The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) took effect in March of 2020 as a result of the COVID-19 pandemic and anticipated economic fallout. It is designed to provide both short- and long-term support for individuals and businesses.
We’ll take a closer look at the CARES Act and how it is helping small businesses survive one of the worst economic disasters in U.S. history.
The CARES Act
The CARES Act is a far-reaching piece of legislation that affects seven primary groups. They are:
- Small businesses
- Large corporations
- Hospitals and public health facilities
- Federal safety net providers
- State and local governments
The two primary sections of the CARES Act that affect small businesses are emergency grants and a forgivable loan program for companies with fewer than 500 employees. The goal of these two programs is to keep as many people working and as many small businesses operating as possible.
This is significant as the latest unemployment numbers are grim. More than 20 million people in the U.S. have become unemployed because of the coronavirus pandemic.
Data released in late July 2020 shows the government has issued $521 billion in loans so far. The average loan size is $107,000. That covers an estimated 84 percent of employees who work at small businesses.
The CARES Act also allocated $17 billion to cover six months of payments for small businesses that already have loans.
The CARES Act includes changes to the rules that deal with expenses and deductions for small businesses. The suspension of excess business loss disallowance is one of those changes. You can read more now about some of the other changes.
CARES Act for Small Businesses
There are two primary programs available for small businesses within the CARES Act. There are also new loan options for both small and medium-sized businesses that we’ll explore with you.
Paycheck Protection Program (PPP)
The PPP is probably the best-known of the provisions within the CARES Act. It is designed to help small businesses retain as many employees as possible. The PPP authorizes the Small Business Administration (SBA) to provide $656 billion in loans to eligible businesses.
The money will then be used to cover payroll and some qualified operational costs through December 31, 2020. Borrowers can use the money to pay up to eight weeks of payroll costs including benefits. The loans are either fully or partially forgivable.
If the borrower uses at least 60 percent of the money to cover payroll expenses, the loan will be fully forgiven. The borrower must also agree not to use more than 40 percent of the money for things like rent and utilities. $350 billion is allocated exclusively for these forgivable loans.
A borrower can only cover an employee’s salary up to $100,000. However, the money can be used for covering the costs of employee vacations, parental, family, medical, and sick leave.
The Economic Injury Disaster Loan (EIDL)
The EIDL provides small business loans to companies that have or will suffer significant economic hardship because of COVID-19. These low-interest loans can be used to cover payroll and operating expenses as well as health care benefits, rent, and utilities through December 31, 2020. Non-profit organizations are also eligible, provided they meet the criteria for a small business.
These are capped at $2 million and must be paid back. The loans are also available to small businesses that have suffered damages unrelated to the pandemic. These loans carry an interest rate between four and eight percent.
You may also qualify for an Emergency Economic Injury Grant. This is an emergency advance of up to $10,000 you receive within three days of applying for an EIDL.
The CARES Act also established a Main Street Lending Program. There are three Main Street lending facilities.
Main Street New Loan Facility
These loans are available to small businesses to help offset the damages caused by COVID-19. These are primarily designed for businesses that have suffered a temporary setback but that were in good financial shape before the pandemic.
These five-year loans range from $250,000 all the way to $35 million. The interest rate is LIBOR plus three percent. (LIBOR stands for London Interbank Offered Rate and is a standard financial index).
Businesses that received money under the PPP can also apply for a New Loan Facility.
Main Street Expanded Loan Facility
This isn’t a separate loan but rather an option for a small business owner to expand an existing loan. Amounts range from $10 million to $300 million and cannot exceed six times the borrower’s adjusted 2019 earnings.
Borrowers participating in the Main Street New Loan Facility are not eligible.
Main Street Priority Loan Facility
This is similar to the New Loan Facility but with a higher loan limit. Borrowers who qualify can receive up to $50 million dollars. It is also a five-year loan.
How to Qualify for the PPP
First and foremost, a company must meet the criteria for a “small business” as defined by the SBA. This is determined initially by the number of employees and annual revenue.
You can check the information in the SBA’s table of small business size standards to determine if your business qualifies.
If your business qualifies under the size determination, then make sure it meets additional standards established by the SBA. Among them, your business must be for-profit and independently owned and operated.
Additionally, other businesses may qualify for the PPP. For example, sole proprietors, independent contractors, and self-employed people may also apply for the PPP.
There is an enormous amount of information to process about the CARES Act and what programs you may be eligible for. The SBA can help you find a business counselor to help you navigate the process. You can start by looking for a Small Business Development Center (SBDC). You can search for assistance by geographical area.
We hope this article has been helpful in explaining the resources available under the CARES Act. Please explore our blog for more business-related information.