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For the most up-to-date information on emergency small business loans available for those affected by the COVID-19 pandemic, see this article on PPP loans.
Small business owners worried about the economic impact of COVID-19 on their companies can rest a bit easier after the recent passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act includes programs to help keep employees on your payroll, provide debt relief on Small Business Administration (SBA) loans and give your business the quick cash infusion it may need right now.
Keep reading to learn more about the CARES Act and what it means to you.
Loans, Grants and Debt Relief for Small Businesses
The CARES Act makes loans, grants and debt relief available to small businesses through three programs:
Paycheck Protection Program Loans
What assistance is available? The Paycheck Protection Program (PPP) provides federally guaranteed loans intended to help businesses keep their employees on the payroll. Loan amounts vary but are essentially calculated based on 250% of your average monthly payroll, with a cap of $10 million. Loans have a two-year term, a fixed interest rate of 1%, and no loan or prepayment fees; payments are deferred for at least six months with maximum deferrals of up to a year.
Recipients are eligible for loan forgiveness if all employees are kept on the payroll for eight weeks and the loan proceeds are used for payroll, rent, mortgage interest or utilities. Any amounts not forgiven will carry forward with maximum loan terms of 10 years and a maximum interest rate of 4%.
Who is eligible? Any business, sole proprietorship, tribal business concern and 501(c)(3) or 501(c)(19) nonprofit organization that was in operation on February 15, 2020, and has fewer than 500 employees is eligible (with some exceptions). So are independent contractors and self-employed individuals.
How soon can I get the funds? The U.S. Treasury Department says small businesses and sole proprietorships can apply starting April 3; independent contractors and self-employed individuals can apply starting April 10. Although the loans are available through June 30, 2020, the SBA encourages small business owners to apply as soon as possible because funds are limited.
Where can I apply for loans? The SBA says you can apply through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union or Farm Credit System institution that's participating. The Treasury Department also plans to authorize new lenders to help meet the expected demand. You can get more information and help finding lenders from your SBA District Office, local Small Business Development Center (SBDC), SCORE office or Women's Business Center.
Small Business Debt Relief Program
Who is eligible? Small business owners who currently have an outstanding SBA 7(a) loan, 504 loan or microloan, or take out such a loan by September 27, 2020. (The Debt Relief Program does not apply to PPP loans.)
SBA 7(a) loans allow small business owners to borrow up to $5 million they can use for short-term or long-term working capital; to purchase an existing business; to refinance current business debt or to purchase furniture, fixtures and supplies. SBA 504 loans provide up to $5.5 million that small businesses can use to purchase fixed assets for expansion or modernization. SBA microloans provide up to $50,000 to help small businesses and certain nonprofit child care centers start or expand.
How soon can I get the funds? If you have an outstanding loan, contact your lender for details about debt relief. If you are applying for a loan, time to fund will depend on the lender.
Where can I apply for loans? Contact your SBA District Office, local SBDC, Women's Business Center or SCORE office for more information and to get help with the application process.
Economic Injury Disaster Loans and Emergency Economic Injury Grants
What assistance is available? Economic Injury Disaster Loans (EIDLs) and Emergency Economic Injury Grants provide emergency advances of up to $10,000. Small business owners first apply for an EIDL and then request an advance, which will be received within three days of submitting the application. The advance does not need to be repaid under any circumstances, even if your EIDL request is denied.
Who is eligible? Businesses and private nonprofits with 500 or fewer employees that have been in operation since January 31, 2020. Eligible entities include sole proprietorships (with or without employees), independent contractors, cooperatives and employee-owned businesses, and tribal small businesses.
How soon can I get the funds? Businesses will receive their advance within three days of submitting the EIDL application, according to the SBA.
Wondering if you can use all three of these programs? You can. The SBA says EIDL and Emergency Economic Injury Grant recipients and businesses that get loan payment relief through the Small Business Debt Relief Program can still apply for a PPP loan, provided there's no duplication in the uses of funds.
Tax Help for Businesses
You probably already know that Tax Day has been extended to July 15, 2020. The CARES Act also includes several tax relief provisions designed to help business owners keep more of their cash and maintain liquidity.
- Delay of estimated tax payments: Corporations can postpone estimated tax payments due after March 27, 2020, until October 15, 2020, with no cap on the amount of tax payments postponed.
