Relief for Businesses Impacted by COVID-19
The coronavirus outbreak presents an unprecedented and direct challenge to the livelihood of businesses across the U.S. Fortunately, there are options for small businesses to find help in the forms of grants, disaster loans, and other types of coronavirus-related small business relief.
Small business relief options
The CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a financial stimulus package designed to help keep small businesses running and workers employed. Among the programs in the CARES Act to assist small businesses are loans up to $10 million designed to help offset the financial challenges created by the COVID-19 pandemic.
Other provisions of the CARES Act include relief for employers, such as an employee retention tax credit, as well as relief for employers in the form of extended unemployment insurance benefits and temporary retirement plan changes. For example, qualified participants can take up to a maximum of $100,000 from 401(k), 403)b), or 457 plans without 10 percent early withdrawal penalty as a short-term opportunity to gain access to cash.
For more details, download the Small Business Owner's Guide to the CARES Act, provided by the U.S. Senate Committee on Small Business & Entrepreneurship.
To learn more about what the CARES Act means for your business and employees, watch our on-demand webinar, Understanding the CARES Act and Its Business Impact.
The Paycheck Protection Program
As part of the CARES Act, the Paycheck Protection Program (PPP) offered substantial financial incentives for small businesses to retain their current employees and bring back employees who have been laid off or furloughed, even before their business is fully back up to speed.
The PPP loan application process closed Aug. 8, 2020.
Funds were provided in the form of loans that might be fully forgiven when used for covered payroll costs and covered non-payroll costs (e.g., rent, utility, and interest on mortgages).
Note: As of June 5, 2020, and the enactment of the PPP Flexibility Act, at least 60 percent of the loan amount must be used for payroll costs. This Act also increased the amount of non-payroll costs that can be forgiven to 40 percent of the forgiveness amount (from 25 percent). If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs. Loan payments will also be deferred based on various criteria. No collateral or personal guarantees are required, and neither the government nor lenders will charge small businesses any fees. Learn more about loan forgiveness and check out the PPP Loan Forgiveness Estimator.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness may be reduced if full-time headcount declines, or if salaries and wages decrease. Borrowers must apply for forgiveness with the PPP Loan Forgiveness Application Form.
Small businesses, sole proprietorships, independent contractors, and self-employed individuals might qualify to use the PPP Loan Forgiveness Application 3508EZ Form . Read this article for more details on the EZ Form.
Families First Coronavirus Response Act
The Families First Coronavirus Response Act (FFCRA) was signed into law March 18, 2020. The Act dedicates tens of billions of dollars for paid sick and family leave, unemployment insurance, free COVID-19 testing, and other measures to help Americans impacted by the coronavirus pandemic. On April 1, 2020, the same day FFCRA’s paid leave provisions were effective, the U.S. Department of Labor released a Temporary Rule addressing protections and relief offered by the FFCRA’s Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act.
Generally, the FFCRA provides tax credits to American private employers that have fewer than 500 employees for the costs of providing employees with qualifying paid leave taken for specified reasons related to COVID-19 during the period beginning April 1, 2020 and ending Dec. 31, 2020. The FFCRA includes the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). Read more on details on the tax credits available to employers under the EPSLA and EFMLEA.
The FFCRA provides $1 billion in emergency grants to states for activities related to facilitating unemployment insurance (UI) benefits, under certain conditions, including half ($500 million) to be used to provide immediate additional funding to all states for staffing, technology, systems, and other administrative costs, provided certain requirements are met. States must:
- Require employers to provide notification of potential UI eligibility to laid-off workers
- Ensure that workers have at least two ways (e.g., online and phone) to apply for benefits
- Notify applicants when an application is received and being processed. If the application cannot be processed, the state must provide information to the applicant about how to ensure successful processing.
To determine each state’s share of the distribution, a federal funding formula is used that is based on taxes collected from calendar year 2018. The remaining $500 million will be set aside in reserve for emergency grants to states that experienced at least a 10 percent increase in unemployment. Those states would be eligible to receive an additional grant, in the same amount as their initial grant, to help cover the costs incurred due to the sudden spike in unemployment if they continue to:
- Express its commitment to maintain and strengthen access to the unemployment compensation system.
- Demonstrate requested steps have been taken to ease eligibility requirements and access to unemployment compensation.
States also would have access to interest-free loans to help pay regular UI benefits through Dec. 31, 2020, if needed.
The Secretary of Labor will also work with states that want to implement work-sharing programs for employers looking to reduce hours instead of laying off employees.
The Economic Injury Disaster Loan Program (EIDL)
The SBA is offering federal disaster loans of up to $2 million to help small businesses overcome the temporary loss of revenue caused by the COVID-19 pandemic. As part of the Economic Injury Disaster Loan (EIDL) Program, these low-interest loans provide working capital to small businesses (generally defined as those with 500 employees and under) suffering substantial economic injury as a result of the coronavirus.
Eligible businesses must be located in an area of the U.S. or a U.S. territory and be able to prove economic injury resulting in a shortfall in revenue, backdated to January 31, 2020. This will allow businesses to show their injury beginning in February or March.
Loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can't be paid because of revenue losses caused by the coronavirus. The loans come with long-term repayments to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower's ability to repay. Currently, the SBA is offering the option to defer payments in the first year, although businesses that choose to do this should note that interest would accrue during this time.
To get more comprehensive information on how your small business can navigate these unprecedented times, visit our Coronavirus (COVID-19) Help Center. You'll find more details about the legislation described above, as well how to take care of your business, take care of your employees, and find support from Paychex.
This article was originally published April 16, 2020.