COVID-19, The CARES Act & Immediate Steps Your Business Must Take

As the COVID-19 pandemic continues to take its toll on both the financial and physical well-being of people worldwide, SMEs are especially feeling the pocket-pinch. However, The United States has rolled out a $2 trillion coronavirus stimulus package, also known as the CARES Act, which helps businesses to apply for loans and keep their doors open. Let’s take a closer look at everything you should know about the CARES Act and important steps your SME should take –

How Does The CARES Act Help SMEs?

The CARES Act offers the following helpful assistance –

1. Paycheck Protection Programs: Designed to help retain employees, $350 billion of funds have been set aside for SMEs through government backed private bank loans, which are modelled after the pre-existing SBA 7(a) Loan Program. The primary goal of this program is to motivate small businesses to not lay off employees during this challenging time.Eligibility requirements –

• Small businesses with less than 500 employees
• Select business types with less than 1,500 employees
• 501(c)(3) non-profits with less than 500 employees
• Select 501(c)(19) veteran organizations
• Self-employed
• Sole proprietors
• Freelance & gig economy workers
• Must have been operational on February 15^th, 2020

The maximum loan amount you could be eligible for is $10 million, with a maximum interest rate of 1% with a two-year payback period, and no requirement for collateral or a personal guarantee. Lenders will defer fees, principal and interest for 6-12 months. Furthermore, depending on the case, some of these loans can be converted into grants, which means either part or all of the loan might be forgiven.

These SBA-guaranteed loan benefits may be used toward –

• Employee salaries + commissions
• Payroll expenses
• Select expenses related to continuing group health care benefits
• Mortgage, rent and utilities payments
• Debt payment

You may also be eligible for a delay in payroll taxes from your end for Social Security until 2021 and 2022. Please note the SBA does not provide this program directly – you must find a SBA approved lender who will help you with the application process and identify which 7(a) loan product will suit your business needs best.

2. SBA Disaster Loans (EIDLs)
   Small business owners can also avail a low-interest Economic Injury Disaster Loan (EIDL) worth up to $2 million, in addition to the Paycheck Protection Program loan – however, both these loans should not go toward the same exact expenses. A financial expert will help you map out the best plan to reap the benefits of both of these programs to temporarily overcome the loss of revenue corresponding to COVID-19. The SBA can approve EIDLs solely based on your credit score – EIDLs less than $200,000 can be approved sans any personal guarantee.

   You can request a loan advance of upto $10,000 from EIDL. Advance will be based on the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.

However, please note this advance must only be used for the following –

• Offer sick leave to employees who cannot work due to COVID-19’s effect
• Maintain payroll to retain staff
• Pay rent / mortgage payments
• Cover increased cost of materials related to interrupted supply chains
• Repay obligations that cannot be met due to loss of revenue

If you use the advance payment strictly for these purposes, even if you are later denied a loan under the EIDL payment, you will not have to repay this amount.

Important Changes In Business Tax

The CARES Act also makes a few amendments to tax policies to help businesses impacted by COVID-19. There are two, in particular, which we’d like to bring your attention –

1. Employee Retention Tax Credit –

• Eligibility – Your business operations were partially / fully suspended due to a COVID-19 shut-down order OR gross receipts declined more than 50% compared to the same quarter of the previous year.
• Benefits – 50% refundable tax credit on wages up to $10,000 per employee paid or incurred between March 13^th, 2020 through December 31^st, 2020.

2. Delayed Payroll Tax Payments –
   Benefits – The employer share of 2020 Social Security tax owed can be deferred and paid over the next two years in a 50% — 50% breakdown. However, if your business has a Paycheck Protection Loan that has been forgiven, you may not defer these taxes.

While it might be difficult to avoid feeling stress during such uncertain times, please be assured our team at Astute has your back – if you would like any support in identifying which programs are most suitable for your business to recover lost revenue from the COVID-19 pandemic, contact our team right away. We have solutions in place for start-ups, SMEs, pre-IPO companies and Fortune 1000 companies alike!

Feel free to leave a comment below!