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Understanding the CARES Act and What it Means for Your Business

April 17, 2020

At the end of March, the Senate voted to pass the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Act was signed into law by the President shortly after it was passed. An unprecedented relief act, CARES is a stimulus bill designed to provide more than $2 trillion worth of financial relief to large and small businesses, governments, public agencies, and individuals.

As a business owner who is likely facing many of the challenges created by the coronavirus, such as business interruption, the need to lay off or furlough employees or uncertainty concerning when or if things will return to normal, you’re likely wondering how the CARES Act will help you. The Act allocates $377 billion in aid to smaller businesses, mainly in the form of grants and loans. There are also changes to tax requirements designed to help businesses out during this difficult time.

Take a closer look at some of the business-focused provisions of the CARES Act.

Paycheck Protection Program

Any business with fewer than 500 employees per physical location that was harmed by the coronavirus between February 15 and June 30, 2020, can be eligible to apply for a Paycheck Protection Program (PPP) loan. The loans are designed to support businesses that maintain their payroll during the pandemic crisis. The maximum amount of the loans is 250% of a business’ average monthly payroll (or $10 million, whichever is less) between February 15 and June 30, 2019, or between January 1 and February 15, 2020, if a business wasn’t operating in 2019.

PPP loans are guaranteed by the federal government and have an interest rate no higher than 4%. The loans can be forgiven eight weeks after the business receives the funds. The portion of the loan that is used to cover payroll costs, such as employee compensation, retirement benefits, and paid-time-off is forgivable, provided the business keeps people on the payroll through the end of June. Any part of the loan that isn’t forgiven will have a term of up to 10 years. PPP loans are available from SBA lenders.

Economic Injury Disaster Loan Advances

The CARES Act also created the Economic Injury Disaster Loan (EIDL) Advances. EIDLs can be for up to $2 million and are available to businesses with 500 or fewer employees. Funds from the loans can be used to pay for expenses that a business would have been able to cover had the pandemic and associated shutdowns and closures not occurred. The maximum interest rates on the loans are 3.75% for for-profit businesses and 2.75% for non-profits.

Companies that apply for an EIDL are eligible to receive a $10,000 advance a few days after their application. The $10,000 advance doesn’t have to be repaid and can be kept by the business even if their EIDL application is ultimately denied. The advance is meant to existing business obligations, to help keep employees on the payroll, or to pay for increased supply costs that are a result of disruptions in the supply chain due to COVID-19.

Debt Relief for Existing Loans

Under the CARES Act, $17 billion has been set aside to help out companies that have existing SBA loans. As part of the Small Business Debt Relief program, the SBA will cover loan payments on existing SBA 7a loans, microloans, 504 loans, and other non-disaster SBA loans for six months. The debt relief program will cover payments on existing loans and on new loans taken out within six months of the CARES Act being passed into law.

Tax Provisions

The CARES Act also introduces new tax provisions designed to help businesses through this trying time. One such provision is a payroll tax credit for employers who are experiencing economic hardship or who have had to close due to COVID-19. The tax credit would cover 50% of wages paid to employees during the crisis. To qualify for the refundable tax credit, a company needs to have been forced to close fully or partially by government order or needs to have had a reduction of more than 50% in its quarterly gross receipts.

Another tax provision introduced by the CARES Act allows for the delay of payroll taxes by employers through the end of 2020. Deferred payments would then be due in two installments, the first due at the end of 2021 and the second due at the end of 2022.

During these challenging, unprecedented times, you might not be sure where to look or how to go about getting access to government stimulus programs. New Direction Capital can help. We’ll work with you to help you decide which programs will best support your business right now. Contact us today to get started.

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