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CARES Act: What Small Business Owners Need to Know
Siân Killingsworth / 6 Apr 2020 / Retirement News, Ubiquity Insights
Here at Ubiquity Retirement + Savings, our heart goes out to our fellow members of the small business community as we all deal with the impacts of the ongoing global health challenge and market volatility. As we navigate this challenging time together, we’re committed to providing you with information, resources, and support along the way.
On March 27th 2020, the U.S. government passed the “Coronavirus Aid, Relief, and Economic Security Act” (the CARES Act) to help businesses, families, and individuals make ends meet during the COVID-19 crisis.
The $2 trillion package is the largest financial assistance bill ever and sets aside $350 billion specifically to help small businesses affected by the pandemic.
We broke down the provisions that most impact small business owners, like you.
Paycheck Protection Program
One of the most emotionally and financially difficult challenges facing small business owners right now is retaining their employees. The Paycheck Protection Program (PPP) created by CARES was created to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions.
How does the Paycheck Protection Program (PPP) work?
Currently, the Small Business Association (SBA) guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a special kind of emergency loan that can be forgiven when used to maintain payroll through June. This program also expands the lending network beyond just the SBA so that more banks, credit unions, and lenders can issue those loans.
If your business continues paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.
Ultimately, the goal of the PPP is to help more workers remain employed, affected small businesses stay afloat, and our economy snap-back quickly after the crisis.
This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
What types of businesses are eligible?
The Paycheck Protection Program offers loans for:
- Small businesses with fewer than 500 employees, including self-employed, sole proprietors, and freelance and gig economy workers
- 501(c)(3) non-profits with fewer than 500 workers
- Veteran organizations
- Small businesses (and other eligible entities) will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020.
How much money can I borrow?
PPP loans can be up to 2.5 times monthly payroll expense for full-time employees with a salary cap of $10 million. Salaries capped at $100,000 per employee in the calculation.
Want to determine for your organization’s loan cap? Calculate your average total monthly payroll expense for full time employees over the last 12 months. Exclude individual salary amounts above the $100,000 cap, payroll and income taxes, and salaries of employees outside the U.S., and contractors. Your business or nonprofit is eligible for 2.5 times this amount, up to $10 million.
Will they check my credit score?
All loan terms will be the same for everyone. No personal guarantee or collateral is required for PPP loans. The lenders are expected to defer fees, principal and interest for no less than six months, and no more than one year.
What can I use a PPP loan for?
You should use the proceeds from these loans on your:
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
How can I apply?
- Contact your bank today to find out if they are an approved SBA lender. If they’re not, the SBA Lender Match tool will help you find one in your area.
- Applications for borrowers can be found here
- Starting April 3, 2020 small businesses can begin applying for PPP loans through existing SBA lenders.
- Starting April 10, 2020 independent contractors and self-employed individuals can begin applying for PPP loans through existing SBA lenders.
Economic Injury Disaster Loans and Emergency Economic Injury Grants
The Small Business Association’s Economic Injury Disaster Loan program provides small businesses with financial aid after major, detrimental events. The program provides low-interest loans of up to $2 million dollars to help businesses overcome temporary loss of revenue and get back on their feet.
CARES expanded this existing program to more types of small businesses, made it easier to apply and ensured that EIDLs smaller than $200,000 can be approved without a personal guarantee.
The expanded EIDL loan program also offers up to a $10,000 emergency cash advance that may not need to be paid back. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.
Who is eligible?
- Small businesses with fewer than 500 employees, including self-employed, sole proprietors, and freelance and gig economy workers
- Non-profits, including 501(c)(6)s with fewer than 500 workers
- Tribal businesses, cooperatives, and Employee Stock Ownership Plans (ESOPs) with fewer than 500 employees.
How can I get an SBA disaster loan for COVID-19 related aid?
You can apply online directly with the SBA by clicking here.
Be prepared with some financial information and supporting documentation related to your business including: tax returns, last year’s financial statements, a year-to-date financial statement, property leases, and a working knowledge of your business and personal credit score. You can find the full list of supporting documentation at the bottom of your application form.
Can my business get an EIDL and a Paycheck Protection Program loan?
Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses. If you have questions about your specific situation or eligibility, be sure to check with your financial advisor or lender to address any questions you may have.
Small Business Tax Provisions
The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19.
Key changes tax changes effecting small business owners include:
Delayed Tax Date
Taxpayers now have an extra three months to both file and pay their taxes! The typical April 15th tax deadline, for both businesses and individuals, has been extended 90 days to July 15, 2020.
Employee Retention Credit
Eligible businesses can receive a refundable 50% tax credit on wages up to $10,000 per employee.
The credit can be obtained on wages paid from March 13, 2020 through December 31, 2020.
Businesses are eligible for an employee retention tax credit if:
- Your business operations were fully or partially suspended due to a COVID-19 shut-down order or
- Your gross receipts declined by more than 50% compared to the same quarter in the prior year
The credit can be obtained on wages paid or incurred from March 13, 2020 through December 31, 2020.
Delayed Payroll Tax Payments
Businesses and self-employed individuals can delay their payroll tax payments. These payments, the employer share of Social Security tax owed for 2020, can instead be deferred and paid over the next two years. Fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022.
(Note: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)
Where can I learn more?
- The Department of Treasury’s PPP Fact Sheet
- The Small Business Administration’s COVID-19 page
- IRS guidance to COVID-19 tax changes can be found here
As we continue to navigate these challenging times, Ubiquity is committed to helping you stay invested in a brighter future. We believe in the power of our small business community and we’re confident in our ability to be here for our clients, partners, and savers, every step of the way.
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please note that the IRS determines the official amount, for more information please visit the IRS FAQs page.
