The Federal Government has agreed to the 2,000,000,000,000 (2 trillion!) Coronavirus Aid, Relief, and Economic Security (CARES) Act to keep our economy running during the pandemic. That’s a lot of zeros and it’s an unprecedented boost for small businesses during a time of economic crisis.
Here are the basics of what’s included in the CARES Act:
- Direct payments to Americans: Under the plan, individuals who earn $75,000 or less in adjusted gross income would get direct payments of $1,200 each, with married couples earning up to $150,000 receiving $2,400. An additional $500 per child will be tacked on to that. The payment would scale down as income rises, phasing out entirely at $99,000 for singles and $198,000 for couples without children. As of March 26 (the original date of this post), the Treasury Secretary stated that “payments could be out the door” within three weeks “if the treasury department knows where you live, and has your bank account information”, (e.g., you’ve already filed your 2019 taxes and received your refund via direct deposit), according to an MSNBC report.
- A significant expansion of unemployment benefits that would expand unemployment insurance by 13 weeks and include a four-month enhancement of benefits — an additional $600 per week – on top of what state unemployment programs pay. This program includes freelancers, furloughed employees, and gig workers, such as rideshare drivers.
- For small businesses that pledge not to let go of their workers, federally guaranteed loans will be available at community banks. These loans will be available during an emergency period ending June 30, carry a nominal interest rate of 4%, and be due in ten years — but any portion used to keep employees on staff or pay critical costs like rent or utilities would be forgiven.
- Loans for distressed companies would come from a $425 billion fund controlled by the Federal Reserve. An additional $75 billion will be available for industry-specific loans such as divisions of the travel industry.
- More than $150 billion will be dedicated to the healthcare system including funding for hospitals, research, treatment, and the gathering of ventilators, masks, and other necessary, life-saving equipment.
Here’s what is being said about how this cash injection will benefit small business owners, their employees, and independent contractors.
Small Business Owner
The bill allocates more than $350 billion to aid small businesses across the nation. It also provides an incentive to keep on employees via loans so you can continue to meet your payroll and overhead commitments.
Full-time and Part-Time Employee
Individuals who earn $75,000 or less in adjusted gross income would get direct payments of $1,200 each, with married couples earning up to $150,000 receiving $2,400. An additional $500 per child will be tacked on to that. The payment would scale down as income rises, phasing out entirely at $99,000 for singles and $198,000 for couples without children.
For the first time, independent contractors, including those within the gig economy, will be covered by unemployment. This is great news for contract process servers, which make up a large majority of our industry.
Here are the breakdowns of the stimulus checks for “Average Americans” based on your 2019 tax returns. If you haven’t filed your 2019 returns, 2018 will be used.
- U.S. Small Business Administration: Small Business Guidance & Loan Resources
- Seek aid locally from your local municipalities. For instance, Denver has set up business assistance programs through their Department of Public Health & Environment. Many of these programs exist nationwide
- CDC: Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19)
- Nextdoor’s Small Business Guide for Coronavirus Relief
Now that you know what’s included in the CARES Act, you need to determine whether you qualify, if the program is right for your particular small business, and how to apply for a loan. For more information, check out the SBA’s Small Business Guidance and Loan Resources.
How it Works
Out of the $350 billion dedicated to new, forgivable loans, up to $10 million could be available per business based on how the business paid employees from January 1st through February 29th. These loans will carry an interest rate up to 4%. The SBA will oversee the Paycheck Protection Program and the distribution of the loans. The package allows banks to lend directly to businesses with loans backed by the SBA. Depending on whether the business meets certain requirements, the loans can be partially forgiven. If the business uses the loan funds for the approved purposes (paying employees, a mortgage, rent, or utilities) and maintains its full workforce from the time it received the loan, the company will only need to pay back the interest accrued.
Ensure your Business Qualifies
The Paycheck Protection Program applies to businesses with 500 or fewer employees with some exceptions. Businesses that are typically ineligible for SBA loans may qualify for the program including people who are self-employed and independent contractors that receive 1099s. Business owners also won’t have to provide personal guarantees or use all their available assets as collateral. The approval process is expected to take about two weeks. However, both the government and lenders need to figure out exactly how the money will be distributed.
While the government and financial institutions get their processes in place, business owners would be wise to make their own preparations. Before you apply, make sure the Paycheck Protection Program fits the needs of your small business. Be realistic with yourself. If you cannot keep on your entire staff or concerned that you cannot, don’t apply for the program. You don’t want to be stuck paying back the full loan. Take a hard look at your overhead and other fixed expenses and determine which of these will go up as sales increase post-pandemic. Be honest about how long it will take to regain lost business based on these numbers. Keep in mind that existing loans backed by the SBA are currently offering six-month deferrals of principal and interest. If you already have one, that may give you the liquidity you need.
Small Business Guide
The U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan. Learn about eligibility requirements, how much money you can borrow, and how the loan will be forgiven.
Source: Servenow Process Servers