The CARES Act: What You Need to Know Now for Your Small Business

In response to the economic difficulties created for small businesses by the coronavirus pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which contains $350 billion in disaster assistance loans targeted toward small businesses by the Small Business Administration (SBA). Assistance includes the Paycheck Protection Program (PPP), enabling employers to delay or avoid laying off or furloughing employees. You can qualify for this as a small business owner if you: 

• Have 500 or fewer employees or you otherwise meet the SBA size standard;
• Are a 501(c)(3) organization with 500 or fewer employees, including all full-time or part-time workers;
• Are an individual operating as a sole proprietor;
• Are an individual operating as an independent contractor;
• Are a self-employed individual carrying on a trade or business;
• Are a Tribal business meeting the SBA size standard;
• Are a 501(c)(19) Veteran’s Organization meeting the SBA size standard.

Applications for the program begin April 3, 2020, for small businesses and sole proprietors; independent contractors and self-employed individuals may begin applying April 10, 2020. You can find the application here.

The US Chamber of Commerce has produced a helpful guide to the program, including the application process, the information you’ll need to provide to lenders, and other important information. You can read the guide here.

Loans granted under the PPP offer the following features:

• A maximum interest rate of 4%;
• The loan term is up to 10 years;
• No personal guarantee or collateral required;
• Payments deferred for six to 12 months;
• Part of this loan may be forgiven and not counted as income if spent during the first eight weeks on operating expenses. 

In addition, loans may be forgiven if the proceeds are used for:

• Payroll costs;
• Rent due on a lease in force before February 15, 2020;
• Electricity, gas, water, transportation, telephone, or internet access expenses due for services beginning before February 15, 2020;
• Group health insurance premiums and other healthcare costs.

In addition to the PPP, the CARES Act also provides $10 billion to the SBA for Economic Injury Disaster Loans (EIDLs), a program that the SBA has offered for some time. These loans provide the following features:

• Amounts up to $2 million;
• 30-year term;
• 3.75% for small business and 2.75% for non-profits;
• First month’s payments are deferred a full year from the date of the promissory note.

An application for the SBA’s EIDL program is available here.

Here’s what you’ll need to have available when you apply for these programs:

• Identifying information for your business;
• Your business tax identification number (TIN);
• Your average monthly payroll;
• The number of jobs supported by your business;
• The purpose for which you are seeking the loan;
• A list of all owners who hold at least a 20% stake in the company;
• Documentation of your employee headcount and your payroll costs.

In addition to the information from the US Chamber of Commerce, the US Treasury Department has a fact sheet with helpful information; you can access it here.

If you believe your business qualifies for the assistance provided by the CARES Act, you should apply as soon as possible. While the amount of money available is huge, it is limited, so you want to be first in line, with all your materials ready. Some recent applicants have reported having trouble completing the online applications because of heavy traffic on the SBA website. There is some indication, however, that the SBA has increased capacity and streamlined the process. Either way, the sooner you get started, the more funding will be available.

If you have additional questions about the CARES Act, these loans, and your business, you should talk to your business CPA immediately. As always, we are here to help, advise, and answer questions. We’re all in this together, and if we work together, we can help our businesses and our country get through this crisis and emerge on the other side, stronger and more united than ever. Please call us if you have any questions.

Buen Camino!