes aim to push deductions into more profitable years — 2018/2019 — which could generate significant tax refunds and inject critical cash flow into businesses experiencing an economic downturn.

Calvin Harris, partner at Vivid Financial Management

The real muscle behind this bill is the part few are talking about — the U.S. Treasury Department, which will put up $400 billion into the Exchange Stabilization Fund. The Fed can lend 10 times that amount, $4 trillion, when fully levered — a 10-for-1 multiplier on capital. Simply put, the Treasury is writing a check for $400 billion, which equates to $4 trillion in corporate lending.

It is essential to internalize that the Fed’s balance sheet is heading north of $7 trillion. That will not mean actively intervening in the market, but essentially making them the market. The Fed’s significance to capital markets is going to places no one ever thought possible, and the ramifications are not fully understood.

The upside tail risk is some treatment enters the stage. The downside tail risk is the inability to bend the curve of diagnoses and deaths relative to recoveries.

Trevor Large, managing partner at Buynak, Fauver, Archbald & Spray

The CARES Act attempts to solve the problems of businesses large and small, across numerous industries, but it is not a panacea. For small businesses, a few things jump out. First, PPP loans are designed with two purposes in mind. One is to help small businesses continue operations and attempt to remedy issues of liquidity. The other is to manage unemployment and deter layoffs. Low unemployment numbers has a psychological effect on the health of the economy and provides comfort in the form of job security to employees.

The other part of the act to note is its unemployment benefits portion, which increases assistance to a level that matches, or exceeds, an employee’s regular wages. Although designed to ensure workers can meet monthly obligations, it has the potential to create a disincentive to return to work. At some point employers will need to rehire workers. That may prove difficult if employee can be paid more to stay at home rather than go back to work.

Juan Lopez, assistant vice president of corporate communications for Central Coast, Wells Fargo

The CARES Act PPP gives small businesses access to short-term cash flow assistance aimed to help deal with the immediate global impact caused by the COVID-19 pandemic. These loans are made by approved lenders, like Wells Fargo, are certified by the SBA and are guaranteed by the federal government.

Wells Fargo is also preparing for the distribution of funds through the PPP, however no start date for accepting applications has been set, as the bank is waiting on final guidance on program specifics to begin disbursing funds.
Business owners can prepare by gathering their payroll registers and taxes, as well as financial statements.

Michael Manchak, president & CEO of Economic Vitality Corp.

Unemployment is now the greatest threat to the U.S. economy. As economist Chris Thornberg points out, although we do not have bubbles in housing and banking enabling a faster recovery, no one really knows the extent of the damage to businesses that are facing layoffs or closures. With an emphasis on hospitality, wine and agriculture on the Central Coast, the region must not waste time planning ahead for the next disaster that will strike, and rather help diversify its economic base. Remote working may actually stick as a new normal, and therein is another opportunity, to activate and encourage a new and more efficient way to conduct business.

As we reach the beginning of the end of the pandemic, the bright side is that we will face a “surge economy,” whereby the backlog of the need for goods and services — that Amazon cannot provide — will likely create a surge in economic activity and will help the tri-county recovery.

Kristen Miller, CEO of the Goleta Valley Chamber of Commerce

Small business is facing its biggest crisis of revenue maybe ever. In Goleta, the pain is being felt mostly by public-facing services like restaurants, bars and tasting room, mom-and-pop shops, retail and manufacturing. The hotel/lodging sector is at a near standstill. Many of these businesses provide essential services, thus asked to remain open, and must somehow manage to operate with 50 percent or less of its revenue.

The Goleta chamber’s focus will be to retain as many businesses as possible. The recovery period to build new companies and offer new jobs is long and arduous, so to retain the existing industrial core is paramount.

We believe the government’s intent is the same. By offering this massive and immediate funding, federal government is aiming to shore up small business until recovery can begin.

The PPP will be vitally important to nearly every business in the region and must be available and accessible to protect jobs. Recruitment of qualified employees was already in the top three barriers to business growth before the crisis, so maintaining the quality employees on staff is imperative.

Kathy Odell, CEO of Women’s Economic Ventures

The CARES Act has been described as a fiscal firehouse — it might also be described as scatter shot. There is something to love in CARES for almost everyone – direct cash payments to taxpayers, increased unemployment benefits, removal of penalties for withdrawals from retirement accounts; all good presuming it is executed smoothly.

Much less clear is the implementation of the key small business relief element of CARES — PPP loans, which can only be obtained by applying through an SBA 7a lender. The bank loans the money, it doesn’t come directly from SBA, with the bank’s capital supporting the loan. Banks have lending limits based upon capital, which means that they cannot fund an infinite amount of loans. Several have said they only plan to accept applications from their existing customers, meaning businesses who do not already have an account with an SBA 7a lender may not have a channel to submit a loan request. WEV is concerned that many small businesses will not be able to access the funds from this important relief measure.

Roy Schneider, partner at Schneiders & Associates

The CARES Act will provide needed relief to our economy in the short run; however, it is not a panacea to the economic recession that forecasters predict. The two key pieces of legislation are new standards for eligibility and benefits under the Unemployment Compensation Insurance Program, which adds a number of benefits for gig workers, self-employed and those whose work hours have been cut. These benefits can total as much as $3,400 for a family of four. This will provide a lifeline for these workers, however, the major issue the region is facing is the closing of small businesses. Some predict that these closed businesses may never re-open.

The other significant loan program for small businesses is the forgivable PPP loans, which are arranged through approved lenders. The final form of application is not yet complete and small business owners should reach out to their banks for further details.