Note: The CARES Act was recently signed into law on Friday, March 27th 2020. This is written from the perspective of a small business and should not be considered legal nor tax advice.
As we continue to experience increasing COVID-19 cases and navigate through these unprecedented times with unemployment rates on the rise, we began to review the $2T economic stimulus bill that includes nearly $350B allocated for Small Businesses, which in this case is defined as businesses with <500 employees. The purpose of this bill is to provide small businesses, contractors, sole-proprietors and more in business and to ensure these businesses are able to pay their employees rather than laying off or furloughing their teams, including self-employed individuals who have seen their income dry up during this pandemic.
For specifics on this bill, I recommend reading through the documents below:
While this program went live on Friday, April 3rd, many banks were not, and may still not be, ready to accept applications. Gusto came up with a crowdsourced list of participating banks, if they’re currently accepting applications or when they plan on accepting applications, as well as those banks who are openly accepting applications from businesses that do not have an account with them already.
There are two main programs that are widely available to small business owners - the Payment Protection Plan and the Disaster Loan Assistance. While we are hearing you can apply for both, and if you're accepted for both they will 'net out' so there is no change in the funds you receive, it seems the recommended strategy is to apply for the Payment Protection Program (PPP) and use the Disaster Loan Assistance as a backup if needed. For more info on the Disaster Loan Assistance option, we recommend taking a look at the SBA’s Disaster Loan Assistance section.
For businesses that are eligible, the PPP is designed to provide a loan for 2.5x your average monthly payroll costs. While your payroll processing provider and/or accountant should calculate this for you, the basic formula is to take your previous 12 months of payroll costs (i.e. wages, commissions, benefits, State taxes, etc.), divide that number by 12 and then multiply it by 2.5x.
It’s important to remember that your 1099 contractors are not included in your costs, and that we’re hearing conflicting guidelines if Federal taxes are included or not. Again, we highly encourage your accountant and/or payroll processing company to calculate this for you, and this is simply our interpretation of the rules, not legal or tax advice.
What does all this mean for Small Business owners, who exactly is eligible and how can you take advantage?
As taken from The Small Business Owner’s Guide to the CARES Act, produced by the U.S. Senate, the types of businesses that are eligible for the PPP are:
The PPP program is designed to ensure businesses stay in business and keep their employees employed. To ensure these funds are used for those purposes, the loan acts more like a grant and can be 100% forgiven if the funds are used for the below purposes:
For the purpose of calculating payroll costs, it’s helpful to review the language that is in the bill:
Payroll costs include: employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation; and sole proprietor income or independent contractor compensation not in excess of $100,000.
Payroll costs exclude: compensation of an individual person in excess of $100,000 (as prorated for the period); federal employment taxes imposed or withheld taxes; compensation to an employee whose principal residence is outside of the U.S.; qualified sick leave for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act; and qualified family leave wages for which a credit is allowed under Section 7001 of the Families First Coronavirus Response Act.
If you take a loan and use the funds for other purposes, you’ll pay up to a 4% interest on the funds borrowed and the maximum term is 10 years. Each loan will be a bit unique as it goes by how much you borrow, so advise with a tax professional.
When you take a loan from the Payment Protection Program, you’ll need to show proof that you did use these funds for the intended purposes. To do this, you’ll need to prove to your lender by sharing the below documents (and potentially others):
If your business is eligible or you believe it is eligible, that is great! We recommend getting all of your financial information together - each lender is likely going to have slightly different requirements, but from what we can gather you’ll need at least the below information and potentially others:
Once you have your documents, and have checked the crowdsourced list from Gusto, we recommend applying with your bank first if they’re accepting applications. If not, there are thousands of SBA approved lenders and since each bank must have the same exact terms for your loan, your terms will not and should not be affected based on which qualified lender lends you the funds.
Our unprofessional opinion and what we’ve been hearing is it is easiest if you can do this with a bank you already have a pre-existing relationship with however. Once again, please consult with your accountant, lawyer, etc. This is not legal nor tax advice. It is our interpretation of the bill as a small business based in the US.
At OpGen Media, we're working daily with B2B small businesses and startups who have been impacted by COVID-19. In our work, we've seen concerns about how their business will continue to grow with the sudden downturn. But where there are challenges, there are also opportunities. You can still set your business up success in the 2nd half of 2020.
That's why we're offering a free 2020 Marketing Consultation call for small businesses and startups. In this call, we'll go over your 2020 marketing plan and discuss how you can position your business for success in 2020, even if the next few months are going to be slow. We'll focus on lead generation, organic growth and more as we show you how your business can grow, even with reduced budgets. Want to learn more? Fill out the form by clicking the button below: