Updated - Navigating COVID-19: A Quick Reference Guide for Small Businesses
As businesses struggle in the wake of the COVID-19 pandemic, we’ve compiled a list of available resources to help guide small business owners during these uncertain times.
Paycheck Protection Program (PPP)
- The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a recently-adopted federal law intended to provide emergency relief for small businesses facing disruption because of COVID-19. One part of the CARES Act that may be helpful for small businesses and 501(c)(3) nonprofits is the Paycheck Protection Program (PPP) which provides loans to such businesses. Please see here for the text of the CARES Act and here for the PPP Interim Final Rule as released by the Treasury Department on April 2, 2020.
- Generally, a small business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Please review Questions 2 and 5 of the PPP Frequently Asked Questions from the Treasury Department if you have concerns that your business may be too large to participate in the PPP loan program. Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee-based size standards for the industry in which they operate.
- Certain affiliation rules are also applicable in determining whether a small business qualifies for a PPP loan.
- The PPP provides loans to cover the following:
- Payroll costs.
- Mortgage interest.
- Rent or lease payments.
- Group healthcare benefits.
- Interest on existing debt.
- The PPP loans provide:
- 1.00 percent fixed interest rate.
- All payments are deferred for six months; however, interest will continue to accrue over this period.
- Loans are due two years after disbursement.
- There are no prepayment penalties or fees.
- No collateral is required.
- No personal guarantee is required.
- Generally, the loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, mortgage interest, rent, and utility costs over the eight week period after the origination of the loan.
- Employee and compensation levels are maintained during the eight week period after the origination of the loan.
- Loan forgiveness is calculated based on the sum of amounts paid in the eight weeks following loan origination for payroll, mortgage interest, rent, and utilities. Borrowers must submit an application to their lender for loan forgiveness, but the maximum amount of forgiveness will be reduced proportionally to reflect any reduction in the number of employees or salaries during the emergency period, if any employee or salary reduction occurred during that period.
- At least 75 percent of PPP loan proceeds must be used to cover payroll costs.
- Unlike EIDL loans which are issued by the SBA (described below), PPP loans are authorized by the SBA but issued by a private lender.
- Maximum loan size for PPP loans are up to 2.5 times the average monthly payroll costs over the prior 12 months (generally calendar year 2019) and may not exceed $10 million.
- Payroll costs used to calculate PPP loan amounts and forgiveness exclude individual compensation in excess of $100,000 per year.
- Businesses and nonprofits seeking to apply must have been impacted by COVID-19 between February 15, 2020 and June 30, 2020.
- Loans will be available through June 30, 2020 but funding limitations may mean that entities applying later in the eligible period may be less likely to receive funding.
- Please note: businesses that receive PPP loans will not be eligible for the employee retention credit described below and businesses that receive forgiveness under a PPP loan will not be eligible for the payroll tax deferral described below.
- How to apply:
- As of April 3, 2020, businesses can apply for and receive loans through existing SBA lenders. Other lenders may be added to the program.
- The PPP application form from the Treasury Department can be found here. Lenders may have their own forms and may also require other information to be submitted under their own internal guidelines, as noted in the PPP application linked to above.
- While each SBA-approved lender may have different required documents to apply, some lenders have indicated that the following will be required:
- 2019 IRS Quarterly 940, 941 or 944 payroll tax reports.
- Last 12 months of payroll reports beginning with the business’ last payroll date and going backwards 12 months.
- Documentation showing health insurance premiums paid by the business owner under a group health plan.
- Please confirm with your lender other documents that will be necessary for their individual PPP application.
- More information about the PPP can be found at the Treasury Department’s PPP page here.
- Please note: if your business received an EIDL loan (described below) related to your business’ COVID-19 economic situation between January 31, 2020 and April 3, 2020 you may be able to refinance the EIDL loan into a PPP loan, which is especially helpful for loan forgiveness purposes since PPP loans have forgiveness provisions and EIDL loans do not. Further, if you receive an EIDP loan after April 3, 2020, you may also apply for a PPP loan. However, your business may not take out an EIDL and a PPP loan for the same purposes or to cover the same costs, including payroll. Further, any advance amount received under the EIDL emergency grant (described below) would be subtracted from the amount to be forgiven under the PPP loan.
Employee Retention Credit (ERC)
- The CARES Act also includes a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the period covered by the CARES Act.
- Eligible employers include:
- An employer whose business is fully or partially suspended during the covered period due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19.
- An employer that experiences a 50 percent decline in gross receipts for the calendar quarter compared to the same quarter in the prior year.
- Eligible employers are granted a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s suspension of business or a significant decline in gross receipts. The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters.
- The credit only applies to qualified wages paid between March 12, 2020 and January 1, 2021. If the employer has more than 100 full-time employees, qualified wages are wages paid to employees who cannot work during the COVID-19 pandemic. If the employer has 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
- Note: these credits may not be taken if the business obtains a loan under the PPP loan program mentioned above.
Payroll Tax Deferral
- Section 2302 of the CARES Act allows employers to delay payment of payroll taxes (6.2 percent share of Social Security taxes) from March 27, 2020 to December 31, 2020.
