Epidemic risk insurance is by nature a highly tailored solution meeting the demands of each individual insured. These solutions are crafted by taking into consideration multiple aspects of each insured’s business including complexity, industry type and geographic spread.
Why is Epidemic Risk Insurance Needed?
Insurers are addressing a significant coverage gap that traditional insurance has not been able to solve: non-damage business interruption for loss of gross profit as a result of an epidemic. Most standard property damage policies require a business interruption to be from physical damage and also typically exclude communicable diseases. This coverage may be extended to include communicable diseases by endorsement, but only limited capacity is available and with restrictive terms.
In order to close this gap, Insurers have developed expertise in epidemiology, statistics, risk modelling, finance and claims management as well as a range of innovative tailor-made risk transfer solutions for many different industry types exposed to epidemic risks. This policy can also provide optional access to specialized epidemic risk management experts to assist in current and future outbreak mitigation and preparation.
What Does Epidemic Risk Insurance Cover?
The policy is designed to cover epidemic outbreaks of known disease types such as Ebola and coronaviruses, as well as unknown newly emerging viral diseases. Coverage is available on a prospective basis. It is not possible to purchase coverage for disease outbreaks which have already occurred e.g. COVID-19.
Optional add-on coverage for variants of influenza (for example “Swine Flu” or “Avian Flu”) may also be available. Certain disease exclusions are HIV, bacterial infections (e.g. TB and Meningitis) and endemic diseases (those prevalent within a population e.g. Malaria in Africa).
Is the Policy Parametric or Indemnity Based?
Typically solutions are indemnity based but parametric solutions are also available.
How are Policy Limits Structured?
The policy limit structure can be tailored to your needs, depending on the level of balance sheet protection required. However, typically a two layer structure is employed, plus a dedicated sub-limit for Crisis Management Costs:
Crisis Management Costs: $500,000
To allow for immediate risk minimizing efforts such as extra expenses for hygiene purposes or for media costs to restore consumer confidence.
Layer 1 (5-10% of total limit)
This layer is designed to cover the insured for the early stages of an outbreak.
Layer 2
This layer is designed to cover the insured for larger outbreaks and is also deigned to unlock capacity on a sliding scale, starting with a nominal number of deaths.
How is the Epidemic Risk Insurance Triggered?
The World Health Organization (WHO) and the number of deaths in a certain country form the fundamental trigger methodology for this type of insurance. Based on a two layer limit structure for a tourism dependent business, a possible trigger structure may look like this:
Layer 1 Trigger: WHO Declaration
Issuance of a WHO Disease Outbreak News (DON) bulletin referring to an indigenous case within the area of a covered insured premises. No deaths required to trigger this layer.
It is likely at this stage of the outbreak that only a small loss may materialize. If the outbreak becomes larger, Layer 2 will provide additional capacity.
Layer 2 Trigger: Death Count
The initial death count threshold depends on geography, but may start as low as 25 deaths in country. A sliding scale is then applied so that each additional death unlocks additional capacity until the top threshold is reached (e.g. 250) where the entire limit of the program is available.
FAQs
Are multi-year policies available? Yes.
Can multi-geographical clients be insured? Yes. A “regional cluster” approach is utilised that simulates a facility arrangement with a shared aggregate limit, thereby allowing for the diversification effects to reduce premium.
What are the target sectors? The solution can be tailored to a wide range of industries. Underwriter focus to date has been on the following sectors: Hospitality & Gaming, Restaurants, Travel & Tourism, Aviation, Education, Healthcare, Mining, Retail, Sports/Events.
What is an Epidemic Period? Typically set between 6-9 months. This period commences with the issuance of a DON by the WHO and represents the length of a covered epidemic/pandemic. It also serves as the period in which the insured selects the indemnity period.
What is an Indemnity Period? Typically set between 3-6 months. This is the period that business interruption calculations are based upon. It is within the epidemic period, but unlike property damage business interruption, this policy has the benefit of allowing the insured to select the most impacted consecutive period for business interruption calculations.
Who counts the fatalities and cases? Are they reliable? The counting of cases and fatalities is done by the WHO, an independent third party with no affiliation to Insurers. The numbers are reliable as they are the official numbers used and published by the world’s leading public authority in the field of (Public) Health. WHO is also the authority that issues the official Notifications referred to in the policy wording (WHO DON).
California’s Leader in Insurance and Risk Management
As one of the fastest growing agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.
We are headquartered in Turlock, CA, with locations across the heart of California’s Central Valley, Northern California and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business. Contact us today 1-209-634-2929 for your comprehensive business insurance quote!
Coronavirus Recording and Reporting Under OSHA Rules
The Occupational Safety and Health Act (the Act) requires employers to report and record work-related injuries and illnesses. The Occupational Safety and Health Administration (OSHA) has indicated that COVID-19 infections are recordable injuries if they are work-related and they meet the Act’s recording criteria. Recording requirements apply only to employers with more than 10 employees who are not in an exempt, low-risk industry.
In addition, employers must report incidents that result in an employee’s fatality within eight hours. Incidents that result in inpatient hospitalization, amputation or loss of an eye must be reported within 24 hours. This Compliance Overview presents a summary of the reporting and recording requirements that will most likely apply to coronavirus cases in the United States. For additional information on OSHA reporting and recording requirements please contact GDI Insurance Agency, Inc. or visit the OSHA website.
An injury or illness is work-related if an event or exposure in the work environment either caused or contributed to the resulting condition or significantly aggravated a preexisting injury or illness. Work-relatedness is presumed for events or exposures in the work environment.
Recording Criteria
Work-related COVID-19 cases are recordable if they:
Result in loss of consciousness, days away from work, restricted work or transfer to another job;
Require medical treatment beyond first aid;
Are a diagnosed case of cancer, chronic irreversible disease, fractured or cracked bones or teeth, and punctured eardrums; or
OSHA has clarified that COVID-19 can be a recordable illness if a worker is infected as a result of performing their work-related duties. Employers can use the graphic on the right to determine whether incidents should be recorded under the Act.
However, employers are only responsible for recording cases of COVID-19 if all of the following are met:
The case is a confirmed case of COVID-19 (see CDC information on persons under investigation and presumptive positive and laboratory-confirmed cases of COVID-19);
The case is work-related, as defined by 29 CFR 1904.5; and
The case involves one or more of the general recording criteria set forth in 29 CFR 1904.7 (e.g., medical treatment beyond first aid, or days away from work).
OSHA’s definition of a recordable illness includes “both acute and chronic illnesses, such as, but not limited to, a skin disease, respiratory disorder or poisoning.” This definition is limited to abnormal conditions or disorders that exclude the common cold and the seasonal flu. This can make it difficult when employees show up to work with coronavirus-like symptoms, such as a high fever or coughing. For this reason, employers should wait until they have a confirmed COVID-19 diagnosis before starting a recordability analysis.
Reporting COVID-19 Cases
As mentioned above, COVID-19 cases must be reported if they are work-related and result in a fatality (within eight hours), inpatient hospitalization, amputation or loss of an eye (within 24 hours). The reporting periods begin as soon as the employer learns about the work-related incident, even if there is a delay between the time the incident takes place and the time the incident is reported to the employer.
If the OSHA area office is closed, employers are expected to report these incidents by phone at 1-800-321-OSHA (6742) or the reporting application located on OSHA’s public website at www.osha.gov. OSHA reports must include the following information:
The establishment name;
The location of the work-related incident;
The time of the work-related incident;
The type of reportable event (i.e., fatality, inpatient hospitalization, amputation or loss of an eye);
The number of employees who suffered a fatality, inpatient hospitalization, amputation or loss of an eye;
The names of the employees who suffered a fatality, inpatient hospitalization, amputation or loss of an eye;
The employer’s contact person and his or her phone number; and
A brief description of the work-related incident.
Inpatient Hospitalizations
An inpatient hospitalization is a formal admission to the inpatient service of a hospital or clinic for care or treatment. Admissions that are strictly for observation or diagnostic testing are not reportable.
Delayed Reporting
Employers must report fatalities to OSHA if they occur within 30 days of the work-related incident.
Inpatient hospitalizations, amputations and loss of an eye must be reported even if they take place within 24 hours of the work-related incident.
California’s Leader in Insurance and Risk Management
As one of the fastest growing agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.
We are headquartered in Turlock, CA, with locations across the heart of California’s Central Valley, Northern California and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business. Contact us today 1-209-634-2929 for your comprehensive insurance quote!
IRS Issues Guidance on Tax Credits for Coronavirus Paid Leave
Small and midsize employers may begin using two new refundable payroll tax credits to obtain reimbursement for the costs of providing coronavirus-related leave to their employees, the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) announced on March 20, 2020. According to IRS Notice 2020-12, these credits are available for qualified leave wages paid for the period beginning April 1, 2020, and ending Dec. 31, 2020.
This relief is provided under the Families First Coronavirus Response Act (the Act), which was enacted on March 18, 2020. The Act provides funds for employers with fewer than 500 employees to provide paid leave, either for their employees’ own health needs or to care for their family members. The Act aims to help employers keep workers on their payrolls while ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the coronavirus (COVID-19). This Compliance Bulletin provides the DOL and IRS’ announcement
Action Steps
Employers should become familiar with their obligations to provide paid leave to employees under the Act and with the IRS’ guidance regarding tax credits for reimbursement. Employers should also monitor the IRS’ Coronavirus Tax Relief website for additional guidance, which is expected to be released in the near future, and:
Closely monitor the CDC, WHO and state and local public health department websites for information on the status of the coronavirus; and
Consider measures that can help prevent the spread of illness, such as allowing employees flexible work options like working from home.
Key Takeaways
Paid Sick Leave for Workers
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
Complete Coverage
Employers may receive 100% reimbursement for paid leave under the Act.
Health insurance costs are also included in the credit.
Employers face no payroll tax liability.
Self-employed individuals may receive an equivalent credit.
Fast Funds
Reimbursement is intended to be quick and easy to obtain.
An immediate dollar-for-dollar tax offset against payroll taxes will be provided.
Where a refund is owed, the IRS intends to send the refund as quickly as possible.
Small Business Protection
Employers with fewer than 50 employees may be eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or because child care is unavailable in cases, if viability of their business is threatened.
Easing Compliance
Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form (which is expected to be released this week).
Background
The Act provides paid sick leave and expanded family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.
Paid Leave
The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined or experiencing COVID-19 symptoms and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, or if the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at two-thirds of the employee’s pay.
Paid Sick Leave Credit
For an employee who is unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or for whom the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Child Care Leave Credit
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Prompt Payment for the Cost of Providing Leave
When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
Under guidance expected to be released this week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit that amount with the IRS.
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers may file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure are expected to be announced this week.
Examples
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
Small Business Exemption
Employers with fewer than 50 employees may be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where these requirements would jeopardize their businesses’ ability to continue. This exemption will be available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The DOL will provide emergency guidance and rulemaking to clearly articulate this standard.
Non-Enforcement Period
The DOL plans to issue a temporary non-enforcement policy that provides a time period for employers to come into compliance with the Act. Under this policy, the DOL will not bring an enforcement action against any employer for violations of the Act as long as the employer has acted reasonably and in good faith to comply with the Act. The DOL will instead focus on compliance assistance during the 30-day period.
California’s Leader in Insurance and Risk Management
As one of the fastest growing agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.
We are headquartered in Turlock, CA, with locations across the heart of California’s Central Valley, Northern California and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business. Contact us today 1-209-634-2929 for your comprehensive insurance quote!
Understanding the Historic $2 Trillion Stimulus Package
The Coronavirus (COVID-19) pandemic has put a major strain on every aspect of daily life around the world, including the United States. As spread of the disease shows no sign of slowing down, there is a steadily increasing concern in the United States regarding the health and wellness of not only our citizens, but the economy as well. In response, the United States Congress has been negotiating a historic stimulus package to address the havoc caused by the pandemic.
It appears Congress’ hard work has paid off, as they just passed a $2 trillion package to provide a jolt to the economy reeling from the deadly virus. All Americans would do well to understand the package’s provisions, as it will offer direct relief to businesses and individuals alike.
What is in the stimulus package?
The $2 trillion stimulus package, negotiated by Republican and Democratic leaders, is the largest economic stimulus measure in modern history. The bill is a $2 trillion combination of tax provisions and other stimulus measures, including emergency business lending. The measure promises to provide help for struggling American families and businesses, as well as health care workers on the front lines of the coronavirus outbreak.
Significant Provisions Affecting Businesses
The tax package itself is broad, with tax payment relief and significant business tax incentives. Here is a list of the most significant provisions affecting businesses:
$367 billion will be made available in loans for small businesses and $150 billion for state and local governments. The loans will be forgiven so long as businesses pledge not to lay off their workers.
Small businesses forced to suspend operations or that have seen gross receipts fall by 50% from the previous year will be eligible for a tax credit worth up to 50% of wages paid during the crisis, so long as they keep their workers employed throughout.
The Treasury Department will distribute $500 billion in loans to struggling industries (e.g., passenger airlines and businesses critical to maintaining national security). Additionally, an oversight board and inspector general will be created to oversee loans to large companies.
Health care providers will receive $100 billion in grants to help fight the coronavirus and make up for revenue lost by delaying elective surgeries and other procedures.
$200 million will be carved out for the Federal Communications Commission to provide health care providers with connected devices to facilitate telemedicine services, with the goal of freeing up hospital beds. Another $25 million will go to a grant program that helps rural communities purchase broadband equipment for telemedicine.
The Commodity Credit Corporation, an institution that USDA uses to stabilize the farm economy, would see its spending authority increased to $14 billion. The package also sets up a $9.5 billion emergency fund for producers, including fresh fruit and vegetable growers, dairy farmers and cattle ranchers, along with local food systems like farmers markets.
Colleges and universities, as well as school districts, will receive more than $30 billion.
State and local governments will receive $150 billion, with $8 billion set aside for local governments.
The package will provide the U.S. Postal Service with a $10 billion Treasury loan to stave off insolvency. Retailers, restaurateurs and hotels will be able to immediately deduct from their taxes what they spend on property improvements.
Employers can defer the 6.2% tax they pay on wages used to fund Social Security.
Significant Provisions Affecting Individuals
The major piece of the individual tax changes will offer rebate checks based on a new tax credit of $1,200 per filing adult and $500 for each qualifying child. Additionally, unemployed individuals will receive an unprecedented expansion of benefits and payments.
Here is a list of the most significant provisions affecting individuals, many of which will be discussed in detail later in this piece:
Single Americans will receive $1,200, married couples will get $2,400 and parents will receive $500 for each child.
Unemployed individuals, including freelancers and furloughed employees, will get an extra $600 per week for up to four months, on top of state unemployment benefits.
The package also calls for a new pandemic unemployment assistance program, which will provide jobless benefits to those who are unemployed, partially unemployed or unable to work because of COVID-19 and don’t qualify for traditional benefits.
The Department of Education will suspend payments for student loan borrowers without penalty through September 30.
There will be housing protections against foreclosures on mortgages and evictions for renters. Anyone facing a financial hardship from the coronavirus will receive a forbearance on federally backed mortgage loans of up to 60 days. Those with federally backed mortgage loans who have tenants are not allowed to evict tenants solely for failure to pay rent for a 120-day period.
As you can see, the package will have a far-reaching impact as it drives money toward workers, small businesses and industries that have been impacted by the economic downturn due to the pandemic.
Overview of Major Bill Provisions
Now that you’re aware of the major implications for both businesses and individuals, let’s take a more in-depth look at the most important provisions.
Loans and Tax Credit Available to Small Businesses
Keeping businesses afloat and workers under the wing of their employers is critical for ensuring the economy can quickly restart after the pandemic subsides. To this end, the stimulus package creates a $367 billion federally guaranteed loan program for small businesses that employ 500 or fewer people who must pledge not to lay off their workers. The loans will be available during an emergency period ending June 30, and would be forgiven if the business uses the loan funds for approved purposes and maintains the average size of its full-time workforce, based on when it received the loan.
Additionally, small businesses forced to suspend operations or that have seen gross receipts fall by 50% from the previous year, will be eligible for a tax credit worth up to 50% of wages paid during the crisis, so long as they keep their workers employed through the crisis. Wages remain eligible until business is no longer suspended or gross receipts for a quarter reach 80% of the prior year. The credit could be applied to all wages for employers with fewer than 100 employees, while the benefit is capped at $10,000 in wages per employee for larger employers.
Expansion of Unemployment Benefits
The stimulus package includes a significant expansion of unemployment benefits that will extend unemployment insurance by 13 weeks and include a four-month enhancement of benefits (for reference, many states already provide 26 weeks of unemployment benefits, and thus participants in such states would be eligible for a total of 39 weeks when adding the 13 weeks of federal relief). The enhanced benefits will provide an additional $600 per week on top of what state unemployment programs pay.
Note that many individuals who typically do not qualify for unemployment insurance will qualify under the package, including independent contractors and self-employed individuals. In sum, those who are unemployed, partially unemployed or who cannot work for a wide variety of coronavirus-related reasons will be more likely to receive benefits.
Individual Checks to Taxpayers
As noted earlier, the package will provide direct payments to taxpayers based on the adjusted gross income found on their 2019 federal tax return. All U.S. residents with adjusted gross incomes up to $75,000 ($150,000 for married couples) will get a $1,200 ($2,400 for couples) payment. Families will receive an additional $500 per child, as a way to create a safety net for those whose jobs and businesses are affected by the pandemic. However, the payments will start to phase out for individuals with adjusted gross incomes greater than $75,000. Those with incomes higher than $99,000 will not qualify for payments under the stimulus package.
It is unclear how long it will take the IRS to process every payment. The Trump administration has indicated that Americans could be seeing direct payments as soon as April 6.
How can I take advantage of the stimulus?
Now that you’re acquainted with the impact of the stimulus package, let’s discuss how you might take advantage of these benefits:
How can I obtain a small business loan from the government?
The U.S. Small Business Administration (SBA) is offering loans for qualifying small businesses. These are low-interest (3.75% for small businesses and 2.75% for nonprofits) loans with terms potentially as long as 30 years. You can apply for an SBA loan through its website. Be prepared to provide the following information:
Tax Information Authorization (IRS Form 4506T), completed and signed by each principal or owner
Recent federal income tax returns
Personal Financial Statement (SBA Form 413)
Schedule of Liabilities listing all fixed debts (SBA Form 2202)
You may also need to provide profit and loss statements, recent tax returns and balance sheets.
After you apply, the SBA will review your credit before conducting its own inspection to verify your losses. The SBA says its goal is to arrive at a decision on any disaster loans within two to three weeks. If it determines you are eligible, it will send you a loan closing document for your signature.
How can employees collect unemployment assistance?
