To aid small businesses and individuals impacted by the COVID-19 pandemic, the United States government recently passed three landmark acts, including the largest economic stimulus package in history.
The Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), passed March 27, directs more than $2 trillion to the U.S. economy. The history-making stimulus package allocates funds to citizens, relief-oriented aid, government departments, and businesses of all sizes.
Notably for small businesses the package offers low-interest loan options, tax deferrals, and other financial aid opportunities to help companies stay in business during this time.
The passing of the 800-page CARES Act comes after the Coronavirus Preparedness and Response Supplemental Appropriations Act was signed into law. This earlier act directs emergency funds to essential government departments including the Department of Health and Human Services, state governments, and the Small Business Administration.
The U.S. government has also passed the Families First Coronavirus Response Act (FFCRA), which protects families and individuals from unpaid sick or family leave. This act also directs necessary funding to departments overseeing U.S. unemployment insurance.
While the CARES Act, and the other acts noted above, provide urgent relief and assistance to small businesses and individuals, the sheer size of the documents, and the legal jargon within them, can overwhelm anyone trying to make sense of the information.
At this time, we recognize that those who run or work for a small business are trying to quickly research their options and piece together what these laws might mean for their companies, personal finances, and future.
To help our readers learn how small businesses can take advantage of the stimulus package and related acts, we'll walk through each major benefit that the acts offer. For the many small business owners with a list of questions about the stimulus package, we've also included a quick FAQ at the end of this post.
In the coming weeks, we'll continue to update this piece as more news related to small business funding, aid, and stimulus packages circulates.
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How Small Businesses Can Take Advantage of the U.S. Stimulus Package
The CARES Act provides low-interest loans to small businesses, tax deferrals to organizations of all sizes, an expansion of unemployment options for individuals, and one-time payouts for taxpayers. The act also provides education, training and advising grants to small business development organizations, women's business centers, and the Minority Business Development Agency.
Meanwhile, the Coronavirus Preparedness and Response Supplemental Appropriations Act, passed earlier this month, allocates funding to essential government initiatives, including the Small Business Administration's Disaster Loan program.
Below, I've broken down four major factors of the governances that will impact small businesses, employees, and owners in the near future.
Low-Interest Loans and Paycheck Protection
Both the CARES Act and the Coronavirus Preparedness and Response Supplemental Appropriations Act allocate the Small Business Administration with funding to expand on its loan programs.
As part of the Coronavirus Preparedness and Response Supplemental Appropriations Act, $8.3 billion in emergency funding has been allocated to the Small Business Administration and its Disaster Loans Program.
Following the emergency allocation noted above, the Small Business Administration began offering disaster loans of up to $2 million that can be paid back in a period of up to 30 years. The loans, meant primarily for businesses of under 500 people or sole proprietors, have a low-interest rate of 2.75% for non-profits and 3.75% for other businesses. Those interested in one of these loans can find an application here.
As part of the CARES Act, the Small Business Administration will also direct funds to its Paycheck Protection Program. Through this program, SBA-approved lenders, such as banks can offer small businesses low-interest loans of up to $10 million to cover multiple months of payroll, mortgage or other business-related payments.
Interest rates and payback periods for the Paycheck Protection Program are not specified in the CARES Act or on the SBA site. Different SBA lenders might require varying interest rates based on their own policies or the type of loan negotiated.
For Paycheck Protection loans granted under the CARES Act, the SBA will collect no fee or the smallest fee possible from businesses. However, businesses who have gotten other SBA loan assistance related to COVID-19 might now be eligible.
On top of the expanded loan programs, SBA will also be providing debt relief to small businesses that took out 7(a) loans in recent months. According to its website, "The SBA will also pay the principal and interest of new 7(a) loans issued prior to September 27, 2020." The SBA will also pay "the principal and interest of current 7(a) loans for a period of six months."
Here's a quick rundown of some need-to-know details about loan assistance from the CARES Act and the Preparedness and Response Supplemental Appropriations Act:
Preparedness and Response Supplemental Appropriations Act
- This act provides low-interest Economic Injury loans for up to $2 million, with a $10,000 advance to small businesses or sole proprietors impacted by COVID-19.
- Economic Injury Funds will be available within three days of a successful application.
- Loans will be granted with a payback period of up to 30 years. Payments will also be deferred for six months.
- The time required to pay back the loan will be determined on a case-by-case basis.
- The loan advance of $10,000 will not need to be repaid.
- The interest rate of small business loans is 2.75% for non-profits and 3.75 for for-profits.
- Eligible small business loan applicants will receive the loan three days after a successful application,
- The SBA will direct $349 million to its Paycheck Protection Program, which will temporarily lend low-interest loans of up to $10 million to small businesses impacted by COVID-19. Interest rates and payback periods are not specified in the act.
- Additionally, Express Small Business Loans from SBA will be increased from a maximum of $350,000 to $1,000,000 until January 2021.
- Eligible small businesses can receive forgiveness of part of a 7(a) Small Business Administration loan. The forgiven amount must be less or equal to the cost of maintaining payroll continuity during the covered period.
