In the midst of the COVID-19 pandemic, many small businesses are wondering how they’ll continue to make ends meet and keep your business afloat. Many of you have had to shut down indefinitely. Others are open but at a lesser capacity. And even those who are still able to operate business as usual, it’s likely that sales are significantly down.

In what is one of already many steps the federal government has taken to help alleviate the financial burdens for small businesses, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in late March, 2020. We’ve put together this guide for the small businesses on the CARES Act to provide another resource for our customers and readers to use through this difficult time. Check out our other guides or reach out to us for more information.

Infographic guide to the CARES Act for small business owners

What Are the Goals of the CARES Act?

The CARES Act is the first part of the stimulus package that the United State Congress has passed to provide aid for its citizens and businesses. Totaling about $2 trillion, the relief package allocates $350 billion to small businesses. The United States Small Business Association (SBA) is in charge of accepting and processing all small business applications.

There are various arms of the program that are catered to specific needs from businesses. Not every business will need to apply for aid, and many more won’t need to apply for every item offered.

Learn more about the specifics below so you can better determine your next course of action. For more advice, contact your local SBA office. States have already approved their businesses to apply for disaster relief funding. For the most up-to-date info, you can also follow your local office’s Twitter account.

Paycheck Protection Program (PPP) Loans for Small Businesses

The first part of the CARES Act plan offers small businesses direct loans of up to $10 million. Apply for these loans to get started. This is a one-time loan application opportunity for small businesses, starting April 3, 2020 and ending June 30, 2020.

The PPP will also forgive all loans for those business owners who were able to continue paying their employees for eight weeks throughout this pandemic. The money, however, must be spent directly on payroll, rent, mortgage interest, or utilities.

Who Can Qualify?

  • Small business must have fewer than 500 employees
  • Must have been in operation on February 15, 2020
  • Includes sole proprietorships, independent contractors, self-employed individuals, 501(c)(3) nonprofits, 501(c)(19) veterans organizations, and Tribal businesses
  • There are possible size standard exceptions that are based on industry type

How Does the Loan Work?

  • Small businesses can apply for a loan of as much as 2.5x their average monthly payroll costs This number cannot exceed $10 million
  • Interest rates are set at 4% or lower
  • Any loans that must be repaid can be deferred for up to 6 months
  • The loans require no personal guarantees or collateral
  • Loan amounts cannot be used for the same costs as any other SBA loan currently held

What Costs Are Excluded?

  • Salaries that exceed $100,000 are excluded
  • Federal payroll taxes, railroad retirement taxes, and income taxes for workers who don’t live in the U.S. are also excluded from the total payroll amount
  • Any credit already received from the Families First Coronavirus Response Act

What Costs Can Be Included Aside From Direct Compensation?

  • Contract work, even if part-time, is included in the final total
  • All sick, vacation, parental, family, and medical leave
  • Payment for insurance premiums
  • Any money allocated towards retirement benefits, as well as state or local taxes assessed on employee compensation can also be included
  • Commissions
  • Interest on a mortgage
  • Rent
  • Utilities
  • Any other interest on debt obligations

How Does the Loan Forgiveness Work?

  • Loans can be refunded if the business paid their employees in full for at least 8 weeks after receiving the loan
  • The loan must have been used for payroll costs, mortgage interest, rent and/or utilities
  • Only a portion of the total will be forgiven if a business reduces its number of employees or reduces any wages by more than 25% for those earning less than $100,000
  • For any reduced wages, businesses must return all employees to their original salaries by June 30
  • Businesses must apply for forgiveness through the same lender that offered the loan
  • A business must provide documentation verifying all payroll, pay rates, payroll taxes, and payroll and unemployment insurance
  • Businesses must also provide any mortgage, lease, and utility documents
  • A person at your business must verify the authenticity of all claims

How Do Small Businesses Apply to the Paycheck Protection Program?

Typically, any loans issued from the Small Business Administration are given from a specific handful of approved banks. Regulations are reduced in this case of emergency.

The SBA is accepting applications from small businesses and sole proprietorships on April 3, 2020, and from independent contractors and self-employed persons beginning April 10, 2020.

Most businesses will need to show how long they’ve been in existence, where they are located, and exactly how much payroll costs are.

The more prepared your business is, the faster you’ll receive the loans. The Treasury Department plans to start distributing the loans by the end of the first week of April.

Small Business Debt Relief Program

In addition to offering new loans, the SBA will also be granting relief for businesses that currently have non-disaster SBA loans. The SBA has said it will cover all payment of these loans, including their principal, interest, and fees, for the next 6 months. All relief will also apply to any non-disaster loans taken out within the next 6 months.

What Loans Qualify?

Any loan that is not part of the PPP discussed above or any other disaster loans qualify for the debt relief program. 

How Can Small Businesses Apply?

Check to see if you’ve already applied and qualified for a 7(a) loan (for those that lack credit), 504 loan (used for expansion or modernization) or a microloan (for startups). These are the three types of non-disaster relief loans that small businesses may be exempt from paying over the next 6 months. 

Businesses must meet the same size standards that apply to the PPP loan.

SBA Economic Injury Disaster Loans (EIDL) & Emergency Economic Injury Grants

EIDL are available for small businesses that have suffered substantial financial injury. These loans come with lower interest rates and can total as much as $2 million.

The grants provide emergency advance payment for small businesses and private non-profits that have applied for SBA disaster loans. The advance can cover up to $10,000 of the loan.

Small businesses must first apply for the EIDL and then separately request the advance. The advance does not need to be repaid, no matter the eventual circumstances of the loan forgiveness mentioned as part of the PPP.

What Can the Loan Be Used For?

EIDL can be used for any expenses that would have been able to be paid had the disaster not occurred. This includes payroll, but also any other business operating expenses.

Who Can Apply?

This loan contains the same criteria as the PPP.

Who Can Receive the Grant?

Any business that has been in operations since January 31, 2020 and also applied for the EIDL.

Can Businesses Get Both a EIDL and PPP Loan?

Yes, businesses can apply to receive both. Any advance given as an emergency grant will be subtracted from the total PPP loan amount.

Small businesses also cannot use the loans for the same purposes. For instance, a business cannot combine both loans for payroll for the same month.

How Do Businesses Apply for EIDL and Emergency Economic Injury Grants?

Go the SBA to apply. Again, the same criteria for eligibility as was required for the PPP loan applies here.

The SBA also has a guide for finding contact information for local SBA offices.

2020 Business Tax Changes for COVID-19

The U.S. government has also made amendments to the 2020 tax requirements for small businesses.

  • First, they’re offering an employee retention credit for any small business that is closed or impacted negatively by the COVID-19 pandemic. 
  • More specifically, this applies to businesses that have seen a greater than 50% reduction in this quarter’s revenue (compared to that of 2019).
  • It offers a refundable payroll tax credit for 50% of wages paid to employees up to the first $10,000 paid by the business. The eligible wages must be paid between March 13, 2020 and December 31, 2020.
  • This tax credit is NOT eligible in conjunction with the PPP.
  • Additionally, payroll taxes can be deferred. These include the employer portion of FICA taxes, the employer and employee portion of Railroad Retirement taxes and half of SECA taxes.
  • Again, deferral is not available for businesses that have applied for and received a PPP loan.
  • Deferred payments must be repaid in half by December 31, 2021 and the remainder by December 31, 2022.

Learn More About Small Businesses Resources During COVID-19

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We’re all in the same boat, so let’s work together to get through this crisis and back in business.

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