- 50 percent of the deferred tax amounts must be paid by December 31, 2021 and the remaining portion must be paid by December 31, 2022.
- Note: businesses that receive loan forgiveness on PPP loans are not eligible for this payroll tax deferral. The IRS has released further guidance that provides that an employer who receives a PPP loan may also defer the employer’s share of social security taxes due prior to the date that the PPP loan is forgiven (i.e. the date that the employer receives a decision from its lender that the PPP loan is forgiven)
SBA Disaster Loan Assistance – Economic Injury Disaster Loans (EIDL)
- Once a state governor declares a state of emergency due to COVID-19, small businesses may be able to apply for federal SBA loans.
- One option, other than the PPP loan detailed above, for businesses dealing with shortfalls due to COVID-19, are EIDL loans.
- EIDL loans may be used to pay fixed debts, payroll, accounts payable, and other operating expenses that can’t be paid because of the impact of the pandemic. EIDLs provide the necessary working capital to help small businesses survive until normal operations resume after a disaster.
- The maximum unsecured EIDL loan is $25,000. EIDL loans greater than $25,000 require collateral in the form of a lien against the assets of the business applying and the SBA has stated that it will take real estate as collateral when available. A personal guarantee from owners of 20 percent of the business, managing members of LLCs, and managing partners of LPs is required for EIDL loans larger than $200,000.
- EIDL loan amounts and use:
- Substantial economic injury means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses.
- The SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. The loan amount is be based on your actual economic injury and your company's financial needs, regardless of whether the business suffered any property damage.
- Eligibility and terms:
- The interest rate on EIDLs will not exceed 4 percent per year. The term of these loans will not exceed 30 years. The repayment term will be determined by the business’s ability to repay the loan.
- How to apply:
- Apply online for an SBA disaster assistance loan.
- Submit the completed loan application and a signed and dated IRS Form 4506-T giving permission for the IRS to provide SBA your tax return information.
- Please see this fact sheet from the SBA with additional information.
- For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail email@example.com.
- EIDL approval timeline:
- At this time the loan process may take a few weeks.
- Applicants are encouraged to apply as soon as possible given the possibility that loan funding may be limited.
- SBA hopes that most applicants will at least hear about approval or disapproval within 36 hours.
- Emergency grants of no more than $10,000 may be distributed within three days of a business submitting an application. The application for the emergency grant can be found here. Further, if your loan is not approved, you may be able to keep the emergency grant. As mentioned above, to the extent that an applicant receives this grant, such amount would be subtracted from the amount to be forgiven under the PPP loan described above.
- Once the executed Loan Closing Documents are received, an initial disbursement $25,000 for working capital due to an economic injury may be made within five days.
- Applicants have nine months to file for an EIDL from the date of the disaster declaration in their state or area of business.
- For additional information:
- SBA Disaster Loan Reference Guide.
- More information on the SBA disaster assistance and EIDL loans here.
- Please note: if your business received an EIDL loan related to your business’ COVID-19 economic situation between January 31, 2020 and April 3, 2020 you may be able to refinance the EIDL loan into a PPP loan, which is especially helpful for loan forgiveness purposes since PPP loans have forgiveness provisions and EIDL loans do not. Further, if you receive an EIDP loan after April 3, 2020, you may also apply for a PPP loan. However, your business may not take out an EIDL loan and a PPP loan for the same purposes or to cover the same costs, including payroll. Further, any advance amount received under the EIDL emergency grant would be subtracted from the amount to be forgiven under the PPP loan.
- Consider reaching out to creditors. Businesses may ask their creditors for forbearance/extended repayment terms on existing loans and other obligations and some lending institutions have generally agreed to give across the board forbearance terms.
- Review insurance policies for Business Interruption coverage.
- Businesses should gather, among others, the following documents and information, some or all of which will be needed when applying for a loan, grant or other form of assistance:
- Receipts related to COVID-19 spending.
- Payroll information.
- Details on laid off or furloughed staff.
- Debt service payments.
- Mortgage/lease and utility payments.
- Workers’ compensation claims.
- Signed tax return.
- Financial statements.
- Internal Revenue Service (IRS) tax filing delay:
- The IRS has delayed the deadline for all tax filers to July 15.
- More information can be found here: https://www.irs.gov/coronavirus
- State departments of revenue:
- Individual state departments of revenue may have extended the tax filing deadline for individuals and businesses due to or in sync with the IRS. Check with the state(s) where your business pays business, corporate, real estate, etc. tax to determine if this is relevant to your business.
- State and local governments:
- Many state and local governments have enacted small business relief programs, including loans, grants, and tax relief. Consult the localities where you conduct business for more information.
- Other resources:
- The US Chamber of Commerce – “Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know.”
- State chambers of commerce may provide assistance or guidance for state specific programs – contact them individually.
- Facebook Small Business Grant Program.
- Full text of the CARES Act
- PPP Interim Final Rule
- PPP Frequently Asked Questions
- SBA Affiliation Rules
- PPP Application
- EIDL Grant and Loan Application
This article, originally published April 3, 2020 was revised and updated April 10, 2020.
For more cutting-edge perspectives on the legal and business implications of COVID-19, visit our COVID-19 resource center.
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