How Small Businesses Can Take Advantage of Stimulus Loans
The loan and debt relief opportunities above provide small businesses in dire need with funding to keep their business running. Due to the economic climate, these loans also offer longer payback periods, debt-relief options, and low-interest rates which might make it easier for small businesses to pay them back without experiencing additional financial burdens in the future.
Small businesses and sole proprietors in all U.S. states and territories can now start applying for low-interest Economic Injury Disaster loans on SBA.gov. You can apply for the Paycheck Protection Program through most SBA-approved lenders after April 3, 2020.
Businesses with accepted Economic Injury Disaster loan applications will receive an advance within three days of an approved application.
Additionally, if small businesses that qualify for the Economic Injury Disaster Loan are in dire need and must have more funding before their full loan is disbursed, they can apply for the Express Economic Injury Disaster Loan Bridge. This shorter-term loan can be up to $25,000, has a faster application turnaround, and will be automatically paid back with funds from the Economic Injury Disaster Loan.
When it comes to the Payroll Protection Program, SBA lenders will begin processing applications on April 3. Because funds will be loaned by SBA lenders exclusively, decision times and interest rates will vary and are not noted on the SBA site. However, as noted in the CARES Act, lenders must provide loans at a low-interest rate with minimal to no fee. Those who receive this loan can also request partial or full forgiveness.
Once the funding is received, these loans can be used for paying payroll or other business-related bills, such as building rental or utilities.
Although these loans are low interest and have a longer payback period, small businesses should still consider their finances and the future economic landscape before committing to an amount of lent money. For small business owners, it will be important to make a future plan for how they might pay off loans in order to prevent any debt from hindering them in the future.
Tax Deferrals for Small Businesses and Corporations
As part of the CARES Act, tax payment for corporations will not be due until October 15, 2020.
Small businesses can also defer federal payroll taxes until Dec. 31, 2021, at which time, 50% of the tax will be due. The remaining tax must be paid by Dec. 31, 2022.
How Small Businesses Can Take Advantage of Tax Deferrals
Aside from funding opportunities provided by SBA, the stimulus package bill also helps companies that cannot pay payroll taxes at this time by deferring them until December 31, 2020.
While this payroll tax deferral regulation does not allow businesses to withhold paychecks from employees, it does lower the burden as businesses will not need to pay one sometimes-costly tax. For each employee paycheck, a small business must pay 6.2% toward Social Security and 1.45% toward Medicare taxes. Deferring this tax until 2021 would make 7.65% of tax money spent for each employee immediately available to a small business.
If a small business owner has a handful of employees, this extra money could add up quickly and provide solid temporary funding before needing to be paid to the IRS in Dec. 2021 and 2022.
Similarly to taking out loans, businesses should consider the future economic landscape and their future finances when deferring any sort of payment. This could ensure that they will still be able to make the payment later on.
Employee Leave and Unemployment Regulations
Both the CARES Act and the FFCRA aim to protect employees of large and small businesses. Here are a few regulations that business owners should keep in mind at this time:
- Those who've lost jobs permanently or temporarily due to COVID-19 can receive unemployment payments for at least 13 weeks.
- Reportedly, unemployment would temporarily be expanded to the self-employed, independent contractors, freelancers, and gig workers.
- Enforces that companies are still required to pay sick leave to employees who've worked 30 days or more.
- Companies with 500 employees and under will also be required to pay sick leave if an employee must take off work care for a relative or individual with COVID-19 or in isolation. However, the duration of leave payments will vary due to the situation.
- The act also temporarily credits eligible self-employed citizens with sick leave and family leave.
- Small businesses under 50 employees could be exempt from providing paid leave to employees if they can prove that paying this leave would greatly burden their company.
- Following guidelines released by the labor department on April 1, 2020, there may be exemptions for companies with essential employees, such as health care institutions and large grocery chains.
How Leave Policies Impact Small Business Owners and Employees
Ultimately, the regulations above have been implemented to protect the employees of all businesses, as well as families of business owners that might be struggling.
Additionally, sole proprietors, which did not previously qualify for unemployment, can temporarily take advantage of this benefit until December 2020. This allows them further funding on top of stimulus checks if they can't continue to do their work remotely.
While businesses are trying to determine funding opportunities at this time, small business employees might also worry about what could happen if they need to take leave because they or a loved one is sick.
Leave regulations in the CARES Act protect members of the workforce who must call out sick due to COVID-19 or other illnesses. Employees will still get full paid sick leave from an employer for the first week they're out of work and partial sick leave the week after.
At this time, small businesses should be sure to budget any potential cost they might need to pay related to sick or family leave of employees who have worked for them for 30 days or longer.
When it comes to family leave, small businesses under 50 employees can reportedly get approved from a family leave exemption related to only closed schools or childcare facilities. However, the business owner must provide forms and documentation to prove that they would see a financial burden if they covered this leave.
Stimulus Aid for Individuals
Aside from assisting small businesses and small business employees impacted by COVID-19, the CARES Act also allocates funds to individuals to offset the current financial burdens. Here's a quick rundown of the one-time payments that each tax-paying U.S. citizen will receive, according to the CARES Act:
- Each individual with no children will receive a one-time direct deposit of $1,200.
