The majority of businesses in the United States are small businesses and the percentage of American companies that are small businesses is 99%! Forty-eight percent of employees in the U.S. work for small businesses; and 18% work for businesses with 20 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.
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 now (as of April 10th). 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 loans 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) 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 30th to businesses who suffered loss due to COVID-19 between February 15th and June 30, 2020. The program features a minimum of 6 months and a maximum of 12 months, of deferral. If the loan is not forgiven, it must be paid in full in 2 years. There are no SBA fees.
Will the loan be forgiven? There are certain condition that must be satisfied for the loan to be forgiven entirely. First, the same number of employees must be kept on the payroll for 8 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 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 3 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 only 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.
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 SBA will cover all loan payments, including principal, interest and fees, for up to 6 months. In addition, new borrowers who take out such loans within 6 months of the bill becoming law will be eligible for relief. Disaster loans are not eligible for this program.
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 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 2 equal installment payments, payable at the end of 2021 and 2022.