CARES ACT 2020 ( Coronavirus Aid, Relief and Economic Security Act )
Everything You Need To Know About The CARES Act To Protect Your Business
The 2.2 trillion coronavirus stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES) was passed by the US Senate and House of Representatives and was signed into Law by President Donald Trump on Friday, March 27th.
With the CARES Act now law, this relief package will bail out many small-scale family businesses and large corporations, which have been financially impacted by the crisis. This includes keeping people out of the unemployment line and providing American households with $1,200 stimulus checks as a way to increase consumer expenditure and boost the economy.
For small business owners the most favourable aspect of this legislation can be narrowed down to the Paycheck Protection Program (PPP). The $350 billion program aims to lift small businesses out of hardship by providing them with the necessary cash flow to support them during the economic downturn as a result of the pandemic. The loan is accompanied by a low interest rate and a loan forgiveness potential that mean once the COVID-19 pandemic is over the burden of repayment will not be weighty. The additional aim of the PPP is to allow business owners to retain their staff and keep families feeling financially secure while unemployment levels remain low on a nationwide scale.
If the PPP sounds like it may be the right way for you to keep your business going during the pandemic, take the time now to assess the necessary guidelines and set requirements of the loan terms so you’re ready once the application process opens.
But, let’s have a look at the information as it stands at the moment.
The Goals of the Paycheck Protection Program
The Paycheck Protection Program (PPP) is a program that is steered by the Small Business Association (SBA) and its purpose is to provide small business owners with the cash flow required to pay staff their usual wages, including covering utility bills like electricity and phone, rent and other variable utility needs.
The funds a small business owner will receive, are to cover these costs for an eight-week period. The good news is that if the owner uses these funds as lawfully and legally agreed they are likely to be eligible to be loan forgiven; put simply, not have to pay back any money.
During this eight-week period existing businesses are encouraged to find new ways to generate business as a way to further take advantage of the grace period where expenses are covered. This will not only ensure the business can be profitable during this time while keeping staff employed, but it will also ensure longevity of the business especially if the COVID-19 pandemic goes on for longer.
Essentially the aim is to give small businesses time to regroup and reflect on how they can become more innovative and remain functioning during uncertain times.
Who Is Eligible?
You are entitled to apply if:
- You’re a small business registered as a, 501(c)(3) nonprofit, or a 501(c)(19) Veterans Organization based in the United States.
- Your small business employs less than 500 people.
- You are registered as self-employed or as a sole-priorietor.
- The impact of COVID-19 has closed your business indefinitely or has made it difficult to remain operational.
- You need the money to keep the business running in terms of ongoing expenses like utilities, wages and monthly rent.
- Your business was registered and fully operational on February 15, 2020 including having staff on payroll.
How much am I entitled to borrow through the PPP?
- As a small business owner with staff on payroll you can borrow up to 2.5 times your average monthly payroll expenses as per the previous 12 months. The maximum you can receive is a total of 10 million.
- If you’re self-employed or a proprietor since you have no one else to pay but your own salary, the loan amount is calculated based on payroll costs to cover your wage. This entitles you to a loan up to $100,000 which is the maximum amount a small business can claim as payroll for each employed staff.
What can I use the loan for and what is the period of the loan?
For the loan to be lawful and for you to be eligible to be forgiven and not repay it back it must be used to cover:
- Staff wages (75%)
- Rental premises or to cover the interest of your mortgage not the principal amount. (25%)
- All utility expenses. (25%)
The loan period lasts for eight weeks. You have two years to repay it with an option to pay it in full without receiving a penalty. Interest payments will be deferred for six months. To be eligible to apply for loan forgiveness you will need to provide all relevant documentation.
When Can I Apply?
The government is still working on the details, but it’s expected that this Friday April 3rd banks will be open to begin accepting and processing loan applications for small businesses. For self-employed and independent contractors, the application date is Friday April 10th. You will need to approach your bank for information and an application form or an SBA-approved institution. In the same way they will inform you when you will receive the loan if you are approved. Loans will be given on a first-come, first-served basis.
To be eligible for the loan all relevant documentation showing wage payments, rental, loan interest, and previous utility bills need to be presented with the loan application form.
You can find more information here:
SBA Paycheck Protection Program website
New guidelines released by the Treasury here
US Chamber of Commerce checklist