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Understanding CARES Act Relief for Small Businesses

Updated: May 28, 2020

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $376 billion in Coronavirus relief for small businesses and their employees. The relief came in three primary forms: (1) the Paycheck Protection Program, (2) the Economic Injury Disaster Loan and Advance, and (3) the Employee Retention Credit. Each relief program brings its own requirements to qualify for relief as well as its own rules for administering the programs. While many small business owners have become well versed in these relief efforts, many became frustrated with the relief process and ceased their efforts to seek relief. Hopefully the following information will help those who have become frustrated and restore their efforts to apply for and receive benefits provides by the CARES Act.

Paycheck Protection Program. The Paycheck Protection Program (PPP) provides small businesses with loans to maintain their payroll. The PPP loan can be used to fund eight weeks of a small businesses payroll. The loan can be forgiven if the loan is used for payroll, rent, mortgage interest, or utilities. Any portion of the loan that is not forgiven carries a maximum interest rate of four percent. Sole proprietors, independent contractors, and single member entities are also eligible for PPP.

To qualify for a PPP loan, the small business must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operation of the applicant.” PPP loans are capped at $10 million with the average loan amount currently being $116,232. The PPP ran out of funding after just fourteen days, leaving many small business owners frustrated. However, congress approved additional funding for PPP and, as of May 22, 2020, PPP funding was still available for small businesses.

There are many nuances and legal requirements for qualifying for the PPP loan itself as well as forgiveness eligibility. Applicants who are unsure about the specific requirements should seek counsel when applying for PPP or forgiveness.

Economic Injury Disaster Loan and Advance. The Economic Injury Disaster Loan (EIDL) originally provided low interest loans to small business that were experiencing a loss of revenue associated with Coronavirus. Loan amounts up to $2 million were available to small business owners. Up to $10,000 of the loan could be advanced to the borrower with the advance being eligible for forgiveness.

Economic Injury Disaster Loans are not a new program. Rather they have been available through the Small Business Administration during previous disasters. However, the demand for EIDL has been unprecedented during Coronavirus. Therefore, due to “limitations in funding availability and the unprecedented submission of applications already received,” applicants are currently restricted to agricultural businesses. Whether additional EIDL funds will become available at a later time remains unknown for now.

Employee Retention Credit. The Employee retention Credit is a fully refundable tax credit for employers equal to fifty percent of qualified wages that eligible employers paid to employees between March 12, 2020 and January 1, 2021. In addition to meeting specific eligibility requirements, employers must have experienced a significant decline in gross receipts during the calendar quarter. The maximum amount of qualified wages that are eligible is $10,000. With a fifty percent tax credit, that means the maximum credit for any employee is $5,000.

The Small Business Administration, through the CARES Act, provided other forms of relief including Small Business Administration Debt Relief. Existing SBA loan borrowers were automatically enrolled in the debt relief program which consisted on the Small Business Administration paying six months principal, interest, and fees on existing SBA loans. Prior to EIDL loans being limited to agricultural businesses, the SBA also offered up to a $250,000 bridge loan to EIDL borrowers who had a pre-existing relationship with SBA Express Lenders. Businesses that still qualify for EIDL may still qualify for the bridge loans.

Some funding from the CARES Act remains available and additional small business relief may be forthcoming through future legislation. The many nuances and eligibility requirements for relief can be daunting. Those seeking to participate in the programs are encouraged to seek counsel.

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