CARES Act – Our Definitive Guide To Financial Relief For Businesses

April 14, 2020 - Written by Surprise.com ⠀

In uncertain times, we’ve seen incredible acts of community that give us great hope. As a company dedicated to helping companies succeed, the first thing we’ve done is our philanthropic initiative for healthcare, research, and public service heroes. Click here to #SurpriseaHero!

This unprecedented operation leverages our expertise in behavioral economics and psychology to open a portion of our platform to the public so members of our communities can recognize these heroes. Over just the first three days, over 250,000+ surprises have sent worldwide to help celebrate the heroes on the front-lines. For additional reference, check out our previous post

These digital care packages certainly make people feel better and lift their spirits, but they don't address their financial concerns. We know there are businesses everywhere looking at their finances and having to make hard choices. We want to make it as easy as possible for these companies to get the assistance they need.  When we looked into it, we found that there was no simply written explanation of the WHAT and HOW for small businesses. We’ve put together this guide specifically for small businesses looking for ways to best navigate these times with the assistance of the recently passed stimulus package.

The information within was collected and organized from primary sources. The information may be subject to change, therefore we recommend reading the sources directly and consult legal and finance professionals before you take action.

CARES Act Overview

On March 27th, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, providing $2 Trillion to stimulate the American economy through the challenges of Coronavirus. We are going to focus specifically on how to navigate the potential benefits of this law to Small Businesses with fewer than 500 employees. The CARES Act earmarks $370B specifically for Small Businesses. There are three ways to access these funds, described more fully on the following pages:

Paycheck Protection Program

The Paycheck Protection Program is designed to cover approximately 2 months of operating expenses through federally guaranteed loans to employers who maintain their employment and wage levels during this emergency.

This loan has an interesting structure. Businesses can apply for a loan equal to 2.5x their monthly Payroll (read on for how this is calculated). Then, if they maintain employment levels, 8 weeks of Payroll, plus some other payments, are forgiven. The rest of the loan is capped at 4% interest and can also be deferred up to a year.

Small businesses can apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program is retroactive to February 15, 2020, in order to help bring back employees who may have already been laid off. Loans are available through June 30, 2020.

Have questions? So do we. Here’s what we know so far:

Frequently Asked Questions

What types of businesses qualify for PPP loans?

First and foremost, businesses and entities' first date in business must be no later than February 15th, 2020. All office locations must be no larger than 500 employees. Also, any individuals who operate a sole proprietor, on an independent contract, or are eligible self-employed individuals. If your business is affected by Affiliation Rules, those rules are waived for this program for certain exceptions:

  • If the business concern  is assigned a NAICS code beginning with 72 (Food Services)
  • Any business concern operating as a franchise
  • Companies that receive funding through a Small Business Investment Company.

What types of non-profits are eligible? 

In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer are eligible.

How is the loan size determined?

Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is always $10 million. 

  • Were you in business on February 15, 2019 – June 30, 2019? Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonally, you can choose March 1, 2019, as your time period start date if you’d like. 
  • What if I wasn’t in the business between February 15, 2019 - June 30, 2019? Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
  • What if I already took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020, and June 30, 2020? If you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.

What costs are eligible for payroll, and what costs are not?

Costs eligible for payroll include:

  • Compensation (salary, wage, commission, or similar compensation)
  • Payment for vacation, parental, family, medical, or sick leave 
  • Allowance for dismissal or separation
  • Payment required for the provisions of group health care benefits, including insurance premiums
  • Payment of any retirement benefit 
  • Payment of State or local tax assessed on the compensation of employees

Costs not eligible for payroll include:

  • Employee/owner compensation over $100,000 
  • Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code 
  • Compensation of employees who do not principally reside in the U.S. 
  • Qualified sick and family leave for which a credit is already allowed under the Families First Coronavirus Response Act

What are the allowable uses of loan proceeds? 

  • Payroll costs (as noted above) 
  • Costs related to maintaining group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums 
  • Employee salaries, commissions, or similar compensations 
  • Payments of interest on any mortgage obligation 
  • Rent (this does have to be backed up with a lease agreement) 
  • Utilities 
  • Interest on any other debt obligations that were incurred before the covered period

How is the forgiveness amount calculated and how do I apply?

Companies that maintain employment and wage levels are eligible for forgiveness of 8 weeks of payroll plus other payments such as interest. More specifically, the forgiveness amount is equal to the sum of the following costs incurred during the first 8 weeks of the loan duration (as long as the company maintains employment and wage levels):

  • Payroll
  • Payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) 
  • Any payment on any covered rent obligation plus and any covered utility payment.

