"Idea to IPO" Webinar description: The U.S. government is providing relief and stimulating the economy through the $2 TRILLION CARES Act of 2020 and other measures to help corporations, small businesses, and people laid off due to the COVID-19 crisis. The speaker will discuss: 1) What is the CARES Act of 2020? 2) What does the CARES Act of 2020 hope to achieve? 3) Will there be follow up programs to come? 4) How can entrepreneurs and small businesses benefit from the CARES ACT of 2020? 5) How does one go about applying for grants and loans administered under the CARES ACT of 2020? 6) What are the new rules relating to sick leave and paid leave? 7) What COVID-19 related tax incentives are available to companies? and more!

1. Roger Royse
Founder, Royse Law Firm
rroyse@rroyselaw.com
650-813-9700
www.rroyselaw.com
How Your Company is
Affected by the CARES Act
and Related Legislation

2. IMPORTANT
DISCLAIMER
No information contained in this presentation is to be construed as legal
advice. No information contained in this presentation is intended or related to
any particular factual situation. Nothing herein forms an attorney-client
relationship. If legal advice or other expert assistance is required, the services
of a competent professional should be sought.

3. OVERVIEW:
 SBA Grants and Loans
 Economic Injury Disaster Loans
 Payroll Protection Program
 Local and private programs
 Refundable Tax Credits
 Main Street Lending
 Families First Coronavirus Response Act
 Federal and state tax changes

4. CORONAVIRUS AID, RELIEF,
AND ECONOMIC SECURITY
(CARES) ACT
 Payroll Protection Program (PPP) Loans
 SBA Economic Injury loans
 Main Street Lending

5. CORONAVIRUS AID, RELIEF,
AND ECONOMIC SECURITY
(CARES) ACT
CARES Act allocates:
 $560 billion to individuals
 $500 billion to large corporations
 $377 billion to small businesses
 $340 billion to state and local governments
 $154 billion for public health
 $44 billion for education and other causes

6. SBA ECONOMIC INJURY
DISASTER LOANS
 Eligibility
 Companies that can show an injury
 In operation since 1/31/2020
 Small business, most nonprofits, sole proprietors, small ag coops
 Operates primarily in the US
 Independently owned and operated
 Not dominant in its field on a national basis
 Not available for cannabis and other federally restricted activities

7. SBA EIDL Terms
 Up to $2,000,000 (up to $200k with no personal guarantee)
 3.75% Interest Rate, up to 30 years term
 Loans under $25,000 require no collateral
 Up to 30 Year term – case by case

8. SBA ECONOMIC INJURY
DISASTER LOANS
 Eligibility:
 business employs 500 or fewer people likely considered a small
business and eligible, including the loan advance.
 Number of employees is higher for businesses in some industries.
 In addition to the PPP loans but cannot be used for same purpose

9. SBA ECONOMIC INJURY
DISASTER ADVANCE LOANS
 Up to $10,000 injury advance
 Need not be repaid
 The funds are meant for:
 Providing paid sick leave to employees unable to work due to the
direct effect of COVID-19
 Maintaining payroll to retain employees
 Meeting increased costs due to interrupted supply chains
 Making rent or mortgage interest payments
 Apply on line at https://covid19relief.sba.gov/#/

10. OTHER LOANS
 Express Bridge Loan-small businesses who currently have a business relationship
with an SBA Express Lender may access up to $25,000
 Debt Deferment on existing 7(a) loans
 California Statewide Certified Development Corporation (CDC) – working capital
loans up to $250,000 for 5 to 10 years at prime plus 6.25 – 9.25%
 CDC Small Business Finance loans up to $500,000 between 7.25% and 14.5%
 SBA 7(a) loans – up to $5 million for short or long term working capital
 504 Loans up to $5.4 million long term fixed rate loans
 SBA micro loans
 https://calstatewide.com/community-advantage-lending/

11. STATE OF
CALIFORNIA IBANK
 Infrastructure and Economic Development Bank (IBank)
 $50 million allocated for loan guarantees for individuals who do not qualify for
federal funds, such as low wealth and undocumented immigrants
 Small Business Finance Center loan guarantees up to $1 million for 7 years and
low wealth entrepreneurs up to $10,000 for 5 years

12. LOCAL RESOURCES AND
GRANTS
 SiliconValleyStrong.org
 GrantWatch.com
 BusinessOwnerSpace.com offers loans through its business partners

