COVID-19 and Your Business

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In recent weeks, the U.S. economy has come to a seemingly complete halt after government officials have declared numerous stay-at-home orders to minimize the spread of COVID-19. 

These stay-at-home orders, while put in place to protect the American people, have hindered and crippled small businesses in the process. In addition, unemployment records spiked at the end of March, as more than 6.6 million people were laid off.

To help alleviate the toll of COVID-19 on both individuals and businesses, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27. This legislation provides financial assistance to small businesses through the Paycheck Protection Program, the Economic Injury Disaster Loan Program, and updated business tax provisions.

The Paycheck Protection Program: An Overview

One of the biggest financial aids that the CARES Act provides is the Paycheck Protection Program, which consists of $350 billion in government-backed loans to help businesses maintain their payrolls through June 2020. If your business is eligible, you can apply to borrow up to 2.5 times higher than your average monthly payroll costs—up to $10 million—and interest rates will not exceed 4%. 

What Businesses Are Eligible for Financial Assistance?

Businesses that are eligible for financial assistance through the Paycheck Protection Program are those that have fewer than 500 workers. That includes full-time, part-time, and other types of employees. According to the U.S. Chamber of Commerce, businesses with up to 1,500 employees are eligible for benefits, as well as freelancers, people who are self-employed, and contract or gig economy employees.

Unlike other SBA loan offerings, the Paycheck Protection Program is more lenient in terms of those who can borrow.

How Much Can Your Business Borrow?

To determine how much your business is allowed to borrow, you need to divide your payroll costs over the past year by 12 to determine your monthly payroll. Then, multiple by 2.5 to find the maximum your business is allowed to borrow––up to $10 million. Make sure to include part-time employees and contractors into your payroll calculation.

Who Is Eligible for Paycheck Protection Program Loan Forgiveness?

Your business will be eligible for loan forgiveness if it maintains its payroll levels by paying workers at their normal rates for at least eight weeks after receiving the loan. 

Loan funds can also be forgiven if they were used to pay qualifying payroll costs, mortgage interest, rent or utility payments over the course of eight weeks. If a business reduces its number of full-time employees or reduces wages for employees earning $100,000 or less by more than 25%, the amount will also be forgiven. 

How to Apply for a PPP Loan

Typically, SBA-backed loans are handled by SBA-approved lenders, and while the SBA will still guarantee loans, more and more banks will be approved to issue Paycheck Protection Loans. 

Starting April 3, small businesses can start sending in applications. On April 10 independent contractors and self-employed workers can start sending applications. Application terms are still in the works, so some things aren’t finalized yet. However, we do know that business owners will need to provide proof of how long their company has been operating, as well as documentation showing payroll and expenses. 

Before starting the application, we recommend that you speak to your institution about which documents you’ll need to ensure you can finish the application without any roadblocks. The first loans are set to be distributed by the end of April.

Economic Injury Disaster Loan Program

Also included in the CARES Act is the Economic Injury Disaster Loan Program, a program with a goal of offering financial support to businesses that are suffering from reduced revenue due to COVID-19. 

In general, the SBA has offered disaster relief only to specific businesses, homeowners, and renters targeted by disaster. But, due to the coronavirus, the SBA has expanded its financial relief reach to all 50 states in America. States are also eligible to receive a $10,000 loan advancement. 

What is the $10,000 Loan Advance?

Businesses that have applied for loan assistance can request the $10,000 advancement to help cover fees. If approved, the SBA must distribute the advance no later than three days after the application is received. 

Applicants who receive an EIDL before the PPP becomes available can refinance it into a loan through the PPP for future use. When taking this route, it’s possible that the loan is eligible for forgiveness––even if it was refinanced. 

Updated Business Tax Provisions

The CARES Act also makes changes to certain tax policies such as:

Employer Payroll Taxes––If your business was not approved for loan forgiveness, you can still delay payment of payroll taxes. The deterred payments must be paid back over a two-year period.

Employee Retention Credit––If your business was suspended due to a shutdown order, you may be eligible for a refundable tax credit up to $10,000.

Recovery Rebate Checks––The recovery rebate checks won’t impact small businesses directly, but they could stimulate the economy and give personal cash flow to business owners.

Financial Relief for Individuals and Families 

Most American families and individuals are eligible to receive economic assistance of up to $1,200. Married couples who filed their taxes jointly will receive up to $2,400. Families will receive $500 per child that is 16 years of age or younger. For individuals who earn more than $75,000 in adjusted income, the checks will be lower. Those earning $198,000 or more will not receive a payment.

If you haven’t filed your 2019 taxes yet, the government will go off of your 2018 tax records to determine your financial aid. 

Unemployment Financial Aid

The CARES Act offers financial aid for those who are self-employed and independent contractors who have limited work history and are unable to work due to COVID-19. 

Unemployment benefits are extended to run through the end of the year––December 2020. Those who are unemployed will also receive $600 per week until July 31, 2020 supplied by the federal government. 

Owners of small businesses may be able to benefit from financial support from the federal government in the coming weeks and months. 

Face an uncertain future with accountants who are committed to excellence. Contact Banks, Finley, White & Co. for more information.