- Delay of employer payroll tax payments: Employers and self-employed individuals can defer payment of the employer share of Social Security tax for their employees. The first half of the deferred tax can be deferred until December 31, 2021, and the second can be deferred until December 31, 2022. (Businesses receiving PPP loans are not eligible for this delay.)
- Employee retention tax credit: If your business operations were fully or partially suspended due to a COVID-19 shutdown order or if your gross receipts declined by more than 50% compared with the same calendar quarter for the prior year, you may be eligible for a 50% tax credit on wages up to $10,000 per employee. The credit is for qualified wages paid from March 13, 2020, through December 21, 2020. (Businesses receiving PPP loans are not eligible for the tax credit.)
- Modifications for net operating losses (NOLs): NOLs from 2018, 2019 or 2020 can be carried back five years. The taxable income limitation is also removed so NOLs can fully offset income.
- Modification of limitation on losses for taxpayers other than corporations: The loss limitations for pass-through businesses and sole proprietors are modified so these taxpayers can benefit from the above NOL carryback rules.
- Modifications for AMT tax credits: If your business was due to get corporate alternative minimum tax (AMT) credits at the end of 2020 or 2021, you can claim that refund now.
- Modification of limitation on business interest: For 2019 and 2020, the amount of interest expense businesses can deduct on their tax returns is temporarily increased from 30% to 50%.
- Amendment regarding qualified property improvements: Businesses can immediately write off the cost of improving facilities instead of depreciating those costs over the 39-year life of the building.
Taking advantage of these tax changes can have a significant effect on your cash flow. Talk to your accountant or tax preparer to find out how you can make the most of the modifications and reduce your tax liability.
Tips for Managing Your Business During the Crisis
Knowing that federal loans are available can give you peace of mind. But before you fill out that loan application, take these steps to manage your business finances through the crisis, and you may not need to take on debt at all.
- Stay on top of receivables. Send invoices promptly and follow up on overdue payments immediately to maximize available cash.
- Keep a close eye on cash flow. Review your cash flow statement daily to get out in front of problems.
- Negotiate. If you foresee problems paying your mortgage, your landlord, your suppliers or your service providers, contact them now and see if they can be flexible.
- Explore state and local resources. Many state and local governments are offering loans or grants to help small businesses affected by COVID-19. Visit your state and local government website to find out what kind of assistance is available in your area.
- Investigate private sector resources. Find out if private enterprise is offering any help. Amazon, for example, created a $5 million relief fund for local small businesses, and many other large employers have followed suit.
- Check with your insurance agent. Depending on your business insurance, your policy may offer some help during this crisis.
- Reassess your pricing. You may need to consider lowering your product or service prices to be more in line with what your customers can afford, as many are likely dealing with financial challenges of their own.
- Create new revenue streams. Think of ways you can adjust your product or service offerings to suit customers' current needs. For example, some restaurants have begun selling groceries and meal kits to meet consumer demand for groceries.
- Don't stop marketing. Stay top-of-mind with customers. Promote your status as a small business—many consumers care about keeping independent businesses in their communities alive.
If you decide a loan is the best option, carefully consider the pros and cons before you apply. Create financial projections for the coming year, using various scenarios, staffing levels and dates when your business might be up and running full force again. If you take out a loan now, will you be able to pay it off in the future, given that it may take time for your business to get back up to speed?
Also review your business credit score. Banks and other lenders will look at your score when determining whether to lend you money and what the terms will be. From now through May 1, 2020, Experian will offer a free business credit report to companies so they can see where they stand.
If you're seeking customized advice, the following organizations provide free or low-cost business counseling and expert advice to help you navigate the coronavirus crisis.
- Small Business Development Centers
- Women's Business Centers
- SCORE Mentors
- Minority Business Development Centers
Check out these online resource centers for advice and information to help your business respond to coronavirus.
Keeping Your Business Healthy
The coronavirus outbreak poses unprecedented challenges to small businesses everywhere. Fortunately, the federal government is taking quick action to help small businesses maintain their cash flow, ensure their employees get paid and continue contributing to the U.S. economy. If you were worried that coronavirus would sink your business, the tax breaks and financing options offered by the CARES Act could serve as a life raft to keep you afloat until the crisis subsides.