How Small Businesses Can Receive Money From the Coronavirus Relief Bill

Note: The following insight has been prepared with help from Alegeus legal counsel as a courtesy to our clients and friends. This is not legal advice from Alegeus to any person or organization and should not be relied on as a substitute for legal advice. Each situation should be evaluated taking into account its specific facts and circumstances.

The COVID-19 crisis is having a profound impact on small businesses across the country, with many struggling to operate as normal, keep staff on board and pay the bills. The CARES Act, signed into law on March 27, 2020, has provided $377 billion for such small businesses. This relief comes in several forms, including loans, grants and tax provisions. We’re here to walk you through these forms of relief, determine whether your business – or your clients’ businesses – qualifies for assistance and, if so, how you can apply to receive relief as swiftly as possible.

Which businesses qualify for the loans outlined in the CARES Act?

If your business consists of fewer than 500 employees, you’re qualified to receive one of the loans offered through the U.S. Small Business Administration (SBA). In some cases, businesses with which you share common ownership or management must be “affiliated” for purposes of counting the number of employees. Businesses in certain industries can use a higher headcount threshold if the SBA has allowed for that.

What are the loan programs?

There are two loan programs available as part of the CARES Act:

  • The Economic Injury Disaster Loan Emergency Advance (EIDL) can provide up to $10,000 of economic relief in the form of an emergency grant. The money, which will be made available within days of a successful application, can be used for a wide range of expenses – from salaries and paid leave to mortgage payments and utilities. A previously awarded EID loan may also be eligible for refinancing as part of a PPP loan.
  • Paycheck Protection Program (PPP) is designed to help cover a business’s payroll costs and other essential expenses (rent, mortgage interest or utilities). Your business can receive a loan amount of 2.5 times your average monthly payroll expenses, taking into account no more than $100,000 annually per employee. The loan will have an interest rate of 1%. A portion of or the entire loan may be forgiven if you keep all employees on the payroll for the 8-week period after the loan is made and use the money as intended, with at least 75% going toward payroll.

When and how can I apply?

As of Monday, April 6, more than 2400 lenders are a part of SBA’s primary lending program. Check with your local lender to see if it’s participating, as some are not due the increased legal risk.

The SBA has technically begun processing loan applications as of Friday, April 3, 2020. This program is available until June 30, 2020, or until the money runs out – whichever comes first.

According to sba.gov, you can apply through any existing SBA 7(a) lender, federally insured depository institution, federally insured credit union or Farm Credit System institution participating in the loan program. As of Friday, April 3, only 1,800 banks are a part of SBA’s primary lending program, and some may not participate at all due the increased legal risk. Check with your local lender to see if it’s participating.

To begin the application for the PPP loan, click here.

To begin the application for the EIDL, click here.

Note: Apply as soon as possible. The government does have cap for how much it can spend on these small business loans. Therefore, those who act first have a better chance of receiving some form of aid, and those who apply too late could miss out.

When can I expect to receive the loan?

Administration officials had said both loans could be made available the same day. However, many businesses that have applied thus far continue to wait on bank approval. Standard 7(a) loans typically take 5-10 days.

Are there any other options for COVID-19 relief through the SBA?

If you already have a loan with an SBA Express Lender, you can apply for an SBA Express Bridge Loan, which provides up to $25,000 in support as you apply for the EIDL. The SBA has also agreed to automatically pay the principal, interest and fees for current 7(a) loans, 504 loans or microloans, and for those issued before Sept. 27, 2020.

Are there any other forms of relief for small businesses included in the CARES Act?

The CARES Act includes two tax provisions for small businesses:

  • Tax credit. If you’ve had to fully or partially suspend operations due to a government order, or if you have experienced a 50% or greater reduction in quarterly gross receipts, you will receive a 50% employee retention tax credit (up to $5,000 per employee) applied to wages paid to your workers during the pandemic. If you have 100 or fewer full-time employees, all wages you pay to your employees during the affected period are eligible for the credit. If you have more than 100 full-time employees, only wages paid to employees who are not working during the affected period are eligible for the credit. You are not eligible for this tax credit if you receive the PPP loan.

    On May 7, 2020, the IRS clarified that this tax credit also may apply to employers that provide health coverage to laid-off or furloughed employees, regardless of whether those employees receive wages. The amount of the credit will reflect the value of the health coverage provided.
  • Social Security tax deferral. If you do not receive loan forgiveness from the PPP, you can defer payment of the employer’s share of the Social Security payroll taxes otherwise due between now and the end of this year. You must pay back half of these deferred payments by Dec. 31, 2021, and the remainder by Dec. 31, 2022.
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