Business LawCOVID-19

What’s in the CARES Act for small businesses?

The U.S. Congress has just passed the largest stimulus (nay, “recovery”) bill of all time to help the country weather the COVID-19 crisis — the “Coronavirus Aid, Relief, and Economic Security Act” or the ‘‘CARES Act’’. There’s a lot in here from straight up pork to direct payments to individuals. I’ve been following this process since the first drafts and have had opportunity to read and study its provisions. I’m getting a lot of questions from small business owners about what’s in it for them, so I’ve distilled it down to the most important elements for your quick reference.

  • SBA will pay your existing SBA loan for six months. If you have a 7(a) or 504 loan, the government will pick up the tab for principal and interest for the next six months, with no obligation on your part to pay it back. The only limitation here is that the loan can’t be in deferral (otherwise, loan payments start once the deferral period expires).1
  • Economic Injury Disaster Loans (EIDLs) available to every small business.2 This is a loan written directly by the SBA normally available to companies in hurricane disaster zones and the like. The CARES Act declares the whole country a disaster zone and expands eligibility. Here is a summary of the benefits:
    • Free money of up to $10,000 advanced within three days if you apply, which doesn’t have to be paid back even if the loan is not approved.
    • The loan size formula is currently 50% of your 1/31/19-1/31/20 gross margin (gross revenue minus cost of goods sold). 3
    • 30 year term at 4% interest or less
    • No personal guaranty or collateral
    • Only credit score will be considered, with a minimum credit score of 475 (this is secondhand information from an SBA employee, it has been reduced from 650).
  • Paycheck Protection Program: eight free weeks of payroll.4 Your local bank (provided they are an SBA authorized lender) will be able to write these loans for you. The rules are somewhat complicated, but the upshot is this:
    • No fees
    • 10 year term at 4% interest or less
    • No payments for at least 6 months
    • Forgivable to the extent of 8 weeks of payroll, rent, mortgage interest, and utilities.
    • Loan amount calculated as 2.5 times your average monthly payroll from last year.
    • IMPORTANT: For the purpose of this loan, independent contractor and sole proprietor payments of wages or net earnings is counted as part of payroll. That means that regular payments to yourself as a small business owner are counted as payroll and can be forgiven.
  • Employee Retention Payroll Tax Credit for closed businesses.5 The IRS will give you a refundable payroll tax credit for 50% of your employees’ wages if you meet the following criteria:
    • Your business was fully or partially suspended due to state shelter-in-place orders or similar;
    • you have experienced a 50% or more decline in gross receipts for the first quarter of 2020 as compared to the first quarter of 2019.

Stay tuned — this is a working document that I will update from time to time as we get more information.

  1. CARES Act, Section 1112.
  2. CARES Act, Section 1110.
  3. There’s no word on whether services businesses would be required to report other expenses instead of COGS.
  4. CARES Act, Section 1102; 1106.
  5. CARES Act, Section 2301.

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