How can your store benefit from the CARES Act?
Quick summary: the federal government will give you money to pay your employees' salaries for a couple of months.
The Coronavirus is Impacting Everything!
I'm writing this article on March 30, 2020, 3 days after H.R. 748 was signed into law. (It's also referred to as the CARES Act, which is short for the Coronavirus Aid, Relief, and Economic Security Act.) The nationwide shutdown of large amounts of economic activity is new teritory. So, the US Federal Government is making an effort to mitigate the negative effects with an enormous lending and spending bill. One of the most impactful parts of this bill is sure to be what is called the Paycheck Protection Program.
The Paycheck Protection Program
If you wish to read the actual text of the bill, you can find it at https://www.congress.gov/bill/116th-congress/house-bill/748/text?format=txt.
The relevant portion is Division A, Title I, Section 1102.
The Paycheck Protection Program is a special forgivable loan administered by the Small Business Administration (SBA). So, while it is called a loan, the principal portion of the loan that is used for qualified expenses during the a certain period of time will be forgiven. So, it is effectively a grant, mascarading as a loan. This means it may be possible to retain those employees that you would have otherwise had to lay off. This is an enormous grant!
Paycheck Protection Program Qualifications and Rules
· The organization must have fewer then 500 employes.
· Both for-profit and not-for-profit organizations are allowed.
· Loaned money should only be used for the follow items:
‐Group health insurance premiums and sick leave
‐Mortgage interest (but not principal)
‐Utilities (specifically defined as payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020)
· Loan forgiveness is reduced if you lay off employees or reduce their pay. (The purpose of the program is to keep people employed!)
· Amounts that are borrowed but do not qualify for forgiveness have a maximum interest rate of 4% in the law, but the SBA is limiting it to 1% in their rules.
· Interest on the loan is not forgiven. (So, the principal, if spent according to the rules will be forgiven, but the interest, capped at 4% per year, must be paid.)
· No collateral is required.
· The loan amount will be approximate 2.5 times your average monthly payroll, with the average being taken from your 2019 payroll.
· The SBA does not charge a fee for the loan.
· The SBA will reimburse the lending bank for their origination fee.
· The loan forgiveness applies for the covered period, which is the 8 weeks that starts on the origination date of the loan.
How do I get on board?
These SBA loans are insured and forgiven by the government, but are issued by banks. Any bank that can do an SBA 7(a) loan can do a Paycheck Protection Program forgivable loan.
The SBA has published a list of the 100 banks that do the most 7(a) loans.
If you already have a banking relationship you love, you can call your existing banker. Just make sure that you're applying for a loan that's qualified for forgiveness under
the paycheck protection program. It would be a shame to get a loan you believe to be forgivable, and end up having to pay it back. As of this writing, the SBA has not yet
finalized all the rules regarding how the loans are to be originated and processed.
Greenwood Time Captial
Pinnacle Financial Partners
Pacific Western Bank
What should I do now?
As of this writing (March 30, 2020), no banks have started issuing the Paycheck Protection Program loans. So, what should you do now? Here are some tips:
· Be upfront and frank with your employees, and do right by them. This is a strange time for everyone. If you can't pay them, then you can't pay them, and let them know. If you can't pay them now, but can once the Paycheck Protection Program is implemented, let them know that too.
· Start bringing your store online! Assuming it's within your State's rules to have a curbside pickup program for your store, you might want to consider creating an online store. ThriftCart can help you turn your thrift store into an online store. You and your staff may have extra time now, so spend some of that time thinking about opening an online store, and prepping your top items to go online.
· Consider allow staff to sort inventory at home. Of course, do this only if it is safe and legal. If you're like many thrift stores, you have a pile of unsorted donations. You could send donations home with staff, and have them return with sorted bins. You might even be able to find some exceptional quality items that you can feature and sell for a higher price, that might have otherwise gone unnoticed in the shuffle.
· Start gathering required documention for the Paycheck Protection Program. In particular, you'll need to be able to fill out Form 4506-T, which authorizes the bank to get a copy of your tax return from the IRS. If you're a non-profit, the form may need to be signed by an executive, so make sure you have the home contact information of your executive team if they're working from home.
· Deep clean the store. If it's safe and legal to occupy your store, but not for the public to shop there, consider using this opportunity to really make your store shine. With continuous heavy traffic, many stores have sections that look sub-optimal. Now with light traffic or no traffic, you can fix those things up! · If you take Apple Pay and Google Pay, put up signs indicating that! If you're using ThriftCart with Worldpay Integrated Payments, then you're already ready to use Apple Pay and Google Pay. These contactless payment methods will likely become far more prevalent as people become more nervous about touching credit card terminals.
· Plan for the future! This will be over some time. (We're all hoping for sooner rather than later!) Your store may become increasing important for the many people whose job was eliminated during the crisis and didn't return right away. Spend some time imagining how things might be different once you're back open and how you can best serve your customer's needs. If you have any creative ideas, contact us and let us know!
Some notes on whether you should accept government money
This may not be an issue for some of you, but there are some people who may be reluctant to accept any government money for your business or non-profit. The takings clause of the 5th amendment to the Constituion of the United States says nor shall private property be taken for public use, without just compensation. The forcible shut down of your business was a taking of private property for public use. (In this case, the public use was preventing the rapid spread of a pandemic.) Therefore, accepting the Paycheck Protection Program money could well be viewed as part of the just compensation under the takings clause.