The CARES Act just passed Congress and is chock full of pork for bureaucracy, but will it help your small business?
Congress passed a hotly contested stimulus bill last night, designed to rescue America from a self imposed economic stall. There's been a lot of talk about just how much money is wasted on items not related to COVID-19 and shoveled into the pockets of big-government bureaucrats, however, this bill is also very helpful to America's small businesses. Below we outline some of the programs available.
It is recommended you speak to your accountant, attorney or other professional about how these programs may apply to your unique situation, or which ones you should consider.
Note: These provisions also apply to Sole Proprietors, Independent Contractors, and there are provisions that provide funds allowing employers who have drinking or dining establishments to compensate their employees for tips they may have received and commissions they may have earned.
- PAYCHECK PROTECTION: (pages 9-32)
Independent Contractors, Sole Proprietors, and Small Businesses with 500 employees or less (including companies with multiple locations in the United States employing 500 employees or less per location) are eligible for “Payroll Protection”; a deferred loan which will cover the period of 2/15/20-6/30/20. The loan amount is calculated by looking at your payroll expenditures and other records and can be for up to $10 million dollars. The loan can be used to pay for:
- Payroll Costs
- Sick leave, family leave, medical leave, or healthcare premiums
- Employee salaries, commissions, or similar compensation
- Payments for interest on mortgages (not to include prepayment)
- Rent
- Utilities
- Any interest on other debts incurred before the covered period.
The loans can be refinanced, and the bill states there is no recourse for non-payment on the loans, unless you use the funds for purposes not intended. In addition, if you aren’t creditworthy elsewhere, that cant be used against you – you will be granted this loan (provided you meet the basic requirements ie; effected by the coronavirus outbreak, paying payroll, under 500 employees, etc) even if others would have deemed you not creditworthy.
The loan repayment can be deferred for no less than 6 months, and up to 12, and the interest on the loan is capped at 4%.
- LOAN FORGIVENESS (page 42-54)
Any businesses who have suffered losses in supply chain disruptions, quality and lead time, technology, staffing challenges, a decrease in gross receipts or customers, or a closure are eligible for loan forgiveness, for the period starting February 15, 2020 and through June 30, 2020. The loan forgiveness would apply to the cost of continuing payroll throughout the covered period, interest payments on any mortgage (excluding prepayment), any payment on any covered rent obligation, and any covered utility payment. This includes seasonal workers, as well as tipped workers, with the caveat that the workers covered under the forgiveness could not be making more than $100,000 in 2019. Exception? You can not receive forgiveness amounts for employees who you terminated because of Covid 19, who were employed by you in 2019. In order to apply for loan forgiveness, you need to provide documentation of payroll, expenses etc.
- EMERGENCY EIDL GRANTS: (pg 66-73)
Grants are covered for the period of January 31, 2020 through December 31, 2020. You are eligible for the program if you are a business with not more than 500 employees, an individual working as a sole proprietor or an independent contractor, a cooperative with not more than 500 employees, an ESOP (employer owned business) with not more than 500 employees, or a tribal small business with not more than 500 employees. Grants are issued in increments not greater than $10,000 and can be used for:
- Providing paid sick leave for employees affected by 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.
There is no repayment requirement for these grants, even if for some reason you were previously denied a loan. If you receive a grant under this program, it will be subtracted from loan forgiveness you may receive for payroll purposes.
- SUBSIDY FOR CERTAIN LOAN PAYMENTS: (pg 73-77)
If your small business has received a loan from the Small Business Administration under section 7(a) of the Small Business Act, including loans granted to you by other institutions who received money from the SBA in the form of grants or loans, it is the sense of Congress that all borrowers are adversely affected by COVID-19, and relief payments by the Administration are appropriate for all borrowers, and n addition to the relief provided under this Act, the Administration should encourage lenders to provide payment deferments, when appropriate, and to extend the maturity of covered loans, so as to avoid balloon payments or any requirement for in16 creases in debt payments resulting from deferments provided by lenders during the period of the national emergency declared by the President under the National Emergencies Act. They will pay the loan to the lender during the covered period. You should speak to your lender for more details.
If you think about it, these are pretty substantial programs. These programs will allow small businesses to continue to pay their employees through this hardship, as well as continue to pay their rent/mortgages and utility bills. This is in addition to the support included for the individual, which becomes a bit more complicated and will be explained in a later piece.
This bill was chock full of allotments that absolutely should not be included in a stimulus sold to the American people as being for the American people; however, the package that was passed by congress will certainly help all Americans who are working, allow small businesses to operate, and take a load off their shoulders as they navigate through unprecedented times.
Tracy Beanz is the Founder and Editor in Chief at UncoverDC. You can follow her on Twitter @TracyBeanz
