What About the Little Guys? What Small-Businesses & Self-Employed Workers Need To Know About the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) & Other COVID-19 Stimulus Resources

The Stimulus Package Isn’t Just For The Big Corps. Here’s What You Need to Know to Make Sure You’re Not Getting Left Behind.

This past Friday, March 27th, the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law to help provide economic relief as we battle COVID-19. The mainstream news has focused on how D.C. lobbyists have garnered big wins for large corporations, but as the daughter of small business owners, I want to understand what’s being done to help Mom & Pop shop-owners like my parents.

1988— My parents (and my sister Sofy) upon opening their store, Sofy Copy, in Auburn, Alabama

I’m sharing my research below as I know time is of the essence for many small businesses right now, and often they do not have easy access to lawyers or accountants, but instead rely on their own research or the help of their family and friends. The quicker you move, the quicker you will receive your funding.

I’ve tried to simplify the two main programs that I think will be most beneficial for small businesses:

  • The Paycheck Protection Program (forgivable loans to retain workers and maintain payroll)
  • The Economic Injury Disaster Loans (EIDL) Emergency Grants (up to $10,000 forgivable advance when you apply for an SBA Disaster Loan)

For each program, I will cover:

  • Overview of the Program (Details, Use of Funds, Loan Forgiveness)
  • Who’s Eligible
  • How To Apply
  • Additional Resources For Further Details

In addition to these two main programs, I have included some other stimulus provisions that may be helpful.

Though the legislation has now been signed, how it will be implemented is still changing day-to-day. This is my best interpretation as of March 31, 2020. The information contained in this article is not legal or financial advice, and it is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.

Full Text of Final Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Legislation

1. Paycheck Protection Program (Section 1102 of CARES Act)

Biggest Take-Away

You can apply for forgivable loans (meaning you may not have to pay them back) to keep your employees and maintain payroll.

Overview

The CARES Act allocated $350 billion of 100% federally guaranteed loans to small businesses to help keep workers employed amid the pandemic and economic downturn. These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

So How Much Can I Borrow?

Loan amount can be up to 2.5x the borrower’s average monthly payroll costs plus certain other costs, but shall not exceed $10 million.

What Can This Money Be Used For?

The funds specifically need to be used to retain workers and maintain payroll (excluding costs for any compensation above $100,000 annually), or make mortgage payments, lease payments, and utility payments. The loans can be retroactive for expenses dating back to February 15, 2020.

Will These Loans Be Forgiven?

  • Loans may be forgiven (meaning you won’t have to pay it back) if employment and wage levels are maintained. On April 2nd, the SBA released updated guidance saying borrowers must spend at least 75% of their loans on payroll costs to qualify for loan forgiveness.
  • The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. This means the more workers and wages you maintain, the better — because then you have less to pay back.
  • That said, if you’ve already had to reduce wages or workers, note that borrowers will NOT be penalized for reductions in employees or wages that occurred between February 15, 2020, and ending 30 days after the enactment of the CARES Act IF the borrower eliminates the reduction in employees or reduction in wages by June 30, 2020. In simpler terms, if the borrower gets back to their pre-COVID-19 number of employees and amount of wages by June 30, 2020, they won’t be penalized.
  • The bill says that any amount not forgiven would have a maximum interest rate of 4%, but new guidance by the SBA said interest rate on a PPP loan will be 1%.

Who’s Eligible?

Generally, small businesses with 500 or fewer employees during the “covered period” — February 15 through June 30,2020. Some industries may have more employees based on applicable industry size standards previously set by the Small Business Administration (SBA).

You are eligible if you are:

  • A small business with fewer than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) non-profits with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who is an independent contractors, freelance or gig economy worker, self-employed and 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
  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis

How To Apply

The United States Department of the Treasury announced on March 31st that small business owners can begin to apply for loans through the Payment Protection Program starting April 3. Independent contractors and self-employed individuals can begin to apply for loans starting April 10.

The SBA said on April 4th that the Payment Protection Program will be “first-come, first-serve”, so be sure to start your application as soon as you can.

You should be able to apply and work directly with your current business’ bank — as long as they are FDIC insured. This program is so new that your current bank might still be getting up to speed on it, but reach out to your bankers as soon as possible to make sure you receive the funding quickly. You can find eligible lenders in your area on the SBA site.

Most banks are only working with their existing business-banking customers. There have been reports of smaller community banks successfully applications, but many large banks are still working on launching their PPP loan application. Here is another list of large banks that are currently taking applications.

Your bank may use their own application, but be sure to review the standard application below, find your payroll records, and make the necessary calculations so that you’re prepared whenever your bank opens their application.

For more information on loans or how to connect with a lender, visit: https://www.sba.gov/funding-programs/loans.

Additional Resources For Further Details

Check out the document below compiled by the US. Chambers of Commerce for a clear diagram of how to calculate the payroll costs, as well as more details on the Paycheck Protection Program. Click here to download the document.

