On March 27, 2020, just a week ago at this writing, the Congress passed and the president signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act.” Coming in at $2.2 trillion, it is the largest relief bill in the nation’s history. In addition to myriad types of financial help for everything from hospitals to individuals, the CARES Act provides several financial relief opportunities for small businesses. Since cooperative apartment buildings and condominium complexes are, in fact, businesses, and usually small ones, following is a summary of CARES Act provisions for which they may qualify.
The impact of COVID-19 cuts across all occupations, and levels of work within them. While some professions allow working from home, the majority do not. And even within the “white collar” world, shake ups and downsizing are occurring. A friend who is a senior vice president for a large national association just received a company-wide email from the organization’s CEO with the news that all employees would have a 25 percent pay cut effective immediately.
Clearly, my friend is not alone, nor are a great many co-op shareholders and condominium owners. The extent to which the coronavirus may impact them will depend on future developments, which are highly uncertain and cannot be predicted with confidence. With unemployment rates reaching historic levels, cooperatives/condominiums primary source of revenue and cash flow could be negatively impacted by owners of units and shareholders inability to pay monthly maintenance, common charges, assessments and other monthly charges.
One of the operative words of this crisis is “forgiveness,” as in requests for, say, 90 days of forgiveness on mortgage payments for condominiums, or condo maintenance fees, or monthly payments on cooperative apartments and other expenses. When forgiveness is given, it will create a revenue shortfall. That, in turn, not only negatively impacts the whole operation’s financials, it affects the members of its workforce. Most of these workers have been ordered not to report for work, and few if any can do their job from home.
So, what can the managers and board members of condominiums or cooperatives do? First, they need be aware of provisions in the CARES Act, two in particular, that might offer some relief—one for co-op/condo employees, and one for the organization’s financials. The second thing to do is: be prepared to act once the details of getting the relief from these provisions are finalized and made public. First, the two provisions.
Paycheck Protection Program.
The CARES Act “Paycheck Protection Program” is part of the Small Business Administration (SBA) 7(a) Loan Guarantee Program. Most co-ops and condos should meet the requirement that organizations have fewer than 500 employees (including full-time and part-time), and were in operation before February 15, 2020. Loan amounts are up to $10 million, or 2.5 times average total monthly payroll costs. Lenders in this program will not ask for personal guarantees or that collateral to be pledged. There’s also no requirement that co-ops or condos show that they could not obtain credit elsewhere, however, they must not have applied for or be a recipient of loan funds for similar purposes during the period of 2/15/20 – 12/31/20.
Funding obtained from the Paycheck Protection Program is to be used for payroll costs such as: salaries, wages, vacation, parental, medical, family, and sick leave (unless previously qualified for family and/or sick leave under Families First Corona Response Act, sections 7001 & 7003). Good news for co-ops and condos is that funding can also to be used for mortgage obligations/lease payments/utilities.
One proviso that should affect few if any co-op/condo employees is that these funds cannot be used to compensate individuals with an annual salary exceeding $100K, nor employees with a principal residence outside of the U.S., nor for wages already covered by the Families First Corona Response Act.
The Paycheck Protection Program also provides qualifying co-ops and condos loan forgiveness for a period of 8 weeks, starting from the origination date of the loan. Loan forgiveness cannot exceed the principal amount of the loan, and it will be reduced if there is a reduction in number of employees compared to prior year. Or, if there is a reduction in wages to any employee of 25 percent as compared to prior calendar quarter.
However, co-ops and condos that re-hire workers laid-off as a result of the crisis will not be penalized for the reduced payroll. Finally, they must apply for loan forgiveness to lenders by submitting required documentation and will receive an answer within 60 days of application. (See “Being Prepared” below.)
Economic Injury Disaster Loan Program, or EIDL
Designated as Section 1110 of the CARES Act, EIDL provides the opportunity for co-ops and condos to obtain these loans with some provisions eased. The opportunity is applicable, again, to all organizations with 500 or fewer employees—which would be most co-ops and condos—and EIDL loan amounts are available in amounts up to $2 million.
This CARES Act version also expands eligibility for EIDL Loans and waives standard EIDL program requirements, including: a personal guarantee, proof that the business was in operation for one year prior to the disaster, and that the borrower had been unable to obtain credit elsewhere. And even if a co-op/condo is receiving emergency SBA 7(a) Paycheck Protection Program loans, they are still eligible for EIDL loans, provided the funds are not used for the same purpose.
In addition, if a co-op or condo needs a quick infusion of cash, a “$10,000 Emergency Advance” under the EIDL Grant Program is available within 3 days of applying. Funds from the advance can be used for payroll, rent/mortgage, materials, repaying other loans. Also, if the co-op or condo applying for the full EDIL loan is eventually denied, then they don’t have to pay back the $10,000 advance.
Being Prepared to Apply—Get Started NOW!
While the acceptable documentation for loan approvals is still being determined, starting today, April 3, 2020, co-ops and condos can start applying for the benefits just described. So, to help prepare for the application process, we recommend that the Association/Managing Agent gather the following information as quickly as possible:
- 2019 IRS Quarterly 940, 941 or 944 payroll tax reports.
- Last 12 months of payroll reports beginning with your last payroll date and going backwards 12 months (e.g. gross wages for each employee, paid time off for each employee, vacation pay for each employee).
- Documentation showing total of all health insurance premiums paid by the Association if applicable.
Document the sum of all retirement plan funding that was paid by the Association (do not include funding that came from the employee’s paycheck deferrals).
You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit here for a list of SBA lenders.
Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan. We also encourage you, as you pursue these CARES Act benefits, to access the services of firms such as ours with expertise in co-op and condo issues. It’s what we do to help what you do. And it is my specialty at Prager Metis CPAs. So, do not hesitate to email me at email@example.com, or give me call and we’ll get you started.