Small business owners around the world face unprecedented challenges and uncertainty in the wake of the COVID-19 pandemic. In addition to national and state mandates forcing the closure of “non-essential” businesses, many U.S. business owners struggle to retain employees and avoid layoffs.
In early April, the federal government began disbursing funds to individuals per the Coronavirus Aid, Relief and Economic Security Act. The CARES Act contains $376 billion in relief for American workers, and part of that relief package is earmarked for small businesses with fewer than 500 employees.
If you are a business owner struggling to make ends meet, or wondering how you will sustain the losses you’ve taken over the past weeks, here are some important relief resources you should know about.
The Paycheck Protection Program is a forgivable business loan, which authorizes up to $349 billion in forgivable loans to be made through existing Small Business Administration 7(a) lending institutions. Unfortunately, the PPP was exhausted much sooner than anticipated and plans are currently in the works to inject another $310 billion into it. PPP funds can be used to cover up to eight weeks of payroll costs, mortgage interest, rent, and utilities related to your small business. Loans are capped at $10 million per business, and payroll disbursements cannot exceed $100,000 per employee.
This is an attractive option for business owners because there is no collateral required, and the loan could potentially be entirely forgiven for business owners who can show that they retained all employees at the same pay rates.
Businesses can apply through an existing SBA 7(a) lender through June 30, 2020 although it remains to be seen how quickly a second round of funds will last.
On April 9, The Federal Reserve announced the Main Street Lending Program aimed at small and mid-size businesses with up to 10,000 employees and revenues less than $2.5 billion. This program offers 4-year loans to companies that were in good financial standing prior to the coronavirus crisis. Eligible lenders can offer new business loans under this program, or leverage it to increase the size of existing loans to businesses.
Principal and interest payments can be deferred for one year under the Main Street Lending Program. Businesses applying for these loans must commit to make reasonable efforts to maintain payroll and retain workers.
Economic Injury Disaster Loans are another option for business owners with fewer than 500 employees. EIDLs are designed to provide up to $2 million in relief during major disruptions to business operations and revenues. Up to $10,000 in advanced relief is available as a grant that does not have to be paid back. Loan terms can be as long as 30 years and carry an interest rate of 3.75 percent. Eligible businesses can apply directly through the SBA.
The Employee Retention Credit is another relief option you may want to consider if you’d prefer an alternative to a loan to help your business survive this crisis. The ERC is a refundable tax credit of up to $10,000 against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021.
Eligible employers must show that their business is affected by COVID-19 and that gross receipts are 50 percent lower than those of a comparable quarter in 2019.
Employers can access this credit immediately by reducing employment tax deposits they are otherwise required to make, according to the Internal Revenue Service. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.
It is important to note that you can apply for either the PPP or the ERC, but not both.
Lastly, in the event that you or your employees do have to file for unemployment, there is a bit of good news: unemployment payments will be increased by $600 weekly for four months through July 31. Unemployment is also now available to those who were not previously eligible for assistance, including the self-employed as well as part-time and contract employees.
Your situation will, of course, be unique to your business so it’s important to review all of the details and fine print of these options. If, for example, your business is currently for sale, or you had prior plans to sell, your needs will be different than a business owner who is trying to secure the future of a business he or she plans to continue.
That’s why it’s important to seek out information on all of the resources available to you. The SBA has put together a helpful list that includes relief options beyond those mentioned here, as well as information on where you can find local resources.