Q: What is the CARES Act and what financial support does it offer for my business?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on Friday, March 27, includes a variety of mechanisms to provide emergency financial relief to those impacted by COVID-19.

While a lot of the attention has been focused on whether or not individuals will be receiving checks in the mail (and when), as well as what benefits large corporations and industries will be receiving, there are two primary ways for small and medium businesses (those with fewer than 500 employees, including sole proprietorships) to receive financial support.

Economic Injury Disaster Loan (EIDL) for Businesses and new CARES Act provisions

The first is the Economic Injury Disaster Loan (EIDL), which is administered directly through the Small Business Administration (SBA). The EIDL provides small businesses (including sole proprietorships) in any US state or territory with working capital loans of up to $2 million that can provide vital economic support to help overcome the temporary loss of revenue they are experiencing. 

The EIDL loan has an interest rate of 3.75% for small businesses, and 2.75% for non-profits, with principal and interest deferment for up to 4 years. Additionally, there will be an emergency advance grant of up to $10,000 for those that apply for the EIDL (per section 190009 Emergency Economic Injury Grants for Additional Covered Entities of the CARES Act).

This EIDL loan advance is up to $10,000 (calculated based on $1,000 per employee up 10 employees, with a maximum of $10,000). Any type of business entity is able to apply – including cooperatives, ESOPs, non-profits, or any individual operating as a sole proprietor.

How to apply for the Economic Injury Disaster Loan (EIDL)

The streamlined application for the Economic Injury Disaster Loan (EIDL), including the option to request the loan advance, is here.

CARES Act Paycheck Protection Program

The second major benefit for small and medium businesses is the Paycheck Protection Program. The purpose of this program is to help businesses maintain their existing workforce, as well as cover some expenses such as rent and utilities. Eligible entities may obtain a loan of up to $10 million, where the loan amount is calculated by reference to payroll costs incurred by the business and roughly equal to 2.5 times the company’s average monthly payroll costs.

Update as of April 16, 2020: You may have heard that the $349 billion in funds available to small businesses through PPP loans has already been depleted. In the event additional funds are authorized by Congress, you will want to submit an application now to increase the likelihood of receiving funds.

Loan Forgiveness for the CARES Paycheck Protection Program

If you have been paying full-time employees to run your business, and you use the loan to maintain your workforce, you are able to apply for loan forgiveness. This means the loan effectively becomes a tax-free grant. Your business can apply for this loan through approved SBA lenders.

How to Apply for the CARES Paycheck Protection Program (PPP)

Your business can apply for this loan through approved SBA lenders (you may not apply to the SBA directly, which is different from the EIDL). The approved lenders are still receiving details on requirements from SBA, but they should have a process in the next 15 days. You can start contacting them to let them know you’re interested. You must apply to this program by June 30, 2020.

Update as of April 1, 2020: Here is the Paycheck Protection Program (PPP) application form and a fact sheet on the PPP. Some important dates to consider: Starting April 3, 2020, small businesses and sole proprietorships can apply for loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

Take Action Now to Get Business Financial Support You Need via CARES

For both programs, you should take action as soon as you can, to ensure you are participating within the time constraints of the programs and so that you can get the financial support needed for your business during this challenging time.

It is also worth exploring the additional provisions for tax relief for your business.

Have additional questions about these programs? Take a look at this summary resource provided by the US Senate.

As news about the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act comes out, we will continue to provide updates on this blog post and additional blog posts. Sign-up for our FlexTeam Newsletter to receive all the latest news about CARES and tips for activating on-demand consultants and advisors.

Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.

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