What small business owners need to know about the CARES Act stimulus plan

Businesses across the country are struggling with coronavirus closures and restrictions, but financial assistance is in progress. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) aims to provide economic relief to individuals and businesses negatively affected by the pandemic.

Of the $2 trillion stimulus plan, about $350 billion was allocated to small businesses To help retain work and operating costs. The package includes two loan options for companies currently suffering economic losses: Small Business Administration (SBA) 7(a) Salary protection plan (PPP) and SBA Economic Harm Disaster Loan (EIDL). Keep reading for each segment.

Salary protection plan

The PPP aims to incentivize business owners to retain their employees’ wages and provide eligible companies with up to US$2 million in funds to pay wages and operating expenses, such as rent and utility bills. As of December 27, 2020, Congress has approved additional funding for PPP. Fundbox no longer accepts PPP applications, but SBA can help you find PPP lenders Until May 31, 2021.

according to American Chamber of Commerce, Up to Your company’s average monthly salary cost is twice and a half, No more than 10 million U.S. dollars. Wage costs can include salaries, wages, commissions or other compensation, as well as paid vacation, health insurance, retirement benefits, and payroll taxes.

This SBA recommendations The main attraction of a salary protection loan is that it can be converted into a grant, so you may not have to repay it.

Who is eligible for a loan?

In its Interpretation of the CARES ActThe Chamber of Commerce stated that companies operating from February 15, 2020 with fewer than 500 employees are eligible for PPP loans. This includes 501(c)(3) non-profit organizations, veterans organizations, tribal organizations, sole proprietors, self-employed individuals, and independent contractors who make a living on 1099 miscellaneous invoices.

Have a certain exception Suitable for companies with more than 500 employees. For example, if you are in the food service or lodging industry, you are eligible as long as there are fewer than 500 employees in each location.This for FranchiseeBecause of the total size of the company, they may not be eligible for SBA loans before, but they can now apply based on the number of local employees.

One way to quickly check if you are eligible is to consult the simplified version of the SBA’s Economic Injury Disaster Loan Program Qualified entity verification checklist.

What does loan relief mean?

Up to 100% PPP loan It is forgivable if you follow certain requirements regarding payroll and employee retention. It works as follows: If you keep your employees for eight weeks from the date of loan issuance and maintain their wages (until June 30, 2020), SBA will exempt you from paying wages, rent, mortgage interest And utilities. However, since there may be a large number of companies participating in the program, you need to spend at least 75% of the forgiveness amount on your payroll. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining wages.If the number of full-time employees decreases, or salaries and wages decrease, forgiveness will decrease

However, there are a few caveats.For example, as a chamber of commerce Guide explanation, When calculating wages, companies cannot take into account the wages of employees who live outside the United States, nor can they pay any individual employee an annual salary of more than $100,000.

Forgiveness decreases and increases

If you fire any employee within eight weeks or cut the salary of an individual employee whose annual income is less than $100,000 by more than 25%, your loan relief amount will be reduced, according to guide.

On the other hand, as Neil Bradley, Vice Chairman of the U.S. Chamber of Commerce, clarified in a statement City Hall Webinar On March 27, there are other factors that may be included in your payroll expenses. For example, if you increase employee salaries or compensation within eight weeks—for example, by paying employee tips—you may be eligible for additional loan relief. Another benefit is that you can bring back any employees who have been laid off in order to be eligible for a loan. As long as you keep the employee on the payroll within the specified eight weeks, you will not be penalized for rehiring the employee or restoring their original salary.

Loan payment and logistics

If you want to borrow more money than the exempt amount to pay for inventory and other expenses, you can.As explained Frequently Asked Questions of the Small Business Committee of the U.S. Senate, The part of the loan you used to pay wages, rent, utility bills, and mortgage interest will be deemed cancelled, and you must pay the remaining loan for a maximum period of 10 years.Here are other key details Small Business Administration:

• The interest rate is 1%.
• There is no early repayment penalty for paying off the loan early.
• This SBA guarantee fee-Usually 2-4%-Exempted.
• The loan payment was postponed for six months.
• No collateral or personal guarantee is required.

