PRUETT: Teams race to secure coronavirus stimulus aid

PRUETT: Teams race to secure coronavirus stimulus aid

Insights & Analysis

PRUETT: Teams race to secure coronavirus stimulus aid

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The survival of your favorite American racing teams could rest in the hands of the $2 trillion stimulus package signed into action by President Trump on March 27.

In the days since the stimulus package was approved, most teams, which function as small businesses, have spent untold hours in communication with their lawyers and financial advisors to gather the information needed to apply for payroll loans.

The new ‘CARES’ act (Coronavirus Aid, Relief, and Economic Security), which runs through the Small Business Administration government agency (SBA), is designed to reduce the escalating number of unemployment claims being filed during the COVID-19 pandemic.

By allocating funds to small businesses to cover salaries for those who are unable to work during the various shelter-in-place orders and social distancing guidelines, the government has incentivized small businesses to seek assistance in paying their workforce while normal methods of generating income have been compromised.

Through CARES, $349 billion has been set aside under section 7(a) of the SBA program, the Paycheck Protection Program (PPP), and for the businesses whose loans are approved, the funds could make the difference between successfully weathering the pandemic and facing bankruptcy.

Limited to businesses with 500 employees or less, CARES PPP offers two loan options. Based on calls with numerous teams, the second plan, which provides 2.5 times a businesses’ average monthly payroll costs, is where the majority of teams spanning IndyCar, NASCAR, IMSA, and other championships will focus their energies.

Those teams will also have competition from every other small business in the country, leading to an inevitable stampede once the SBA has the program up and running.

CARES PPP places a cap on salary reimbursements at $100,000, which is not a problem for most race team employees, but for ownership, senior management, and some engineers who earn more than $100,000 per year, plus the small number of drivers who are hired directly by their teams, the CARES act does not apply.

As some teams across the sport have implemented company-wide pay cuts of 20 percent or more to keep from going under, bigger cuts, likely of the temporary kind, could be asked of those who are over the $100,000 threshold in order to include their income in CARES PPP filings.

The new stimulus package could be a lifeline for smaller teams. Image by LAT

To apply for payroll relief, teams will need to work through a list of approved banks and lenders listed by the SBA. Once they’ve secured a meeting, three pieces of information will need to be exchanged by handing over their most recent quarterly tax form, payroll expense documentation, and their current financials – a profit/loss balance sheet. With the application forms completed, loan officers will file the paperwork with the SBA.

Although there is still no firm timeline for a nationwide return to work, the CARES program could satisfy the greatest area of team expenditures through the early stages of summer.

Of note, an approved CARES PPP loan has one specific trigger that has caught the attention of the racing industry, and all others who’ve read through the 800-plus page document.

If a small business proves the money was used for payroll, rent, utilities, or any mortgage interest for eight weeks from the date of the loan, the need for repayment will be waived. Simply put: For those who honor the intent of the program to keep employees on their payroll, CARES PPP is a pathway to free money to replace all of the sponsorship dollars, funding from paying drivers, and income from special projects that will be lost while engines have gone silent. For teams who elect to spend loan dollars outside of payroll and the other areas listed, repayment is required.

One potential drawback is the time required for the program to be implemented. In the world of American racing, teams are staged and ready to visit their local banks and file the paperwork once the SBA is prepared to handle the massive influx of PPP requests. The submission process could start later this week, but no hard date on CARES PPP’s commencement has been provided so far.

It’s an obvious thing to say, but as anxiety continue to build at shops and racing companies based in Indianapolis, Charlotte, and everywhere else throughout the country, small businesses can’t wait to receive the green light to apply for CARES loans.

The SBA has also added a wrinkle that could add speed to the process by granting some lenders the authority to approve PPP loans on the spot and without additional oversight. In those cases, relief could be swift, as the SBA lists payment turnaround times as taking between five and 10 days.

CARES PPP should be a lifeline to our sport. By lacking the steady income to settle the nerves of wary banks, standard loans have been nearly impossible to secure. In offering payroll protection, dozens of at-risk teams should remain on the grid, provided their loans are approved. The same is true for vendors and businesses that support motor racing.

It’s also possible some teams and racing companies will be declined assistance, and in those instances, farewells could be arriving in the coming weeks and months.

Before we consider the doom and gloom, let’s place our faith in a funny acronym and hope it brings security to racing’s infirm. The race to get a slice of the $349 billion is about to begin.

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