The coronavirus outbreak and social distancing restrictions have disrupted American life, but their impact on small business, in particular, has been devastating. To help subsidize small businesses and keep them afloat in the wake of the coronavirus, the federal government has enacted three key pieces of legislation.
Here’s everything you need to know about these new federal programs, including how they impact you as a small business, and how to take advantage of the relief efforts.
Coronavirus Preparedness and Response Supplemental Appropriations Act
This bill provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak. Among the agencies designated to receive the supplemental appropriations is the U.S. Small Business Administration. Under the act, the agency is able to offer disaster loans to small businesses impacted by COVID-19.
What it Means for Small Business
SBA Economic Injury Disaster Loans can be used by small businesses to pay fixed debts, payroll, accounts payable and other bills that cannot be paid as a result of the outbreak’s impact on the business.
These are low-interest loans that come with long-term repayments in an effort to keep payments affordable. The interest rate is 3.75% for small businesses and 2.75% for non-profits. However, businesses with credit available elsewhere are not eligible.
How to Apply
You can apply for an SBA Economic Injury Disaster Loan by visiting the Small Business Administration’s website. You will be asked to verify your eligibility by choosing the option that best fits your business and certifying that your business is not engaged in certain disqualifying activities. You’ll want to have the following information handy when completing the application:
- The legal and trade names of your business
- Your Federal EIN number or Social Security number
- Gross revenue and cost of goods sold for the 12 months leading up to January 31, 2020
- The date your business was founded
- The number of employees
For each owner of the business, you will also be asked to provide the following:
- Percentage of business ownership
- Home address
- Phone number
- Social security number
- Date and place of birth
- Citizenship status
Families First Coronavirus Response Act
The FFCRA contains eight divisions designed to provide assistance to covered employees and households with eligible children affected by COVID-19. One such stipulation of the act is that all private businesses with fewer than 500 employees must provide emergency paid sick leave for covered employees who, as a result of COVID-19, are quarantined, symptomatic, are caring for a symptomatic individual, or are caring for a child whose school is closed or a child care provider is unavailable for reasons related to COVID-19.
What it Means for Small Business
To help employers afford the new paid sick leave and paid FMLA benefits, small businesses are able to seek reimbursement through tax credits as a provision of the FFCRA. Pursuant to the Act, employers will receive 100% reimbursement for paid leave, including health insurance costs, up to the capped amount of benefits they must pay. An immediate dollar-for-dollar tax offset against payroll taxes will be provided, and the IRS will send a refund as quickly as possible, should one be owed. Equivalent credits are available to self-employed individuals based on similar circumstances.
How to Apply
As an employer, you are required to withhold federal income taxes and the employees’ share of Social Security and Medicare taxes from your employees’ paychecks. You are then required to pay these federal taxes, along with your share of Social Security and Medicare taxes, to the IRS and file quarterly payroll tax returns.
Under the Act, eligible employers who pay qualifying sick or child care leave are able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. For example, if you paid $3,000 in sick leave, and you are required to deposit $5,000 in payroll taxes, including taxes withheld from all your employees, you will only be required to deposit the remaining $2,000 under the Act.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. For example, if you paid $8,000 in paid leave, and you are only required to deposit $6,000 in taxes, you can file a request for an accelerated credit for the remaining $2,000. The IRS expects to begin processing these requests in April 2020.
For more information, see How to Claim the Credits.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The most widely reported provision of this ACT is the distribution of a one-time $1,200 stimulus check to all eligible taxpayers, however, there are other stipulations of the law specifically aimed at providing relief for small businesses impacted by COVID-19. One allows employers to delay payment of their portion of 2020 payroll taxes until 2021 and 2022, but the most important provision for most small businesses is the Paycheck Protection Program, which sets aside $350 billion in government-backed loans that can be forgiven when used to maintain payroll through June.
What it Means for Small Business
The main purpose of the Payroll Protection Program is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19, by providing loan forgiveness. All businesses – including non-profits, veterans organizations, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply.
These loans should be used for:
- Payroll costs (salary, wages, commissions or tips, employee benefits, state and local taxes assessed on compensation, and, for a sole proprietor or independent contractor, wages, commission, income or net earnings from self-employment)
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
Loan amounts can be for up to two months of your average monthly payroll costs from the last year, plus an additional 25% of that amount, subject to a $10 million maximum. Payroll costs will be capped at $100,000 annualized for each employee.
Loan payments will be deferred for 6 months, however, interest will continue to accrue during this time. The interest rate for the loan is 0.50% and the loan is due in 2 years if you use the loan amount for anything other than payroll costs, mortgage interest, rent and utilities payments over the 8 weeks after getting the loan. You will also owe money if you do not maintain your staff and payroll.
How to Apply
Although the program is open until June 30, 2020, small businesses are encouraged to apply as quickly as possible, as there is a funding cap. You can apply for the Paycheck Protection Program through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. We have provided a list of SBA lenders and a PDF of the loan application that you will be expected to fill out at the bank.
You do not need to pledge any collateral or personally guarantee this loan, and, unlike the SBA Economic Injury Disaster loans, you are still eligible even if you have access to credit elsewhere. In addition to the application, you should be prepared to provide payroll documentation that verifies the following:
- Number of full-time equivalent employees on payroll
- Dollar amounts of payroll costs
- Covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan
The loan amounts will be forgiven as long as employee and compensation levels are maintained, and the loan proceeds are used to cover payroll costs, and mortgage interest, rent and utility costs over the 8 week period after the loan is made. However, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
To request loan forgiveness, you must submit a request to the lender that is servicing the loan. The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, rent and utility costs. And you must certify that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent and utility payments. The lender is required to make a decision on the forgiveness within 60 days.
The Lakeside Park is Here for Small Businesses in Boston
As a leading office park for several Boston-area small businesses, The Lakeside Park knows first-hand the impact that COVID-19 and social distancing has had on our local economy. These stimulus packages are much needed for our tenants and other local small businesses that work so hard to provide for our community.
For more tips to help your small business thrive during the coronavirus outbreak, check out these articles: