Tribal Businesses Eligible for Loans / Tax Credits Under the CARES Act
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) establishes many significant loan programs and tax benefits to help tribal-owned businesses stay afloat and retain employees during the public health emergency created by COVID-19. This article summarizes the key loan programs and tax benefits that tribal businesses might be eligible for. Some of these programs are not allowed to be used in concert with each other, so be sure to review all your options before taking advantage of any programs.
For more detailed information about these loan programs, please click here.
NOTE: As of the date of publication, both the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Program have reached their appropriation limits and Small Business Administration (SBA) is not accepting any loan applications at this time. However, federal legislation is likely to appropriate additional funds for these programs. Please be sure to follow our COVID-19 website for current information.
Paycheck Protection Program
Title I of the CARES Act (Sections 1101-1109) creates the Paycheck Protection Program (PPP) for eligible business, including Tribal Business Concerns, as a temporary 100% loan guarantee program under section 7(a) of the Small Business Act (SBA 7(a)), and appropriated $350 billion. The PPP allows Tribal Business Concerns to use loan proceeds to pay for payroll costs, rent/mortgage/utility payments, and interest payments on debt obligations during the covered period of February 15 to December 31, 2020. The loan amount may also be forgivable. The primary goal of the PPP is to support the retention of employees. If a Tribal Business Concern receives a PPP loan, it is not eligible to obtain payroll tax credits available in other parts of the Act.
The PPP explicitly includes Tribal Business Concerns, which are defined as:
- Wholly owned by one or more Indian Tribal Governments, or by a corporation that is wholly owned by one or more Indian Tribal Governments; or
- Owned in part by one or more Indian Tribal Governments, or by a corporation that is wholly owned by one or more Indian Tribal Governments, if all other owners are either United States citizens or small business concerns;
Tribal Business Eligibility
- In business on February 15, 2020 with employees.
- Business size is limited to 500 employees.
For purposes of eligibility and size, Tribal Business Concerns won't be affiliated with the Tribe or other tribal enterprises (such as gaming enterprises). Tribal gaming, lending, cannabis and other businesses listed in 13 CFR Section 120.110 are not eligible for the PPP.
Loan amount is based on either, average monthly payroll costs x 2.5 or $10 million, whichever is less. Loan amounts will be reduced by any outstanding EIDL loan amounts.
Tribal Business Concerns can use loan proceeds to cover certain expenses, incurred between February 15, 2020 and December 31, 2020. Those expenses include:
- Payroll Costs (salaries and benefits)
- Rent / Mortgage payments
- Utility payments
- Interest on debt obligations
SBA has issued Interim Rules that require at least 75% of loan proceeds must be used for payroll costs.
Forgiveness / Deferment
A Tribal Business Concern borrower is eligible for loan forgiveness for the following costs incurred during the 8-week period after the origination date of the loan: payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Amounts forgiven may not exceed the principal amount of the loan. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.
Economic Impact Disaster Loan (EIDL)
The CARES Act also includes special modifications and provisions to the SBA’s EIDL Program and appropriated $10 billion. The changes are generally designed to expand access to EIDLs and to reduce the time it will take to obtain EIDL funding. EIDLs are made directly by the SBA in an amount not to exceed $2 million.
Certain key updates to the program include:
- Expanded eligibility criteria to include any business with less than 500 employees, including Tribal Business Concerns (using the same definition for the PPP loan program).
- The SBA may advance up to $10,000 of the proceeds of an EIDL to an applicant on an expedited basis, within three days after the SBA receives an application. If the SBA ultimately rejects the application, the applicant may retain this initial $10,000 advance without needing to repay it.
- Payments of principal and interest under all new and existing EIDLs will automatically be entitled to deferment through the remainder of 2020.
- No requirement to show business was unable to obtain credit elsewhere.
- No requirement to show company has been in business at least one year prior to the date of application, as long as the business was in operation by January 31, 2020.
- Personal guarantees will not be required for loans of less than $200,000.
- The SBA will not require prior year tax returns to be included in the application. The CARES Act authorizes the SBA to approve EIDLs based solely on an applicant’s credit score or “alternative appropriate methods” for determining the applicant’s ability to pay.
Economic Stabilization Loan Fund
Title IV of the CARES Act creates a $454 billion loan and loan guarantee fund for states, tribes, municipalities and US businesses. The loan or loan guarantee will be administered by the Federal Reserve. Section 4001 defines an “Eligible Business” as a United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under this Act. This Section also defines a “State” as any of the several States, the District of Columbia, any of the territories and possessions of the United States, and any Indian tribe. Tribal Governments and tribal enterprises are eligible borrowers under this loan program.
All loan requests must meet the following criteria:
- Alternative financing is not reasonably available;
- The loan is secured or made at an interest rate that reflects the risk of the loan;
- The duration of the loan shall be as short as possible and shall not exceed 5 years;
- Borrowers must maintain existing employment levels, to the extent possible.
Loans to mid-size businesses, defined as 500 - 10,000 employees, will have access to a separate Federal Reserve funding program through banks and other lenders who will then make direct loans to such mid-market companies. These loans will carry preferential rates, no more than 2% per annum on the direct loan, with no principal or interest payable for 6 months. As with the other programs in the bill, a condition of participating in the middle market program is to retain 90% of recipient’s pre-pandemic workforce until at least September 30, 2020.
There are specific limitations on businesses that receive these loans.
- They must agree not to buy back stock and pay dividends during the term of the loan.
- They must also agree: not to offshore jobs;
- Not to abrogate collective bargaining agreements; and
- To remain neutral in collective bargaining effort during term of the loan and for at least 2 years after the termination of the loan.
Furthermore, the business must agree to limit compensation for highly paid employees:
- If paid over $425,000 per year in 2019, then they can't increase compensation for 12 months; and
- If paid more than $3 million, then they must limit compensation to $3 million+ 50% of any amount over $3 million for 12 months.
Any lending through a facility established by the Federal Reserve under this Section must be broad-based, with verification that each participant is not insolvent, is unable to obtain adequate financing elsewhere, and provides sufficient collateral. As of publication, the Federal Reserve created the Main Street Lending Credit Facility to originate and/or buy loans made under this Title.
Loan forgiveness is not permissible under Title IV loan programs.
Tax Benefit Provisions
For more detailed information about these tax provisions, please click here.
Delay of Payment of Employer Payroll Taxes
The provision allows all employers, including Tribal Governments, tribal owned enterprises, and self-employed individuals, to defer deposit and payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government beginning March 27 and ending December 31, 2020.
The provision also requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
If a tribal business receives a PPP loan, it may not defer taxes that are due after the loan is forgiven.
Employment Retention Payroll Tax Credit
Allows eligible employers (including tribes, tribal owned enterprises and tribal non-profits) to receive a tax credit against quarterly payroll taxes, equal to 50% of qualified wages, up to the first $10,000 in wages, with a tax credit limit of $5,000 per employee. To be eligible, a tribal business must:
- Be engaged in a trade or business, and
- Be "fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes)" or
- Experience at least a significant decline in gross receipts of at least 50% over the same quarter from the previous year.
If an employer has less than 100 employees (on average), qualified wages are wages paid to all employees during the period of economic hardship. If an employer has more than 100 employees, qualified wages are wages paid to the employees who are not providing services (i.e., on payroll, but not working).
The tax credit is fully refundable, if the tax credit amount (taking into consideration other tax credits under the Families First Act) exceeds the payroll tax due. Furthermore, an employer can delay payment to the IRS of its portion of payroll taxes in anticipation of the payroll tax credit, and use the employer portion of the taxes to fund qualified wages. Alternatively, an employer can seek an advance credit from the IRS.
A tribal business cannot take this tax credit if it also gets a PPP loan.
Title V - Stabilization Fund
Creates an $8 billion set aside fund for Tribal Governments to cover increased expenses incurred due to COVID-19. Funding amounts are based on the amount of increased expenses for Tribal Governments and tribal enterprises relative to the Fiscal Year 2019 aggregate expenditures. Increased expenses are determined by "necessary expenditures" incurred between March 1, 2020 and December 30, 2020 and are "unaccounted for" in the Tribe's or tribal enterprise's FY 2020 budget.
The Secretary of Treasury must distribute the funds by April 27, 2020 (30 days from enactment), and the funds must be spent by end of Fiscal Year 2020.
Note: The federal agencies involved in administering the programs and funds established in the CARES Act are in the process of issuing guidance for eligibility and how to access the assistance discussed above. Therefore, the information we are providing is subject to change. Please check back periodically for updates.
For more information regarding the CARES Act Loan Programs and Tax Benefit Provisions, please contact your Quarles & Brady attorney or: