How the CARES Act Can Help Small Business Owners
4/16/2020 UPDATE: as of today, the cap for the small business coronavirus stimulus has been reached. A second round of funding is currently under consideration.
The recent Coronavirus, Relief, and Economic Security (CARES) Act signed into law a $2.2T economic stimulus package that designates $367B for small business relief.
The loans it makes available are a response to the COVID-19 outbreak and are intended to be a stimulus for small businesses.
Call centers, BPO owners, and other independent financial services firms face a significant loss of business due to the economic fallout brought about by the coronavirus. The impact of the pandemic has meant that many businesses are unexpectedly grappling with reduced revenue streams and limited cash flow, as well as bootstrapping remote work setups in response to the loss of brick and mortar facilities due to mandatory stay at home orders —all of this amid increased consumer volatility and an uptick in customer service calls.
The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act are meant to assist business owners who need cash inflows to keep operating.
The section of this stimulus apportioned for small businesses is broken up into three loans types. The below chart provides an overview of each loan type, its term, and more.
Under the CARES Act, qualifying businesses include:
- Businesses with up to 500 employees or which meet the applicable size standard for the industry as provided by SBA’s existing regulations.
- Eligible independent contractors and sole proprietors.
The Paycheck Protection Program
Most pertinent to call centers and BPOs will be the Paycheck Protection Program (PPP), and we strongly encourage anyone affected by the pandemic to apply for this aid. The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Of all the currently available relief, this is the only option that includes repayment forgiveness.
The SBA will forgive PPP loans if:
- Employees are kept on the payroll for eight weeks
- The money is used for payroll, rent, mortgage interest, or utilities.
Loans of up to $10M are available with the amount determined by two months of the applicant’s average payroll. Proceeds may be used to cover:
- Overhead items such as rent & utilities
- Employee benefits.
NOTE: Loan forgiveness is available ONLY for funds used to pay 8 weeks of payroll and other qualified expenses.
The maturity of the loan is two years, with no principal or interest due for 12 months. All loans carry a 4% interest rate after that. This program does not require collateral or a personal guarantee. Employees that have already been furloughed can be brought back on to payroll to count towards retention. Amounts forgiven will not be subject to Federal Income Tax.
Once your loan is secured, you will track all expenses for 8 weeks. After that time, you have to return the information to the lender with the documentation. They will review and, if acceptable, forgive the portion of the loan used for the expenses. That means that it becomes a grant you do not have to repay. If you reduce headcount during this time, they will reduce the forgiveness in proportion to the reduction. For example, if your payroll is reduced by 25%, loan forgiveness is reduced by 25%. For the portion of the loan not forgiven, the interest rate is 1% for a two-year term. Interest does accrue from the start of the loan, but there is a 6-month deferment on the first payment and no prepayment penalty.
Paycheck Protection Program Resources:
Economic Injury Disaster Loan
An Economic Injury Disaster Loan (EIDL) is a loan of up to $2 million with a maturity of up to 30 years that’s designed to help carry businesses through tough times caused by a disaster. The funds are intended to cover payroll and other operating expenses that the business could have otherwise met in a non-disaster economy. Funds cannot be used for:
- Making loan payments on other federal debts
- To repair physical damages
- To pay IRS tax penalties
- To pay out dividends.
While loan amounts may range up to $2 million, specific loan proceeds depend upon the amount of economic injury that a business has incurred. This amount is determined by the SBA on a case-by-case basis after application.
Interest rates on EIDLs can be as high as 3.75%.
NOTE: Principal and interest payments of EIDLs can be deferred for up to one year.
Economic Injury Grants
The CARES Act also includes $10 billion worth of funding for the SBA to provide businesses advances, or grants of $10,000. Businesses can use these funds to help pay for paid leave, payroll, COVID-19 related costs, and more. When used to cover expenses such as these, a business will no longer need to pay back the money.
NOTE: Emergency EIDL grants are available within three days for those that apply with the SBA.
Grants can be used by small businesses for a number of purposes:
- Providing paid sick leave
- Production costs
- Rent/ mortgage payments on business spaces
- Anything related to maintaining business continuity, like infrastructure for work from home transitions.
Under the CARES Act, eligible companies are those that have been in business by Jan. 31, 2020 and have 500 employees or less.
If you receive an EIDL grant and a PPP loan it will be subtracted from your total forgiveness amount. Any previous EIDL loans can also be rolled into the new PPP loans.
Economic Injury Disaster Loan Resources:
Express Bridge Loans
The existing SBA Express Loan Program has been expanded by the CARES Act and will provide a much-needed, nearly instant cash injection to small businesses. The bridge loans enable small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. These bridge loans are meant to fill the interim financial gap businesses face while awaiting payout from an EIDL. Bridge loans can be partially or fully repaid with EIDL funds.
For more information, check out the U.S. Senate Committee on Small Business & Entrepreneurship’s CARES Act Relief Overview here.
Federal tax day has been pushed back to July 15, 2020. Most states have adjusted filing dates, too, but not all have.
Check this list to see the state-by-state rundown of tax information and deadlines as it relates to COVID-19.
The details for these loans are evolving every day, so it’s important to stay on top of any changes.
The SBA is in the process of reducing the loan requirements as much as possible so that they may make as much money available to as many as possible.
There is a cap to this round of funding at around $367B, so apply sooner rather than later.
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