To get forgiveness on your PP loan, you must apply through your lender for forgiveness on your loan. In this application, you must include:

  • Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings. 
  • Documentation verifying payments on covered mortgages, leases, and utilities. 
  • Certification from an authorized representative of your business or organization that the documentation provided is true and that the amount being forgiven was used in accordance to the act’s regulations

What happens after the 8 week forgiveness period? 

Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.

Can I get more than one PPP loan?

No, a business entity is limited to one PPP loan.

Where should I get my PPP loan from? 

All current SBA 7(a) lenders are eligible lenders for PPP. The Department of Treasury will also be in charge of authorizing new lenders, including nonbank lenders, to help meet the needs of small business owners.

Emergency Economic Injury Grant (EEIG)

These grants provide an emergency advance of up to $10,000 to small businesses that have been harmed by COVID-19. The advance does not need to be repaid under any circumstance and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay other business obligations. This program is already live.

To access the advance, you first apply for an Emergency Economic Injury Loan (EIDL) and then request the advance, which can be done at this specifically created website: https://covid19relief.sba.gov/.

Frequently Asked Questions

Are businesses and private non-profits in my state eligible for an EIDL related to COVID19?

Yes, those suffering substantial economic injury in all 50 states, DC, and the territories may apply for an EIDL.

What is an EIDL and what is it used for?

EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

Who is eligible for an EIDL?

Sole proprietorships, Independent contractors, Cooperatives, Employee-owned businesses, and Tribal small businesses are all eligible for an EIDL. Small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size. To be eligible for an EIDL, the entity must have been in operation since January 31, 2020.

How long are Emergency Economic Injury Grants available?

January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.

If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan?

Yes. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April.

How do I know if my business is a small business?

Please visit https://www.sba.gov/size-standards/

Small Business Debt Relief Program

This program is built to supply immediate relief for small businesses with non-disaster SBA loans and microloans. Under it, SBA will cover all loan payments on SBA loans, including principal, interest, and fees, for six months. This is also available to new borrowers who take out loans within six months of the President signing the CARES Act into law. 

Frequently Asked Questions

Which loans are not eligible for debt relief under this program?

Loans not made under the Paycheck Protection Program (PPP), 504 loans, and microloans. Disaster loans are not eligible. 

How do I know if I’m eligible for these loans? 

In general, businesses must meet size standards, be based in the United States., be able to repay, and have a sound business purpose. To check whether your business is considered small, you will need your business’s 6-digit North American Industry Classification System (NAICS) code and 3-year average annual revenue. Each program has different requirements, see the SBA’s full breakdown here for more details.

How does debt relief under this program work with a PPP loan? 

Borrowers may separately apply for and take out a PPP loan, but debt relief under this program will not apply to a PPP loan.

If I am eligible, how do I apply?

There are many different options to apply for, you can visit the SBA’s site detailing each type of loan linked, and find the one that fits your business and needs. Each has slightly different application processes outlined below. The SBA also has a Lender Match platform here, and you can also find your nearest Small Business Development Center or Women’s Business Center here

For more information on SBA Loans, please visit the following pages:

Other Areas of Impact

Besides Small Businesses, the CARES Act also covers a number of other areas:

  • Individuals - One-time direct payments to Americans of up to $1,200 per adult, depending on income, family composition, and filing status.
  • Unemployment - Increases who is covered and the amounts of cash assistance given.
  • Hospitals - $150 billion for hospitals, including money to purchase key supplies like masks and ventilators.
  • Retail Workers - Increased unemployment insurance for retail workers and loans and tax rebates for Retail companies that don’t layoff workers.
  • Banks - Minor changes to balance sheet and cash on hand regulations.
  • Student loans - Suspension of automatic payments until Sept 30, 2020.
  • Specific Industries - $500B to the following specific industries, none of which are small businesses:
    • Airlines
    • Airplane Manufacturers
    • Automotive Manufacturers
  • Other
    • $400M to states for 2020 election preparedness and costs
    • $150B to State, Local, and Tribal Governments
    • All testing and vaccines for COVID-19 are covered at no cost.

Miscellaneous Rule Changes

  • Employers can delay the payment of their portion of 2020 payroll taxes
  • The 401(k) loan limit is increased
  • Minor changes to charitable deductions
  • Net Operating Loss accounting changes
  • The Excess Loss Limitation rules for pass-through entities are suspended
  • Other minor rule changes

References

The information in this document was collected and organized from primary sources. The information may be subject to change, therefore we recommend reading the primary sources for the most up-to-date information.

SBA Funding Programs
Forbes CARES Act Guide
Small Business Owner’s Guide to the CARES Act
CDC Emergency Relief Guide

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