Many small businesses are facing unprecedented difficulties due to the COVID-19 pandemic. Businesses in many locations have been forced to close. Others, deemed essential, have been allowed to continue to operate yet may be experiencing significant decreases in sales. Very few small businesses are seeing a continuation of normality.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, provides $376 billion in aid for small businesses and their employees. This works through four programs and is administered through the U.S. Small Business Administration (SBA).
The focus of providing aid is to keep employees on the payroll. That’s the government’s primary intent for these programs.
These are government programs; they’re not simple. This is an overview of what they do, or are supposed to do, and how they work. There are links out to the details, which you should delve into if one or more of these could be applicable for your business.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is a program of loans to help you keep employees on payroll through the crisis. It is an extension of the SBA’s existing 7(a) loan program. The program doesn’t require extensive lender verifications, relying instead on the borrower attesting to the accuracy of their documentation. This should help speed up what would otherwise be a lengthy process. Loans will have a term of two years and begin with a six-month deferment period.
The intent is that the loans be used for to enable businesses to keep employees on the payroll.
You can use the money for other expenses such as rent, as well. But forgiveness of the loan will be based on maintaining payroll levels through the crisis.
There’s a cap of $10 million, but that won’t apply for most businesses who will hit a lower limit. You will calculate a loan amount based on 2.5 months’ average payroll costs. In making the calculation you will not include payroll costs in excess of $100,000 per year for any employee. For example, if you have one employee who makes $150,000 per year and one who makes $125,000 per year you would count each of them at $100,000 per year.
Your loan amount will also be reduced by any payment you receive under EIDL (below). This could be up to $10,000.
You should apply to this CARES Act program as soon as possible, as there’s a good chance the money will be used up quickly. The program is open only through the end of June, but the funds will probably be exhausted long before that. And you should apply for the maximum, as you won’t have time to apply for more later.
Economic Injury Disaster Loan Emergency Advance
The Economic Injury Disaster Loan (EIDL) is intended to provide emergency relief to small businesses who experienced a loss in revenue due to the coronavirus pandemic.
The loan advance is available for businesses with fewer than 500 employees, or more in some limited cases. This is emergency aid. Payments will be made within days of successful application. This advance does not have to be repaid.
The maximum amount a business can receive under the PPP is reduced by this advance.
SBA Express Bridge Pilot Loan
The SBA Express Bridge Pilot Loan is a loan of up to $25,000 for small businesses experiencing financial difficulties due to the pandemic. This loan is available only if you have an existing relationship with an SBA express lender, so fewer businesses will be available to take advantage of this.
This is intended to be a bridge loan to getting other funds. Any payment due under the EIDL program (above) will be applied to this loan. If you do have an existing business relationship with an SBA express lender, you may be able to get funds quickly through this program.
SBA Debt Relief
The SBA Debt Relief program of the CARES Act provides relief from several forms of existing SBA debt and, in some cases, new SBA debt.
The SBA will waive principal, interest, and fees of current 7(a), 504, and microloan debt for a period of six months. They will also waive principal, interest, and fees on new 7(a), 504, and microloan debt issued prior to September 27, 2020.
The SBA will also be doing automatic deferments of existing SBA serviced disaster loans through December 31, 2020. Interest will continue to accrue during this time and regular payments will need to resume after the deferment period.
Note that they are not canceling any existing automatic payment arrangements; if you are making an automatic payment and wish to take advantage of this deferment, you will need to cancel your payments and then resume them at the end of the deferment period.
The Bottom Line on the CARES Act
The CARES Act's PPP and EDIL programs are great news for many small businesses impacted by the coronavirus pandemic. Small businesses make up the backbone of the U.S. economy, and keeping these businesses going and their employees employed will help not only in getting through the current crisis but will also in helping the economy to come back quicker once the crisis is past.
Business owners tend to be fiercely independent and resistant of government programs. Sometimes the right thing to do isn’t our first instinct. If you own a small business and there’s any chance you might need or benefit from one of these programs, you should delve into the details and apply. There’s a limited amount of funds, making the window of opportunity quite narrow.
We really don’t know how long this crisis will last or how quickly we’ll come back. All that you’ve worked to build could be at stake. And if you’re not a small business owner, you too can help.
You can continue to do business with small businesses in your neighborhood — to the extent that you can do so safely.
Once we’re through this, we’ll have debts we can’t repay to our frontline workers, especially those in healthcare. And we’ll need to reaffirm our support for those small businesses who will continue to be the backbone of our economy and the lifeblood of many employees. Together we can get through this and begin the hard road of recovery.