The U.S. government had passed three landmark acts to aid individuals and small business impacted by the COVID-19 Pandemic. This includes the largest economic stimulus package in U.S. history.
- The Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) which direct more than $2 trillion to the U.S. economy. It allocates funds to citizens, relief-oriented aid, government departments, and business of all sizes. It offers low-interest loan options, tax deferrals, and more financial aid to help companies stay in business.
- The Coronavirus Preparedness and Response Supplemental Appropriations Act was signed prior to this act directly emergency funds to essential government departments including Department of Health and Human Services, state governments, and the Small Business Administration.
- The Families First Coronavirus Response Act (FFCRA) protects families and individuals from unpaid sick or family leave. It also provides funding to the departments overseeing U.S. unemployment insurance.
The CARES Act is outlined in an 800-page document with enough legal jargon to overwhelm anyone trying to make sense out of it. At a time when small business owners are desperately trying to research their options, this article will try to walk you through each major benefit that the acts offer.
The Stimulus Package for Small Businesses
The CARES Act provides low-interest loans to small businesses, tax deferrals to organization 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.
The following is four major factors that will impact small businesses, employees, and owners in the near future.
- Low-Interest Loans and Paycheck Protection – from the emergency allocation of funds for the Coronavirus Preparedness and Response Supplemental Appropriations Act, disaster loans up to $2 million can be offered with paid back periods up to 30 years. The loans, meant primarily for businesses under 500 people or sole proprietors, have a low interest rate of 2.75% for non-profits and 3.75% for other businesses. Click here to apply.
- As part of the CARES Act, the Small Business Administration will also direct funds to its Paycheck Protection 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 and other business-related payments. Interest rates may vary. These loans will collect NO fee OR the smallest fee possible. Keep in mind that businesses who have gotten other SBA loan assistance related to COVID-19 might now be eligible. SBA will also be providing debt relief to small businesses that took out 7(a) loans issued prior to September 27, 2020. The SBA will pay the principal and interest of current 7(a) loans for a period of six months.
Outline of the need-to-know details about the loans
Preparedness and Response Supplemental Appropriation Act:
- Provides low-interest Economic Injury loans 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 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 successful application.
- The SBA will direct $349 million to its Paycheck Protection Program which will temporarily lend low-interest loans up to $10 million to small businesses impacted by COVID-19. Interest rates and payback periods are not specified in the act.
- Express Small Business Loans from the SBA will be increased from a maximum of $350,000 to $1,000,000 until January 2021.
How to Take Advantage of These Stimulus Loans
These loan and debt relief programs allow small businesses in dire need to stay running. These loans have longer payback periods, debt-relief options, and low-interest rates making it easier to pay back. Apply for these loans here at SBA.gov. You can apply for the Paycheck Protection Program through most approved lenders after April 3, 2020. Once the application is accepted, businesses will receive an advance within three days.
If small businesses qualify for the Economic Disaster Loan and are in dire need of receiving funding before their full loan is disbursed, they can apply for the Express Economic Injury Disaster Loan Bridge where they can get up to $25,000.
Tax Deferrals for Small Businesses and Corporations
Under the CARES Act, tax payment for corporations will not be due until October 15, 2020. Federal payroll taxes can be deferred until December 31, 2020 when 50% of the tax will be due. The remaining 50% is due December 21, 2022.
For each employee paycheck, a small business must pay 6.2% towards Social Security and 1.45% toward Medicare taxes. This deferred tax until 2021 provides 7.65% of tax money spent for each employee, immediately available for the small business and its expenses. It will be wise to keep the eventual repayment in mind when saving for the future.
Employee Leave and Unemployment Regulations
These Acts have the goal of protecting employees of large and small businesses. Keep these regulations in mind:
- Those who’ve lost jobs permanently or temporarily due to COVID-9 can receive unemployment payment for at least 13 weeks.
- Unemployment will be temporarily expanded to the self-employed, independent contractors, freelancers, and gig workers.
- Employees who have worked 30 days or more are still entitled to sick leave pay. Small businesses should budget for any potential costs related to this.
- Companies with 50 employees and under will also be required to pay sick leave if an employee must take off work to care for a relative or individual with COVID-19 or in isolation but this duration of leave payments will vary due to the situation.
- Self-employed citizens have temporary credits for sick leave and family leave.
- Small businesses under 50 employees may be exempt from providing paid leave to employees if they can prove that paying this leave would greatly burden the company.
- Companies with essential employees such as health care institutions and large grocery chains may have special exemptions.
Leave policies and their impact on small business owners and employees
Sole Proprietors, who did not previously qualify for unemployment, can temporarily take advantage of unemployment benefits until December 2020. This allows for further funding besides the stimulus checks if they can’t do their work remotely.
Stimulus aid for individuals
The CARES Act also allocates funds to individuals to offset their financial burdens at this time also. The following applies:
- Each individual with no children will receive a one-time deposit of $1,200.
- Married couples without children receive $2400.
- Individuals and married couples will receive an additional $500 for each child.
- These checks will hopefully prevent businesses from using business funds to pay personal home needs such as rent or food.
Stimulus Package Frequently Asked Questions
- When does the package go into effect?
- The CARES Act was signed into law on March 27, 2020. Small business owners have been able to apply for Economic Injury Disaster Loans and Paycheck Protection Loans since April 3, 2020.
- Individuals can seek unemployment benefits immediately.
- Stimulus checks for individuals will be direct deposited into bank accounts as soon as possible.
- Who is eligible for the package?
- For Low-Interest Loans, Tax Deferrals, and 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.
- 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.
- For Low-Interest Loans, Tax Deferrals, and Financial Exemptions:
- 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.
- 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
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: