Coronavirus Help for Small Businesses: The Cares Act

You may know that the majority of businesses in the United States are small businesses, but you may be surprised to learn the percentage of American companies that are small businesses: ninety-nine percent. Forty-eight percent of employees in the U.S. work for small businesses, and eighteen percent work for businesses with twenty or fewer employees.

What all of this means is that if American small businesses are devastated by the coronavirus pandemic, so is the American economy. It is in everyone’s best interest for the federal government to support small businesses at this time, and that is just what it is trying to do, via the Coronavirus Aid, Relief and Economic Security Act: the CARES Act.

In this blog post we’ll unpack how the CARES Act can help small businesses during this challenging time. The CARES Act can help you with funds to cover the cost of keeping your employees, offer a quick infusion of capital to help keep your business afloat, or help with debt relief, tax concerns, or general counseling.

The Paycheck Protection Program (PPP)

Who is eligible for PPP assistance? Small businesses, sole proprietorships, independent contractors, and certain self-employed individuals. Certain 501(c)(3) organizations and franchises will also qualify.

When can I apply and with whom? Small businesses can apply immediately. Sole proprietorships and independent contractors can start applying April 10. Contact your existing banking institution to see if they are participating. It appears that most lenders are requiring that you have an existing business relation with them as a condition.

How much of a loan can I get? How your loan is calculated will depend on your business’s circumstances, primarily your recent “payroll costs,” but the maximum loan is 10 million dollars.

What are the conditions of the loan? This program is designed to help employers keep employees on the payroll by offering them low interest (1% currently), 100% federally guaranteed loans, which may even be forgiven. PPP funds may be used to cover payroll expenses, including sick leave, vacation time, health benefits, retirement benefits, and state and local taxes on compensation; mortgage interest; rent; utilities; and interest on debt obligations incurred before the eligible loan period.

PPP loans are available through June 30 to businesses who suffered loss due to COVID-19 between February 15 and June 30, 2020.

PPP loans are available through June 30 to businesses who suffered loss due to COVID-19 between February 15 and June 30, 2020. The program features a minimum of six months, and a maximum of twelve months, of deferral. If the loan is not forgiven, the loan must be paid in full in two years. There are no SBA fees.

Will the loan be forgiven? There are certain conditions that have to be satisfied for the loan to be forgiven entirely. First, the same number of employees must be kept on the payroll for eight weeks (starting on the loan origination date) and their wages must not be reduced by more than 25%. Second, at least 75% of the loan funds must have been spent on payroll expenses. Fortunately, the program is retroactive to February 15, 2020, so that workers who may have been laid off early can be added back to the payroll.

Read more about the Paycheck Protection Program.

Emergency Economic Injury Grants and Economic Injury Disaster Loans

If your small business needs an infusion of cash on an emergency basis, you may qualify for an emergency economic injury grant (EEIG). The grants offer an emergency advance of up to $10,000 to small businesses and private non-profit organizations that have suffered harm due to COVID-19. The grants are supposed to be available within three days after applying for an Economic Injury Disaster Loan (EIDL) from the SBA.

In order to get the emergency advance, a business must first apply for an EIDL, then submit a request for an advance. Advance funds can be used for a variety of purposes, including keeping employees on payroll, paying for sick leave, paying business obligations like debt and mortgage payments, and addressing increased production costs related to disruptions in the supply chain.

Sole proprietorships, independent contractors, cooperatives and employee-owned businesses, and tribal small businesses are eligible for this relief, along with non-profits of any size. Small agricultural cooperatives and small businesses that meet size requirements also qualify.

Sole proprietorships, independent contractors, cooperatives and employee-owned businesses, and tribal small businesses are eligible for this relief, along with non-profits of any size. Small agricultural cooperatives and small businesses that meet size requirements also qualify.

Small Business Debt Relief Program

Under the Small Business Debt Relief Program, small businesses will be granted immediate relief for certain loan debt, including 7(a), 504, and microloans. For qualifying businesses, the Small Business Administration (SBA) will cover all loan payments, including principal, interest, and fees, for up to six months. In addition, new borrowers who take out such loans within six months of the bill becoming law will be eligible for relief. Disaster loans are not eligible for the Small Business Debt Relief Program.

If you are unsure whether you qualify for one of the eligible loan types, or need assistance applying for a loan, you may want to contact your nearest Small Business Development Center or Women’s Business Center.

Tax Provisions to Help Small Businesses

In addition to the measures above, the CARES Act contains tax provisions to help small businesses injured by the coronavirus pandemic.

The Employee Retention Credit offers a refundable payroll tax credit to employers who are subject to closure or experiencing economic hardship. The credit is for 50% of wages paid to employees by eligible employers, including certain nonprofits. The employer’s operations must have been partially or fully suspended due to a government order that imposed limits on travel, commerce, or group meetings. Employers whose year-over-year quarterly receipts show a greater than 50% reduction are also eligible.

For employers with fewer than 100 employees, all employee wages are eligible for the credit; for those with greater than 100 employees, the wages of those employees who were furloughed or had to take reduced hours are eligible. Covering wages and certain compensation, the credit is offered for the first $10,000 an employer pays to an eligible employee. Employers receiving funds through the Paycheck Protection Program are not eligible for the Employee Retention Credit.

Another provision of the CARES Act provides for a delay of payment of employer payroll taxes. Under this provision, a business or other eligible taxpayer can defer payment of the employer portion of some payroll taxes through the last day of 2020. Amounts that are deferred are split into two equal installment payments, payable at the end of 2021 and 2022.

The following payroll taxes can be deferred:

• Employer portion of FICA taxes;
• Half of SECA tax liability;
• Employer and employee representative portion of Railroad Retirement taxes (if attributable to the employer’s FICA rate).

As with the Employee Retention Credit, the delayed payment of employer payroll taxes is not available to taxpayers getting help through the Paycheck Protection Program.

Where Can I Find Information About Applying For These Programs?

Check out these resources from the resources from the U.S. Chamber of Commerce and the Small Business Administration to assist with calculating your possible loan amount and determining what other assistance is available to you.

You may also be interested in our blog post on the CARES Act and estate and tax planning.