What Does the COVID Stimulus Package Do for Small Business Owners?
The economic relief bill, called the “Coronavirus Aid, Relief, and Economic Security Act,” or the CARES Act, was passed by the Senate in a unanimous vote of 96-0 on March 25th. Two days later the House of Representatives approved the bill in a voice vote, and President Trump signed it into law.
A significant function of the CARES Act will be to expand the ability of the Small Business Administration (SBA) to issue loans to small businesses. A full $350 billion of the total $2 trillion stimulus package will go toward alleviating the impact felt by small businesses across the US in the form of federally-backed SBA loans. Businesses can use these funds to cover day-to-day costs, such as:
- Employee benefits
- Business insurance
- And other operating costs
Who is eligible to receive funding? Under the new program enacted by the CARES Act, any business with a total of 500 employees or fewer (including part-time and others) can apply for a loan. Solo-entrepreneurs, contractors, freelancers, and other independent business owners may also be eligible for a loan if they can provide the necessary documentation showing that they are a legitimate and active business.
The Paycheck Protection Program
One of the most important aspects of the relief package is known as the Paycheck Protection Program (PPP). This program allows small businesses impacted by the coronavirus pandemic to apply for a special forgivable loan of up to 250% of their monthly payroll costs, for a total loan amount of up to $10 million. Businesses can then use these funds to continue paying employees during the shutdown period and also keep up with other monthly payments, such as rent, utilities, and so on. The total amount of the loan used for these and other eligible expenses may be forgiven after an eight-week period.
As of April 22, 2020, the federal government allocated an additional $320 billion for the PPP. However, many businesses are rushing to apply for Paycheck Protection loans and the funding will soon run out. If you haven't already, check with your local SBA-approved bank or small business lender to submit an application and find out the most up-to-date information.
If you want to learn more about the Paycheck Protection Program, read this FAQ from the US Senate Committee on Small Business and Entrepreneurship.
Find an SBA-approved lender in your area: The SBA has created an interactive map where you can look up SBA-approved banks and other organizations who can help you apply for a Paycheck Protection Program loan.
SBA approved lenders began processing loan applications for the Paycheck Protection Program on April 3, 2020. To learn more, visit the Paycheck Protection Program page on the SBA website. The deadline to apply for a loan under the Paycheck Protection Program is June 30, 2020.
Businesses can also immediately apply for an Economic Injury Disaster Loan advance of up to $10,000, which will not have to be repaid.
You can apply online at the SBA Disaster Loan Assistance Portal. Alternatively, you can apply over the phone by dialing 1‐800‐659‐2955. Bear in mind that many other businesses are presently undergoing hardship due to COVID-19, so expect delays when contacting the SBA or using their online portal.
Additional Benefits of the CARES Act
In addition to allocating $350 billion for small business stimulus loans, the CARES Act includes other important provisions which are intended to help business owners:
- Businesses that currently have an SBA loan are able to defer payment for six months to one year. During this time, interest is not accrued.
- Loan forgiveness terms and conditions are more lenient so as to favor business owners.
- Some SBA loan fees are waived, making it easier for businesses to apply for a loan.
- Certain eligibility requirements are waived so that the funds can be made available to more businesses.
- The SBA loan limit for a single business is increased from $350,000 to $1 million for the remainder of 2020 and possibly into 2021.
- All lenders would be required to assess the risk of loans granted under the expanded SBA program at 0%, due to the loans being backed by the federal government.
Specific to the SBA Disaster Loan Program for the remainder of 2020:
- Business owners who borrow $200,000 or less will not need to personally guarantee the loan. This means that the individual business owner’s assets will not be at risk if the business defaults on the loan.
- Businesses no longer need to have been operating for more than one year in order to be eligible. They simply must have been in operation on or before January 31st, 2020.
- Lenders are allowed to approve loans based solely on a business owner’s credit score or another reasonable method that shows their ability to repay the loan. It is not required to submit a prior year’s tax return to be considered eligible for a loan.
The US government has taken swift action to respond to the COVID-19 crisis by putting together an economic stimulus package that will help small businesses remain in business. Below are the key takeaways business owners should know:
- The Paycheck Protection Program was specifically designed to help small business owners stay in business and keep their employees. Eligible borrowers can receive a forgivable loan for up to 2 months worth of operating expenses.
- More money available for small businesses. The SBA is now authorized to back up to $349 billion of small business loans.
- These funds are easier to access and have more favorable conditions for small business owners. Loan eligibility requirements have been reduced, and the loan forgiveness program has been adjusted in favor of businesses.
- Lenders are mandated to assess these loans at 0% risk. This means that, because the federal government is backing the loan, lenders will be able to much more easily and freely loan out money to businesses that have been negatively impacted by the widespread effects of coronavirus.
Specific Benefits for Brand New Businesses (opened in 2019)
The CARES Act includes important benefits that make it easier for new businesses to remain in business in spite of the impact of the coronavirus on the global economy. As mentioned above, under the SBA Disaster Loan Program, businesses are no longer required to show that they have been actively operating for a full year in order to be eligible to receive a loan. Instead, they simply need to have been in operation since at least January 31st, 2020.
Employee Retention Credit
Aside from the expanded SBA loan program, the CARES Act also aims to help small business owners through a payroll tax credit. The payroll tax credit would equal 50% of qualified wages paid after March 12th, 2020, until the end of the year, up to $10,000, or a maximum credit of $5,000 per employee.
In order to be eligible for the credit, businesses would need to show at least a 50% drop in gross receipts for a 2020 calendar quarter compared to the same quarter in 2019. Once a business’ gross receipts recover to 80% of the previous year, they are no longer eligible for the credit.
Coronavirus Small Business Relief
To learn more about resources and opportunities for your business, visit our comprehensive guide to COVID-19 relief for small businesses and entrepreneurs. There you can find the latest information on federal relief programs, as well as specific business assistance programs in your home state. You’ll also get tips for how to best handle the coronavirus crisis to keep your business alive and thriving.