How the CARES Act Can Help Small Businesses

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Please visit our COVID-19 resources page with more information for business owners and employees.

On Friday, March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act into law. 

This bill includes financial assistance opportunities to those struggling due to COVID-19. 

In this article, we’ve broken down the section about small business loans to help you understand if your business could benefit from these provisions in the CARES Act.

Paycheck Protection Program

The CARES Act will provide loans and financial assistance to small businesses impacted by the COVID-19 pandemic. Through this new loan program, businesses have the opportunity to apply for a federal loan to help make payroll, mortgage, lease, and utility payments. 

Loan eligibility

In order to be eligible for a loan, a business must:

  • Have fewer than 500 employees
  • Have been in operation on February 15, 2020
  • Have paid employees or 1099 contractors 
  • Make a “good faith certification that the uncertainty of the current economic conditions are making a loan necessary and it’s necessary to support the business’s ongoing operations.”
  • Acknowledge funds will be used to retain employees, make payroll, and pay a mortgage, lease, or utility payment
Loan amounts

Loan amounts can be up to 2.5 times the business’ average monthly payroll for the last 12 months, not exceeding $10 million. This loan program has a few notable benefits, including non-recourse loans, no personal guarantee needed, no required collateral, no fees, and no obligations to seek other loan sources. 

Loan forgiveness

A highlight of the bill for many business owners is it includes loan forgiveness for the amounts used for payroll, mortgage, and lease payments. A portion of the loan could be forgiven for:

  • Payroll costs for compensation under $100,000
  • Interest payments on mortgages, rent payments, and utility payments between February 15 and June 30, 2020

One provision to be aware of: loan forgiveness will be reduced if the business has a reduction of employees or payroll of more than 25 percent as compared to the previous year.

Loan details

Here are a few more key details on SBA loans:

  • The loan period is February 15, 2020 through July 30, 2020
  • Interest rates will not exceed 4 percent 
  • Payments are deferred for six months

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans through existing SBA lenders. Click here to view the loan application and visit sba.gov for a list of SBA lenders. For more information about the Payroll Protection Program, view this fact sheet from the U.S. Department of the Treasury. 

There have been multiple updates to the Paycheck Protection Program since this blog was posted. 
  • For general PPP updates, read this blog.
  • For updates to the loan forgiveness application, visit this blog.

Economic Injury Disaster Loans (EIDL)

The Small Business Administration (SBA) is offering up another solution for businesses to get financial assistance by loosening its requirements to get emergency funding under their EIDL program. The EIDL program provides low-interest loans to help businesses in time of disaster. 

Here are a few of the loan details:

  • Loans can be up to $2 million
  • Fixed interest rate of 3.75% for small business and 2.75% for non-profits
  • Repayment over 30 years 
  • Principal and interest deferred up to four years
  • No personal guarantees for loans under $200K
  • $10,000 emergency grant cash advance, which can be forgiven if used for paid leave, payroll, and mortgage or lease payments

There aren’t many eligibility requirements for EIDL loans; they can be approved based solely on the applicant’s credit score.

Tax relief

There is also a tax relief option available for small businesses under the CARES Act. Businesses can choose to participate in either the paycheck protection program or the tax relief program, not both. Here’s what you need to know about tax relief:

Employee Retention Tax Credit

Through the CARES Act, businesses can apply for an Employee Retention Credit, which is a fully refundable 50% tax credit applicable to the employer’s share of payroll taxes on wages paid between 3/13/20 and 12/31/20, up to $5,000 per employee. 

A business may be eligible for the credit if:

  • It had to suspend operations due to COVID-19-related orders
  • Their gross receipts declined by > 50 percent as compared to the same quarter in the prior year
Social Security Tax Deferral

Businesses who do not take part in loan forgiveness from the Payroll Protection Program are eligible for deferred payments on their payroll taxes. This program allows businesses to delay the employer portion of Social Security taxes from March 27, 2020 to January 1, 2021. Half of the deferred amount will be due by December 31, 2021 and the other 50% is due by December 31, 2022.

H.R. 6201 Tax Credits

There are also tax credits available to employers who must follow the expanded FMLA and emergency paid sick leave requirements set under H.R. 6201. We’ll have more info to come about how those credits work.

Choosing Assistance For Your Business 

Businesses cannot participate in all the assistance programs listed above simultaneously, so you’ll need to decide which option best fits your needs. Here are a few stipulations to be aware of:

  • If you obtain one of the new SBA loans, you are not eligible for the 50% employee retention tax credit, and vice versa.
  • If you have a new SBA loan forgiven, you cannot take advantage of the Social Security tax deferral, and vice versa. 
  • If you already have an EIDL, you can still apply for the Payroll Protection Program but the loans must be used for different purposes.

You should carefully evaluate your eligibility for and the benefits of each of these options, since the amount of assistance provided by the federal government could vary depending on which path you choose. 

We’re waiting on more guidance from the SBA on how our clients can apply for certain assistance programs. We’ll update this blog as we know more.

If you have questions about the relief programs and how this bill could impact your business and your employees, contact your HR business partner or call us at 888.811.5150. We’re happy to help! 

For more info on how the CARES Act could affect workers, check out our next blog.

To find more resources on COVID-19, check out our resources page.

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