How to Get Coronavirus Aid for My Business

Author: Siân Killingsworth / 5 May 2020 / Business

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides aid to small businesses with $349 billion set aside for job retention and economic injury disaster relief.

After the funds ran dry in a little less than two weeks, the House and Senate passed a second bill freeing up more than $400 billion in additional small business loans. This massive federal bill is the main source of coronavirus aid for small businesses, but it’s not the only option.

Paycheck Protection Program

Paycheck Protection Program loans will be available through June 2020, if the funds still exist. Borrowed funds are eligible for debt forgiveness when used for payroll, benefits, insurance premiums, mortgage interest, rent, utilities, and interest on other debt obligations.

Benefits of PPP loans are that:

• Borrowers can obtain 2.5x their average monthly payroll costs, to a maximum of $10 million.
• Payments can be deferred for six months, though interest still accrues.
• The interest rate is 0.5%.
• The term length is two years, but you could qualify for 100% loan forgiveness.

SBA Disaster Loans

SBA disaster loans funded through the Economic Injury Disaster Loan program can ostensibly fund up to $2 million and should be available through December 31, 2020.

These loans are geared toward small businesses and nonprofits who need a financial life-line to cover fixed debts, employee payroll, utility bills, outstanding invoices, and business adaptations to facilitate ecommerce.

Advantages of disaster loans are that:

• Up to $2 million can be borrowed.
• Payments can be deferred six months with 0 APR.
• The interest rate is 2.75% for nonprofits and 3.75% for small businesses.
• Repayment terms can be stretched up to 30 years.

Main Street Loans

The Federal Reserve injected $600 billion for SMBs into the Main Street Lending Program on April 9, 2020. Loans are offered to companies with up to 10,000 employees or $2.5 billion in revenue.

Smaller businesses are encouraged to apply, but they must have at least $250,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization – and no debt. Companies with debt may still apply, but the EBITDA requirements may be higher.

Pros of main street loans include:

• Borrowers can take out loans of $1 million to $25 million.
• The term length is four years.
• Interest rates are variable from 2.5 to 4 percent.
• Payments can be deferred for one year.

Small Business 401(k) Retirement Plans

The CARES Act includes financial incentives for retirement plan participants looking for relief, notably:

• New distributions – Eligible 401(k) plan participants can take out distributions up to $100,000. The typical 20% federal income tax withholding and 10% early withdrawal penalty for those under age 59 ½ do not apply. Borrowers needn’t worry about typical plan limits when putting funds back in, as the distribution (and what you owe Uncle Sam in taxes) can be repaid to the plan within three years.
• Increased 401(k) plan loans – Qualifying 401(k) plan participants can borrow 100% of their vested account balance, up to $100,000, which is double the normal limit. More flexible repayment terms allow you to take up to one year to repay. One caveat is that employer plan sponsors must decide whether to allow the increased loans.
• Waived 2020 RMDs – Typically, individuals who are 72 or older in 2020 must begin to receive required minimum distributions from their plans. However, the CARES Act allows plan holders to suspend RMD payments for the year.

“Eligible” or “qualifying” plan participants include:

• A person diagnosed with COVID-19.
• A person whose spouse or dependent has been diagnosed with COVID-19.
• A person who has been quarantined, laid off, or furloughed – which has caused financial hardship.

Contact Ubiquity for more information on small business retirement plans that can help you save for retirement and weather a true financial crisis. Only Ubiquity provides access to 401(k) plan experts with over a decade of experience in plan design for small businesses – all for a low flat-fee.