With businesses being forced to close, workers getting sent home, and more people social distancing, COVID-19 is creating a financial crisis. To combat this issue, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed to help small businesses keep employing their workers during the COVID-19 pandemic.
Here is what you need to know about the CARES Act, including the impact on small businesses and how to
What is the CARES Act?
Because of the current pandemic and economic crisis from COVID-19, small businesses need more assistance to pay employees and cover other expenses. In order to combat this issue, Congress approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act to allocate $350 billion to loan programs from February 15 to June 30.
This is being done through The Small Business Administration's (SBA) 7(a) loan program called the Paycheck Protection Program. It provides 100% federally guaranteed loans to small businesses. These loans have the potential to be forgiven as long as borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
Who Can Apply for Assistance?
Small businesses that have been impacted by COVID-19 can apply for the program.
Examples of this include:
Loss of revenue
Loss of employees
Supply chain problems
Closing down an office
To qualify, you must meet the SBA’s definition of what a small business is. Typically this includes businesses with 500 or fewer employees, sole proprietors, independent contractors, and those that are self-employed and regularly carry on any trade or business.
Also, keep in mind that all employees in a small business, including full-time, part-time, and any other status, should be counted towards the 500-employee threshold.
When considering whether a business will be eligible, lenders will look at whether the company was operating before February 15, 2020, and had paid employee salaries and payroll taxes or if they paid independent contractors.
Lenders will also ask businesses for a good faith certification that:
Ensures a loan is necessary during this time to keep their business running
Funds will be appropriately utilized to retain employees, maintain payroll, or make payments on utilities, leases, and mortgages
They do not have any similar pending loan applications
They have not received any other similar loan from February 15, 2020, to December 31, 2020.
How Much Relief Can Be Received?
With the CARES Act, businesses can obtain a loan up to 250% their average monthly payroll costs, not exceeding $10 million. This includes annual wages up to $100,000 per employee, health insurance costs, employer covered 401k costs, and some subcontractor costs.
The CARES Act and Loan Forgiveness
For a business to be eligible for loan forgiveness, they must meet certain requirements. The amount of forgiveness is equal to how much the business spent during the 8-week loan period on the payroll costs, mortgage interests, rent, and utilities.
There are a few other things to keep in mind for loan forgiveness. If there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees, the amount of loan forgiveness will be reduced. Additionally, this loan is not taxable income.
How to Apply
Through the CARES Act, many small businesses will be able to seek economic relief during this pandemic. If your business has been impacted by COVID-19, consider applying for the Paycheck Protection Program.
Rech Law understands the significance of protecting your business and employees. If you need assistance with determining if this program is in the best interests of your business, our Charlotte attorneys are here. We can help you apply for the program, determine your eligibility status, and calculate the amount of loan assistance you need.
If you would like more information about how to apply for the program, you can call Rech Law today at (704) 659-0007 or fill out our form online.