Small Business Owner’s Guide to the CARES Act

March 29, 2020

On Friday, March 27, 2020, Bill H.R. 748, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the House and signed into law. The $2 trillion coronavirus rescue package includes many different elements to assist individuals, small businesses and hospitals on the front lines. Full text of the bill. NOTE: What appears below is the Chamber’s best research on the subject at the time this post was published.

Let’s get into the impact for small businesses:
Financial Options for Small Businesses
Other Important Business Provisions


Overview

Two main funding options are outlined in the CARES Act, however additional programs are available to help support businesses.

  1. Economic Injury Disaster LoansExpanded | $10 billion
  2. Paycheck Protection Loan GuaranteeNew | $350 billion

With the passage of the CARES Act, the existing SBA Economic Injury Disaster Loans (EIDLs) program is modified to meet the unique needs of business owners during the pandemic. In addition, there is a NEW loan program to help small businesses – Paycheck Protection Loan Guarantee (more below).

Helpful articles
U.S. Chamber of Commerce | Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know
Forbes | Getting Cash For Your Small Business Through The CARES Act
Forbes | Your Guide To The Federal Stimulus Package
Forbes | What You Need To Know About Expanded Unemployment Benefits For COVID-19

Financial Options for Small Businesses

A great resource from the U.S. Senate Committee on Small Business and Entrepreneurship – The Small Business Owner’s Guide to the CARES Act [PDF]  

Do you need:

      • Capital to cover the cost of retaining employees? Then the Paycheck Protection Program might be right for you.
      • A quick infusion of a smaller amount of cash to cover you right now? You might want to look into the $10,000 emergency grant cash advance available through the SBA Economic Injury Disaster Loan program.
      • To ease your fears about keeping up with payments on your current or potential SBA loan? Speak with the Northwest Colorado Small Business Development Center (SBDC) about the Small Business Debt Relief Program.
      • Quality, free counseling to help you navigate this uncertain economic time? Speak with the Northwest Colorado Small Business Development Center (SBDC) about local consulting options.

Economic Injury Disaster Loans

How to Apply for an SBA Disaster Relief Loan via the U.S. Chamber of Commerce

Lender: Direct through the Small Business Administration | Application

The SBA’s Economic Injury Disaster Loans (EIDLs) are part of an existing program that makes loans available in the event of a disaster. The CARES Act made several changes to expand the program due to the COVID-19 pandemic.

EIDL Terms 

  • Loans are up to $2 Million
  • The term is 30 years
  • Interest Rates are 3.75% for small business (2.75% for non-profits), and 
  • The first month’s payments are deferred a full year from the date of the promissory note. 

CARES Act changes

  • EIDLs can be approved by the SBA based solely on an applicant’s credit score (not on repayment ability and no tax return is required). A prior bankruptcy doesn’t disqualify you.
  • EIDLs less than $200,000 can be approved without a personal guarantee. They are also not requiring real estate as collateral and will take a general security interest in business property. 
  • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss. 
  • It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s. FYI: The Basalt Chamber is a 501(c)(6).

The $10,000 emergency cash grants are interesting – applicants can get the emergency cash even if they don’t qualify for additional funds. The review process should go quickly as lending decisions are based on self-certification and the applicant’s credit score. CARES also waives the requirement that you be unable to obtain credit elsewhere, meaning you can apply even if you already have a credit line.

Apply for these loans directly through the SBA at www.SBA.gov/disaster.  There are no loan fees, guarantee fees or prepayment fees. As of now, the site is still being updated, so you may have to wait a few days to start. When the application is up and running, make sure to apply for Economic Injury for the Coronavirus, rather than physical damage due to another disaster (that is a different declaration number). 

Paycheck Protection Loan Guarantee – NEW!

Lender: Direct through a local lender via the SBA | Local Approved Lenders 

Paycheck Protection Program Loan Guide and Checklist [PDF] – U.S. Chamber of Commerce

The SBA’s Paycheck Protection Program (PPP) Loan Guarantee program backs small-business loans through local lenders. The SBA is currently working with expand the number of lenders, and we fortunately have many located here in the valley

Eligibility

  • A small business with fewer than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) nonprofit with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on any trade or business 
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard

NOTE: The 500-employee threshold includes all employees: full-time, part-time, and any other status. Applications need to have been in operation before February 15, 2020.

PPP Terms 

  • Loans can be up to 2.5x the borrower’s average monthly payroll costs, not to exceed $10 million. See Section 3 for a worksheet.
  • The maximum interest rate under this program is 4% 
  • The loan term is up to 10 years
  • No personal guarantee or collateral is required for the loan
  • Payments are deferred up to six to 12 months 
  • Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first week on operating expenses. 

Loan Forgiveness

Loans are forgiven when the proceeds are used for any of these costs: 

  • Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000
  • Rent pursuant to a lease in force before February 15, 2020
  • Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020 
  • Group health insurance premiums and other healthcare costs.

CAUTION: In order for the amounts to be forgiven, you must maintain the same number of employees from February 15, 2020 through June 30, 2020, as you did during either the same period in 2019 (2/15/20 – 6/30/19) or from January 1, 2020 until February 15, 2020. If you don’t meet this requirement, the amount forgiven is reduced. You incur additional reductions if you cut compensation for employees who make under $100,000 by more than 25%, as compared to the most recent quarter. (The US Chamber of Commerce offers a step-by-step calculation here). 

EXCEPTION: if you rehire employee that you previously laid off, or restore any decreases in wages or salaries that were made at the before the period began (2.15.20) by June 30, 2020, you will not be penalized for having had a reduction in employees or wages. 

Other Important Business Provisions

Unemployment Insurance | $260 billion

Forbes | What You Need To Know About Expanded Unemployment Benefits For COVID-19

  • Regular state unemployment eligibility has been expanded by an additional 13 weeks, for a total of 39 weeks
  • Workers will be eligible for a $600 weekly boost on top of regular state unemployment benefits 
  • Expands unemployment insurance to those who don’t typically qualify: Gig workers, freelancers, self-employed are eligible
  • Workers can get company benefits and UI
  • Generous sick pay and family leave might be available first 

Business Tax changes

Via the U.S. Chamber of Commerce | Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know

The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19. These changes include:

  • Businesses are eligible for an employee retention tax credit if 1.) your business operations were fully or partially suspended due to a COVID-19 shut-down order; or 2.) gross receipts declined by more than 50% compared to the same quarter in the prior year. Eligible businesses can get a refundable 50% tax credit on wages up to $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020.
  • Businesses and self-employed individuals can delay their payroll tax payments. These payments, the employer share of Social Security tax owed for 2020, can instead be deferred and paid over the next two years. Fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022. (Note: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)
  • Businesses that have net operating losses (NOLs) have some limitations relaxed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can be now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
  • Businesses that were due to receive corporate alternative minimum tax (AMT) credits at the end of 2021 can instead claim a refund now, in order to improve cash flow during the COVID-19 emergency.
  • Businesses will be able to increase their business interest expense deductions on their tax returns. For 2019 and 2020, the amount of interest expense businesses are allowed to deduct on their tax returns is increased to 50% from 30% of taxable income.
  • Businesses, especially those in the hospitality industry, will be able to immediately write off costs associated with improving facilities, increasing cash flow.
  • The government will make a temporary exception from the excise tax normally applied to alcohol, if that alcohol was used to produce hand sanitizer in 2020.

Many of these changes will apply to small businesses all over the country, so it is vital to discuss with a tax professional which can apply to your company.

Updates to paid sick/FMLA

Via the U.S. Chamber of Commerce | Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know

The CARES Act makes small changes to the Families First Coronavirus Response Act (FFCRA) in regards to paid sick leave, paid FMLA and more. These changes include:

  • Paid family and medical leave (FMLA) under the FFCRA is capped at $200 per day and $10,000 total per employee.
  • Paid sick leave under the FFCRA is capped at $511 per day and $5,110 total per employee. This amount drops to $200 per day and $2000 total for sick leave taken by an employee in order to care for a family member in quarantine or care for a child whose school has closed.
  • Workers that were laid off after March 1, 2020, but then rehired, are eligible for paid FMLA leave provisions described in the FFCRA immediately instead of needing to be an employee for 30 days.
  • Businesses can keep money that they would have deposited for payroll taxes in anticipation of refunds from the Treasury Department for paid sick leave and paid FMLA leave outlined by the FFCRA, including amounts that would have been refunded later.