- Married couples without children receive $2,400.
- Individuals or married couples will receive an additional $500 for each child.
How Small Business Owners and Employees Can Take Advantage of Stimulus Aid
Although the one-time aid will not directly impact small businesses, these payments could help small business owners, the families of small business owners, sole proprietors, and small business employees in other ways.
On top of budgeting their business expenses, owners and sole proprietors also need to budget their household needs. With this act, business owners who've had to close their stores or offices, as well as their families, will receive checks to help them pay for home needs, along with all other U.S. taxpayers.
One-time checks might also prevent business funds from being used for home needs related to paying rent or food while they are temporarily out of work or seeing less business.
Additionally, those who work for a small business that had to temporarily close its doors can also benefit from these emergency funds for food, rent, or utilities.
Stimulus Package FAQ
From my research, I've found that people online are asking a few common questions about how the package works and what it will accommodate. To further help you understand the governance, I've highlighted a few in the FAQ below.
1. When does the package go into effect?
The CARES Act was signed into law on March 27, 2020. Small business owners can begin applying for Economic Injury Disaster loans now and Paycheck Protection loans after April 3., Individuals can also seek unemployment benefits immediately.
While there's not a set date for individuals to receive stimulus checks, the CARES Act has tasked the government with directly depositing the payments into bank accounts as soon as possible.
In a March 29 interview, U.S. Treasury Secretary Steven Mnuchin said individual's could see deposits within three weeks. If the IRS doesn't have an individuals direct deposit information, there will be measures in place to allow the person to submit it online rather than waiting for a check by mail.
2. Who is eligible for the package?
Each aspect of the stimulus acts passed has different eligibility requirements. Here's a quick rundown:
Low-Interest Loans, Tax Deferrals, Financial Exemptions
- U.S. small businesses under 500 employees -- or within SBA's Small Business Size Standards -- are eligible for low-interest loans.
- Sole-proprietors are also eligible for SBA loans.
- All U.S. corporations and small businesses can defer 2019 taxes until October 2020.
- All U.S.-based companies qualify for payroll tax deferment until December 2021.
- Businesses with 50 employees or under could be exempt from paying for certain employee leave if they can prove their business will face significant financial burden.
Aid for Individuals and Employees
- Individuals with annual taxable income under $75,000 and married couples making under $150,000 are eligible. Those making over $75,000 (or $150,000 as a married couple) could still be eligible, but might not receive the full $1,200.
- Households making more than $75,000, or $150,000, that receive the payment might be asked to pay back some of the payment with the 2020 tax refund.
- Individuals or married couples with children qualify for an additional $500 for each child.
- The one time payments do not disqualify citizens from unemployment benefits.
Sick Leave and Unemployment Eligibility
- Some, but not all self-employed people, will be eligible for unemployment. Unemployment is decided on a case-by-case basis.
- Employees who've worked for a business for 30 days or more qualify for paid sick leave.
- Employees who are in isolation, suspected to have COVID-19, have tested positive, or stay home to aid a sick relative qualify for full or partial paid leave.
3. Will the stimulus acts help me if I'm self-employed?
If you identify as a sole-proprietor, you might qualify for a Small Business Administration loan.
Additionally, unemployment benefits have been expanded to allow self-employed citizens to apply. But, the government will approve this on a case-by-case basis. Aside from unemployment benefits, individuals and married with taxable income will receive a check as part of the CARES Act.
4. Are there other funding options aside from the stimulus package?
Yes. Aside from this stimulus package, many banks, credit providers, and lenders are offering private low-interest loans that are both related and unrelated to COVID-19. Many businesses, such as non-profits, health and wellness companies, or agricultural organizations, can even apply for small business grants which can be found on grants.gov.
You can also check with your state or the local chamber of commerce to see if your area offers any location-based small business funding.
To help you make financial decisions, this blog post highlights a number of funding opportunities from both public and private organizations.
5. Can I delay paying my employees?
No. This stimulus package provides aid to help small businesses and corporations pay business costs, including payroll. You must still pay employees for the time they've worked as well as sick or family leave. However, you may defer paying your payroll tax until December 2021 and December 2022.
Resources for Small Business Owners and Employees
We recognize that this is a difficult time for many small businesses that are facing extenuating circumstances.
To help you, a small business owner close to you, or small business employees navigate their next steps further, I will be updating this post regularly with any new information.
Additionally, below are a few of the relief acts passed in the previous month.
- The CARES Act
- Coronavirus Preparedness and Response Supplemental Appropriations Act
- Families First Coronavirus Response Act
To learn more about the stimulus package and other small business governances related to the current financial climate, you can also bookmark these helpful websites:
- Small Business Association
- American Bankers Association
- U.S. Chamber of Commerce
- U.S. Department of Labor
For a list of both private and public small business funding options, read this blog post.
Disclaimer: This blog post is meant as a basic resource and not a comprehensive guide. We will regularly update it to add more information as it becomes available.