If you are a small business owner, you may be experiencing considerable hardship—especially if you have not been deemed an “essential business.” You may be examining ways to adjust your business model, maintain revenue amidst quarantines, or cut substantial costs to survive this economic downturn, but it is impossible to predict exactly how long this downturn may last.
Fortunately, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help individuals, families, and businesses survive the financial ramifications of COVID-19. From stimulus checks to forgivable loans, the act provides a range of relief programs designed to support the economy during this unprecedented crisis. Here is a brief overview of how small businesses may stand to benefit from this emergency legislation.
The Paycheck Protection Program
This section of the CARES Act allocates $350 billion in government-backed business loans. These loans are specifically meant to help employers maintain their payroll through June of 2020. The interest rates are no greater than 4%, and companies can apply for up to 2.5 times their average monthly payroll costs (up to $10 million).
Here are a few other things to know about the Paycheck Protection Program:
- You do not need to provide collateral or a personal guarantee to receive the loan
- Your company must have been operational on February 15, 2020
- You must have under 500 employees (or up to 500 employees per location for certain industries)
- It is also available to the self-employed, sole proprietors, freelancers, contract workers, and gig workers
- The loans can cover payroll, qualifying mortgage interest, and qualifying rent or utility bills
- The loans cannot cover certain taxes and compensation for workers outside of the U.S. OR wages above $100,000 for any employee
If you use the loan to maintain your payroll (i.e. pay all workers at normal rates for 8 weeks after receiving the loan) and cover other qualifying expenses, it can be forgiven. If you lay off full-time employees or reduce wages, portions of your loan will likely not be forgiven.
To apply for your loan, fill out the online application on the U.S. Department of the Treasury website. If approved, you will not need to make payments for 6 months.
Economic Injury Disaster Loan Expansions
Before the CARES Act, the Economic Injury Disaster Loan (EIDL) Program provided relief for businesses in certain areas experiencing federally declared disasters. Now, companies in all states and U.S. territories can apply for these loans, and they can even receive $10,000 advances within 3 days of approval. Businesses will not need to repay these advances, even if they aren’t approved for the loans. The loans may be as high as $2 million each with interest rates of 3.75%.
Did you already receive an EIDL before the CARES Act? You can likely refinance this loan into a Paycheck Protection Program loan, which means it could become forgivable.
Adjustments to Business Tax Provisions
You may be able to benefit from the following tax provisions under the CARES Act:
- Refundable tax credit: 50% of wages paid to qualifying employees between March 12th and December 31st of 2020. The 50% credit will apply to wages of up to $10,000 per employee. Your business may be eligible if you fully or partially suspended operations because of a shutdown order OR you experienced a certain level of reduced revenue.
- Delayed payroll tax payments: 2-year period to pay your payroll taxes. You can benefit from this extension if you received a Paycheck Protection Program loan but it isn’t forgiven.
Changes to Bankruptcy
The CARES Act contains several provisions that temporarily change the Bankruptcy Code. These provisions will sunset in a year.
The changes include:
- Exempting federal relief under the CARES Act from the Chapter 7 means test and Chapter 13 disposable income calculations
- Allowing Chapter 13 filers to adjust their existing repayment plans (i.e. extending the deadline to lower monthly payments)
- Increasing debt threshold in Subchapter V of Chapter 11 bankruptcy from $2,725,625 to $7,500,000, allowing more companies to qualify as small businesses
These temporary adjustments make bankruptcy more accessible to both individuals and businesses. Bankruptcy could then serve as a long-term solution for businesses that accrue unmanageable debt due to the pandemic.
Let The Buchalter Law Group Support You During COVID-19
Even with extensive federal relief programs, you may be experiencing unprecedented levels of stress. This pandemic is affecting every facet of our lives, and we want to be your trusted advocates as you manage unexpected hurdles. With years of experience helping individuals and businesses overcome severe financial adversity, our team has the skills and resources you need.