13. PAYROLL PROTECTION
PROGRAM (PPP) LOANS
(SBA 7(A)) – ELIGIBILITY
a. Must certify that current uncertainty makes the loan necessary to support
ongoing operations and funds will be used to retain workers and maintain
payroll or make mortgage, lease and utility payments
b. In operation since 2/15/2020
c. Less than 500 employees, meets SBA size standards or Small Business
Concern
d. Loan proceeds used to cover payroll (even though you are closed), mtge
interest, rent and utility
e. Impermissible uses will be required to repay and may be subject to fraud
penalties
f. Apply through federally insured institution
g. SBA Form 2483
h. Independent contractors

14. PPP LOANS - ELIGIBILITY
a. For profits, 501(c)(3) non profits, 501(c)(19) veterans organizations
b. Small business concerns that as of 3/27/2020
a. Maximum tangible net worth of no more than $15 million and
b. Average net income after FIT not more than $5 million for prior 2
years
c. Accommodation and Food Services (with no more than 500 employees in
a single location), certain franchisees, SBIC companies
d. Sole proprietors and independent contractors
e. Ineligible:
a. Financial businesses (lending, investment, mtge)
b. REITs and passive businesses
c. Majority non-US owned
d. Private clubs
e. Gambling life insurance and speculation

15. PPP LOANS - INDEPENDENT
CONTRACTORS
Payroll costs for sole proprietors and independent contractors are:
The sum of payments of any compensation to or income of a sole proprietor or
independent contractor that is a wage, commission, income, net earnings from
self-employment, or similar compensation and that is in an amount that is not
more than $100,000 in 1 year, as prorated for the covered period.
Partners in a partnership may qualify

16. PPP LOANS– REAL ESTATE?
Interim Final Rule published by the SBA on April 2 excludes SBA Standard
Operating Procedure 50 10 Passive Businesses:
a. Passive businesses owned by developers and landlords that do not actively
use or occupy the assets acquired or improved.
b. Businesses primarily engaged in subdividing real property into lots and
developing it for resale on its own account.
c. Businesses that are primarily engaged in owning or purchasing real estate
and leasing it.
d. Businesses that lease land for the installation of a cell phone tower, solar
panels, billboards, or wind turbine.
e. Businesses that have entered into a management agreement with a third
party that gives the management company sole discretion to manage the
operations of the business.
f. Apartment buildings and mobile home parks.
g. Residential facilities that do not provide healthcare and/or medical
services.

17. PPP - TERMS
 Apply through lenders
 Up to $10 million of 2.5 times average monthly payroll for previous 12
months
 Interest fixed at 1% and payments deferred not less than 6 months
 No personal guarantee or collateral required
 Maturity date is 2 years
 EIDL may reduce amount to be borrowed under PPP
 Companies that retain or rehire employees can apply for up to 8 weeks of
payroll forgiveness

18. PPP - LOAN AMOUNT
 2.5 times average monthly payroll
• Payroll capped at $100k annualized
• Independent contractors are not employees
 Payroll is compensation, leave, benefits, state and local taxes but not payroll
taxes
 Independent contractors are not employees but can apply on their own
 For I/Cs, wages include self-employment earnings
 Excludes amounts over $100,000, payments to non US residents, Federal
employment taxes (to June 30), sick and family leave for which a tax credit is
available and payments to ICs

19. PPP - LOAN
FORGIVENESS
 Intent to is to incentivize the use the proceeds for 8 weeks of payroll
 Based on retaining or rehiring and maintaining salary levels
 75% of PPP must be used towards payroll costs (even though you are
closed)
 No more than 25% for non payroll costs (mtge interest, rent, utilities)
 Keep good records
 Forgiveness not taxable as income

20. PPP - LOAN
FORGIVENESS
Amount forgiven is reduced by:
 Reduction in number of employees
 Expected forgiveness amount times
 Average number of FTE employees per month the recipient employed
during the covered period / average number of FTE employees per
month that the company had from February 15 through June 30,
2019 or January 1 through February 29, 2020)
AND
 Reduction in total salary or wages of any employee during the covered
period in excess of 25% of the employee’s salary or wages during the most
recent full quarter prior to the covered period.