Apply for PPP loan

PPP loans can be obtained through the SBA or any SBA approved lender, bank or credit union. Fundbox can connect you with a simple process to help you get funds quickly.

Economic injury disaster loans and loan grants

The Small Business Administration has finally reopened the Economic Injury Disaster Loan and Advance Emergency Assistance Program. Small business applicants from all walks of life can now apply for assistance immediately. EIDL provides working capital loans of up to US$2 million to small businesses and private non-profit organizations in the United States and its territories. To be eligible, your business needs to have fewer than 500 employees, prove that you have suffered significant economic losses due to the coronavirus, and are located in or adjacent counties where a disaster has been declared.Companies with more than 500 employees, as long as they meet SBA size standard.

If you are eligible, you can use loans to pay for fixed debts, payroll, accounts payable, and other payments you are struggling with for the following reasons Loss of income.

Although the loan does not provide a forgiveness plan, it is now a flexible and affordable option for small businesses.As American Chamber of Commerce explained, Here are the details:

• 3.75% Small business interest rate; non-profit organization 2.75%
• Repayment period up to 30 years
• No prepayment Punishment
• No Personal guarantee Less than USD 200,000 loan requirement

SBA also provides EIDL advance payment up to 10,000 USD To help offset the temporary loss of income. Because the advance payment is considered a grant, You are not obligated to repay If you use it for paid vacation, payroll, increased costs caused by supply chain interruption, mortgage or lease payments, or debt obligations that are difficult to fulfill due to loss of income. More importantly, if you are approved, you can receive the funds within three working days.

Apply for EIDL loans and grants here By filling out the online form and providing your credit score.

Can I apply for PPP loan and EIDL at the same time?

Yes as Guide explanation, You can apply for wage security loan at the same time and Disaster loan. However, you cannot use both types of loans for the same purpose. If you received EIDL between January 31, 2020 and the time when the PPP loan is available, you are still eligible for the PPP loan as long as you did not use the EIDL to pay your salary costs.

When can I get the funds?

If you receive an EIDL grant, you can get an advance payment of $10,000 three days after submitting your application. However, the funds for the remaining loans are determined on a first-come, first-served basis, which may take several weeks.

The average response time for SBA loans is 45 to 90 days, but SBA is working hard Significantly shorten the time frame of relief loans, May be approved on the same day.

Deferred employer tax and payroll tax credits

According to the CARES Act, Your federal employer payroll tax is now delayed for more than one year, which can provide some cash flow relief for your business. You should pay 50% of the 2020 payment by December 31, 2021, and the other 50% by December 31, 2022.

In addition, you may be eligible for a refundable payroll tax credit equal to 50% of the wages you paid to employees between March 13, 2020 and December 31, 2020, up to a maximum of $10,000 per employee. To be eligible, you need to prove that 1) your operations were partially or completely stopped due to the forced coronavirus shutdown, or 2) your total income for a certain period of time decreased by 50% or more compared to the same period in 2019.

get ready

Whether you need immediate financial assistance or not, it is wise to be prepared. Consult your accountant, Process your payroll numbers, And began to collect financial documents.

It is also important to consider what might happen if you do not meet the loan forgiveness conditions.This is why planning is important now To ensure that you can afford the 1% loan cost, if it is not 100% forgiveness.

Now is a difficult time for business owners, but we will be here to support you.To learn more about Protect your employees And keep operating during this stressful time, check out our comprehensive Coronavirus/COVID-19 guidelines and resources.

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material is for reference only and is not intended to be provided and should not be used as a basis for tax, legal or accounting advice. Before conducting any transaction, you should consult your tax, legal and accounting advisors.