U.S. Chambers of Commerce Paycheck Protection Plan Overview

2. Small Business Administration’s Economic Injury Disaster Loans & Emergency EIDL Grants (Section 1110 of CARES Act)

Biggest Takeaway

If a small business applies for an EIDL Loan (up to $2 million) from the Small Business Administration (SBA), they can also ask for a more immediate Emergency EIDL Grant (up to $10,000 that you don’t have to pay back). The emergency grant should be distributed within 3 days of applying for the loan, but most people have seen delays.

Overview

There are two separate concepts you need to understand.

  1. Economic Injury Disaster Loan (EIDL Loan) The Small Business Administration (SBA) allows small business owners affected by COVID-19 to apply for an Economic Injury Disaster Loan (EIDL Loan). This program can provide a small business a long-term, low-interest loan up to $2 million.
  2. Emergency EIDL Grants In addition to the EIDL Loans described above, the CARES Act made changes designed to expand access to these loans and to reduce the time it will take to obtain this funding by including $10 billion for Emergency EIDL Grants. These emergency grants allow small businesses applying for EIDL Loans to ask for an advance of up to $10,000 so they can get immediate funding while their larger EIDL Loan application is being processed. These grants should be distributed within 3 days of the SBA receiving the EIDL Loan application, but most people have seen major delays. The SBA has provided updated guidance that it will be limiting the advance to $1,000 per employee, up to $10,000.

What Can This Money Be Used For?

The SBA outlines what their EIDL Loans may be used for in section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)). The Emergency EIDL Grants follow these same guidelines and can be used for any of those purposes, including:

  • Providing paid sick leave to employees unable to work due to the direct effect of the COVID–19
  • Maintaining payroll to retain employees during business disruptions or substantial slowdowns
  • Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains
  • Making rent or mortgage payments
  • Repaying obligations that cannot be met due to revenue losses

Will These Loans Be Forgiven?

The up to $2 million EIDL Loan is not eligible for loan forgiveness (meaning you will have to pay it back), but the loan will have long-term maturity and low-interest.

The up to $10,000 Emergency EIDL Grant may be forgiven (meaning you don’t have to pay it back) 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 losses.

**If a business receives an Emergency EIDL Grant, but is later rejected for an EIDL Loan, the business can still keep their grant and will not be required to repay any amount of it.**

Who’s Eligible?

You are eligible if you were in operation on January 31, 2020; and you are:

  • A small business with fewer than 500 employees
  • A cooperative with fewer than 500 employees
  • An individual who operates as a sole proprietor, with or without employees, or as an independent contractor
  • An employee stock ownership plan (ESOP) with not more than 500 employees
  • Tribal small business concern with not more than 500 employees
  • Private nonprofit organizations
  • Small agricultural cooperatives

How To Apply

The SBA has streamlined the application for the Emergency EIDL Grant (up to $10,000) and the EIDL Loan (up to $2 million) into one application to allow for faster access to funds with less documentation.

Go to https://covid19relief.sba.gov/ to apply now.

The application will ask for some information about your business, including:

  • The legal and trade names of your business.
  • The Federal EIN number or Social Security number
  • Gross revenue and cost of goods sold for the 12 months prior to January 31, 2020
  • The date your business was established
  • The date you became the owner
  • The number of employees

It was also ask for some information about the owner, including:

  • Percentage of business ownership
  • Home address
  • Phone number
  • Social security number
  • Date and place of birth
  • Citizenship status

Additional Resources For Further Details:

This resource gives step-by-step instructions on how to apply and what documentation you will need.

3. Worried About The IRS and Your Payroll Taxes? Here Are Two More Things You Should Know!

1. Employee Retention Credit for Employers Subject to Closure Due to COVID-19 (Section 2301 of CARES Act)

There is now a refundable payroll tax credit for 50 percent of qualified wages paid by employers to employees during the COVID-19 crisis.

Qualified wages cannot be more than $10,000 per employee, so employers may receive a payroll tax credit of as much as $5,000 per employee for wages (and health benefits) paid after March 12, 2020, and before January 1, 2021.

If you’re a business with fewer than 100 full-time employees, essentially all wages qualify for this credit. If you’re a business with more than 100 full-time employees, qualified wages are those paid to employees when they are not providing services due to the COVID-19 outbreak.

This credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

2. Delay of Payment of Employer Payroll Taxes (Section 2302 of CARES Act)

Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. This provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

Businesses that receive loan forgiveness as part Sec. 1102 Paycheck Protection Plan (the first program explained at the top of this article) will not be eligible for this delay of payment of employer payroll taxes.

Though the legislation has now been signed, how it will be implemented is still changing day-to-day. This is my best interpretation as of March 31, 2020. The information contained in this article is not legal or financial advice, and it is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.

Personal Finance Enthusiast, Small Family Business Member, Daughter of Immigrants, ex-Investment Banker. Alabama => Harvard => NYC => Stanford => SF.

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