21. PPP - LOAN
FORGIVENESS
CALCULATION
 Amount of PPP Loan reduced by
 Amt used for other authorized purposes in excess of 25%
 Amt use for unauthorized purposes
 Amount not forgiven because of reduction in wages
 Annualized wages in 8 week loan period from Q-1 2020 > 25%?
 No forgiveness for wages less than 75% of Q-1 annualized wages
 Employee by employee calculation
 Percentage not forgivable based on unrestored reduction in headcount
 Numerator: Ave FTE for 8 week post loan period
 Denominator
 Ave FTE 2/15/2019 – 6/30/2019
 Ave FTE 1/1/2020 – 2/29/2020

22. PPP - OTHER TERMS
 Only one loan allowed
 Must be made before June 30, 2020
 First come first served
 6 months to start paying, but interest accrues during this 6 months
 High lender fees and high spread
 100% federal guarantee, no collateral, no personal guarantees,
 Lenders rely on borrower certifications
 Agent fees paid by the lender, not the borrower or from PPP proceeds

23. PPP – OTHER ISSUES
 Consultant fees paid by lender (not from proceeds)
 Certifications
 “…Current economic uncertainty makes this loan request necessary to
support the ongoing operations of the applicant
 The funds will be used to retain workers and maintain payroll or make
mortgage interest payments, lease payments, and utility payments; I
understand that if the funds are knowingly used for unauthorized purposes,
the federal government may hold me legally liable such as for charges of
fraud. As explained above, not more than 25 percent of loan proceeds may
be used for non-payroll costs…”

24. AFFILIATE RULE
 When one business controls another, the companies are affiliated for
purposes of the 500 employee rule
 Under 13 CFR §121.301 an equity holder with a power to control may be an
affiliate
 Protective provisions or veto rights in venture deals could trigger a finding of
control

25. AFFILIATE RULE AND
VENTURE BACKED
COMPANIES - ACG POLL
 77% reported the PPP exclusion would impact the survival of their business
 92% stated the PPP exclusion would result in employees being laid off
 More than 85% anticipate layoffs in the next month – of which 61% expect that to
occur in the next two weeks

26. MAIN STREET LENDING
PROGRAM
 Federal guarantees of loans to small and midsize US businesses
 Required due to exigent circumstances presented by the coronavirus pandemic
 Unsecured term loans to eligible borrowers after April 8, 2020
 Borrowers can have up to 10,000 employees or $2.5 billion in annual revenues
 Must be solvent
 In addition to PPP loans
 Minimum loan size of $1 million
 Cannot replace existing debt
 Must use reasonable efforts to maintain payroll and retain employees
 Numerous other restrictions

27. MAIN STREET LENDING
PROGRAM
 Adjustable rate
 4 year maturity
 P&I amortization deferred for one year
 No dividends on common
 No stock buybacks
 Employee comp must be capped

28. FAMILIES FIRST
CORONAVIRUS RESPONSE
ACT (FFCRA)
 FFCRA requires certain employers to provide employees with paid sick
leave or expanded family and medical leave for specified reasons related to
COVID-19
 Covered employers must provide to all employees:
 Two weeks (up to 80 hours) of paid sick leave when the employee is
unable to work because of COVID-19; or
 Two weeks (up to 80 hours) of paid sick leave at two-thirds regular
rate of pay because the employee is unable to work because of a bona
fide need to care for an individual subject to quarantine, or care for a
child whose school is closed or unavailable for COVID-19

29. A covered employer must provide to employees that it has employed for at least 30
days:
Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds
FAMILIES FIRST
CORONAVIRUS RESPONSE
ACT (FFCRA)

30. FFCRA – EXCEPTIONS
 Employers with fewer than 50 employees exempt from the FMLA Expansion
if providing the exemption would jeopardize the viability of the business.
 Records must be maintained by company but not sent to DOL

31. A refundable tax credit is allowed against the employer's portion of Social Security
taxes and is equal to
 100 percent of the qualified sick leave wages paid under the Emergency Paid
Sick Leave Act (EPSLA) and/or
 100 percent of the qualified family leave wages paid under FMLA Expansion
Applicable tax credits also extend to amounts paid or incurred to maintain health
insurance coverage.
FFCRA – TAX CREDITS

32. FEDERAL UNEMPLOYMENT
 $600 per week of Federal benefit on top of state unemployment
 39 weeks of coverage
 Remote workers not eligible
 Not eligible if you get paid sick leave or FMLA
 Not chargeable to employer experience rating
 Self-employed (independent contractor or gig worker) who are unable to work due
to COVID-19 may be eligible for UI benefits:
 UI Elective Coverage
 Past employer made contributions on over past 5 to 18 months
 Misclassified as an independent contractor instead of an employee