If your business is closed because of COVID-19 and your employees cannot work from home, or your employees are unable to work due to the disease or need to take care of someone who has it, they can likely collect unemployment. As each state administers a separate unemployment insurance program, employees should be told to visit their state’s unemployment insurance website, which will provide the relevant details regarding their individual programs. The information employees will need includes their Social Security number and driver’s license or state ID.
Conclusion
If there’s anything that is certain, it is that the full economic impact of this unprecedented pandemic is yet to be understood. Despite the unpredictability, Congress’ historic economic stimulus package is a sight for sore eyes for struggling businesses and individuals alike.
As the pandemic develops and the stimulus package is rolled out, look for more relevant guidance from GDI Insurance Agency, Inc. in the near future, and continue to stay abreast of the latest state and federal developments.
California’s Leader in Insurance and Risk Management
As one of the fastest growing agencies in California, GDI Insurance Agency, Inc. is able to provide its clients with the latest and greatest of what the insurance industry has to offer and much, much more.
We are headquartered in Turlock, CA, with locations across the heart of California’s Central Valley, Northern California and beyond to provide a local feel to the solutions and services we provide our clients. We pride ourselves on exceeding our client’s expectations in every interaction to make sure that our client’s know how much we value and appreciate their business. Contact us today 1-209-634-2929 for your comprehensive business insurance quote!
In response to the American economy reeling from the coronavirus (COVID-19) pandemic, the federal government recently signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Among other provisions, the CARES Act provides businesses suffering under the debilitating effects of the pandemic with unprecedented access to emergency loans. This document will serve as an overview of the loan programs available.
How Does the CARES Act Address Small Business Loans?
The CARES Act is the largest economic stimulus measure in modern history and promises to provide help for struggling American families and businesses. Specifically, the Act includes the following provisions:
The Act includes nearly $350 billion for a federal small business loan program called the Paycheck Protection Program. The program is designed to get cash in the hands of suffering small businesses quickly, with less stringent eligibility requirements than the existing U.S. Small Business Association (SBA) loan programs. Paycheck Protection Program loans are designed to incentivize business owners to keep employees on payroll.
In addition to businesses already eligible for SBA programs, most businesses with 500 or fewer employees are now eligible for disaster loans of up to $2 million for working capital. Those businesses will also be eligible for an emergency cash advance of $10,000 within days of making the application, which is not repayable even if their loan application is denied.
Overview of CARES Act Small Business Loan Provisions
As noted above, the CARES Act provides two main avenues for obtaining a business loan:
Through the Paycheck Protection Program
Through the SBA as a disaster loan
Below you will find an overview of the eligibility requirements, key loan terms, and how to apply for each program.
Paycheck Protection Program Loans
The CARES Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Included in the CARES Act was the Paycheck Protection Program, which provides 100% federally guaranteed loans to small businesses, through Jun. 30, 2020. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis. Though information on the program continues to be rolled out, the following is an overview of information available now:
Eligibility
You are eligible for a loan under this program if you are:
A small business that was in operation on Feb. 15, 2020, with fewer than 500 employees (The 500-employee threshold includes all employees: full-time, part-time and any other status.)
A small business that otherwise meets the SBA’s size standard
A 501(c)(3) with fewer than 500 employees
An individual who operates as a sole proprietor
An individual who operates as an independent contractor
An individual who is self-employed and who regularly carries on any trade or business
A tribal business concern that meets the SBA size standard
A 501(c)(19) Veterans Organization that meets the SBA size standard
Terms of the Loan
The terms of a Paycheck Protection Program loan are as follows:
The amount of a Paycheck Protection Program loan available to each borrower is 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million.
Paycheck Protection Program loans require no collateral, have a maximum 10-year term, and an interest rate of no more than 4%.
The loans are available to eligible companies to be used for the following costs incurred from Feb. 15, 2020 through Jun. 30, 2020: payroll (including salary, wage, parental, family, medical or sick leave, and more); health care benefits and related insurance premiums; employee compensation; mortgage interest obligations; and rent and utilities.
A borrower of a Paycheck Protection Program loan is eligible for loan forgiveness equal to the amount spent during the eight-week period after the date of the original loan for rent on a leasing agreement, payroll costs (including wages for USA employees capped at $100,000 per employee), mortgage interest and utilities. The amount forgiven may be reduced if the borrower reduces the number of employees, or salaries and wages of employees. Borrowers must apply through their lender for forgiveness on the loan.
How to Apply for a Paycheck Protection Program Loan
The application has been posted on the Treasury Department’s CARES Act resource page. The SBA has a network of 1,800 approved lenders that process small business loans. If you are interested in a Paycheck Protection Program loan, you should first contact your bank to see if it is an SBA-approved lender. If your bank is not an SBA-approved lender, you can contact the SBA to find one.
SBA Economic Injury Disaster Loans
Another option for small businesses is the SBA’s existing Economic Injury Disaster Loan (EIDL) Program, which was expanded by the CARES Act and provides for longer-term loans with favorable borrowing terms. Companies in all 50 states, District of Columbia, and some U.S. territories are typically eligible for EDIL loans relating to economic injury caused by the COVID-19 pandemic, and will be available until Dec. 31, 2020.
Eligibility
The CARES Act expanded EIDL loan eligibility for the period between Jan. 31, 2020, and Dec.
31, 2020, to include:
Businesses with 500 or fewer employees
Sole proprietorships and independent contractors with or without employees
Private nonprofits and cooperatives
Tribal small business concerns and ESOPs with 500 or fewer employees
If your business meets the aforementioned requirements and your revenues have suffered substantial economic injury from COVID-19, your business is eligible no matter your line of business.
Terms of the Loan
The terms of an EIDL loan are outlined below:
The amount of an EIDL loan available to each borrower is the business’s actual economic injury as determined by the SBA, not to exceed $2 million.
EIDL loans under the CARES Act do not require personal guarantees for loans up to $200,000, but the SBA will take a collateral interest in your business’s assets to the extent available.
The interest rate on EIDL loans is 3.75% fixed for small businesses and 2.75% for nonprofits. EIDL loans have up to a 30-year term. Specific terms will be determined on a case-by-case basis, based upon each borrower’s ability to repay the loan.
EIDL loans may be used for payroll, debts and to pay obligations that cannot be met due to the pandemic.
Your business may be approved for an EIDL loan based on credit score alone, without being required to submit tax returns.
The CARES Act also permits applicants to request an advance of up to $10,000 which may be used to keep employees on payroll, to pay for sick leave, meet increased production costs, or pay business obligations. If you apply, the advance should be paid to your business within three days. This advance, available backdated from Jan.31, 2020 to Dec. 31, 2020, is not required to be repaid even if your application is denied. To access this advance, borrowers must first apply for an EIDL and then request the advance.
How to Apply for an SBA Economic Injury Disaster Loan
EIDL loans are available directly from the SBA. They have introduced a streamlined application process, which you can access here. Additionally, SBA resource partners are available to help guide you through the EIDL application process. You can find the nearest Small Business Development Center (SBDC), Women’s Business Center, or SCORE mentorship chapter here.
What’s Next?
It is clear that both Paycheck Protection Program loans and SBA EIDL loans provide very favorable terms to prospective borrowers. Eligible small businesses who have been economically impacted by the COVID-19 pandemic would be wise to consider taking advantage of such programs.
Businesses interested in the Paycheck Protection Program loans should consult with their banker(s). In the meantime, those also interested in the EIDL loans should evaluate with its advisors whether they are eligible. If so, businesses can consider gathering all relevant company documents and financial information that borrowers would ordinarily expect a lender to want to review (e.g., payroll information).
As the pandemic develops and the CARES Act provisions are rolled out, look for more relevant guidance from GDI Insurance Agency, Inc. in the near future.
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