33. OTHER ISSUES
 Business Interruption insurance
 Review business continuity plans
 Ensure security procedures in place
 Talk to your banker

34. PAYROLL TAX CREDIT
 Refundable payroll tax credit for 50% of certain wages paid through 12/31/2020
 Available if operations have been
 fully or partially suspended as a result of government order limiting travel or
meetings, or
 significant decline in gross receipts
 Covers wages of furloughed employees or all employee wages for employers with
100 or fewer employees whether or not furloughed
 Covers wages and comp including health benefits
 Excludes wages used for credits for required paid sick leave or paid family leave
 If employment tax deposits do cover the credit, employer may receive advance
payment from the IRS on Form 7200
 FY 2020 employer payroll tax deposits delayed to end of 2021 and 2022
 payroll deposits delayed - 50% of 12/31/2021 and 50% on 12/31/22
unless PPP forgiveness
 Not available for employers receiving PPP assistance

35. PPP VS. TAX CREDIT
 If any portion of PPP is forgiven, no social security tax deferral
 Credit is 50% up to $10,000 per employee
 Reduced by sick and FMLA credit
 Forgiveness is up to $100,000 annualized comp per employee
 Forgiveness is tax free
 Payment is deductible

36. FEDERAL TAX CHANGES
 Modifications of Net Operating Losses
 5 year carryback of business NOLs arising in 2018, 2019 or 2020
 Eliminates excess business loss limitation rules
 NOLS prior to 1/1/21 can offset 100% of income (not just 80%)
 Business Interest Expense
 IRC 163(j) limited interest deductions to interest income plus 30% of AGI
 Percent limit increased to 50% of AGI for 2019 and 2020
 Taxpayer may use 2019 AGU in determining 2020 limit
 Qualified Improvement Property
 15 depreciable life,
 100% deduction in year placed in service
 Acceleration of AMT Credits
 Exclusion from income for up to $5,250 of student loans paid by employers
 2020 charitable contribution deduction limitation increased to 100%
 Suspension of 10% penalty for early withdrawals from retirement plans for corona virus
distributions
 Minimum distribution provisions suspended
 One time $1,200 recovery rebate for individuals; subject to AGI phase out
 Federal income tax filing date automatically extended from April 15 to July 15, 2020.

37. FEDERAL TAX REFUNDS
 Any individual earning less than $75,000 per year will receive $1,200 and couples
earning less than $150,000 per year will receive $2,400.
 Families will also receive $500 per child.

38. CALIFORNIA TAX
California does not automatically conform to Federal tax changes
NOLs:
disallows NOL carrybacks (with limited exceptions) for taxable years
beginning after December 31, 2018
There was never an 80% limitation
Because California never elected to conform to 163(j), the 30% never applied
(and neither does the 50% increase).

39. QUALIFYING
CORONAVIRUS-RELATED
DISTRIBUTIONS (QCDs)
Penalty-free withdrawals up to $100,000
Covers distributions from 401(k), 457, 403(b) and IRAs.
Includes adverse financial consequences as a result of being quarantined,
furloughed, laid off or having work hours reduced; being unable to work due
to a lack of child care as a result of COVID-19; or closing or reducing hours of a
business owned or operated by the individual due to COVID-19.
Income tax on the distribution may be paid over a three-year period;
Participants MAY repay the amount withdrawn within three years;
Repayments will not be subject to the retirement plan contribution limits; and
20% withholding is reduced from 20% to 10%.
All contribution sources (other than money purchase pension plan) will be
available.

40. CARES ACT EXISTING
LOAN PAYMENT
DEFERMENT
 Applies to loan repayments due between the date of enactment (March 27-
December 31, 2020)
 Permitted delay of one year
 Plan may increase the maximum loan limit for qualified participants to the
lesser of 100% of the participant’s vested account balance or $100,000 until
September 23, 2020

41. STATE TAX CHANGES
 Small business may defer paying CA sales and use taxes up to $50,000 for
12 months
 CA income tax Filing and payment deadlines from March 15 to June 15
moved to July 15, 2020.

42. CONTACT ROGER ROYSE
rroyse@rroyselaw.com
(650) 813-9700