How Does the Government's Response to the COVID-19 Pandemic Help Small Businesses?

April 7, 2020

The COVID-19 pandemic has already made a lasting impact on the global economy. But it’s also affected individuals everywhere, including millions of Americans who own and operate small businesses.

In response, federal legislation enacted at the end of March 2020 — the Coronavirus Aid, Relief, and Economic Security (CARES) Act — includes a $377 billion allocation for small businesses.

What are the specific provisions of this law? How can it help your enterprise weather the present storm and return to business as usual once your customers are no longer sheltering in place? Read on to learn how your small business can benefit from the government assistance available through the CARES Act.

What Exactly Is The CARES Act And What Does It Do?

The CARES Act was signed into law on March 27, 2020. It has created a $2 trillion relief fund to be shared by state and local governments, large corporations, individuals, the healthcare industry, and small businesses.

Via direct payments, loans, and regulatory changes, the CARES Act aims to protect the American economy from its worst downturn since the Great Recession of 2007-2009.

The most significant small business provisions of the CARES Act are the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan Emergency Advance, and the Employee Retention Credit.

What Is The Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a $349 billion small business loan program. Its goal is to keep small businesses solvent as well as fully staffed for up to eight weeks from the date that loan funds are released.

Small businesses may only use PPP loans to cover specific costs: employee salaries, mortgage payments, rent, and utilities.

How Much Money Is Available to My Small Business Via The Paycheck Protection Program?

Qualifying small businesses can apply for up to 2.5 times their average monthly payroll costs or $10 million in assistance.

However, only permanent, W-2 employees count for purposes of PPP loan calculations. After some initial confusion, the government has clarified that independent contractors (1099 employees) “have the ability to apply for a PPP loan on their own” and therefore may not be included in the payroll totals submitted as part of the PPP application process.

Who Qualifies For A Paycheck Protection Program Loan?

Small businesses, private nonprofit organizations, and veterans’ organizations that employ less than 500 workers may apply for a PPP loan. Restaurants, bars, and hotels operating more than one location can also apply as long as no single location employs more than 500 workers.

What Are The Terms Of These Paycheck Protection Plan Loans?

Interest payments on PPP loans are deferred for six months. More importantly, individual PPP loans will be fully forgiven, provided small businesses use these funds to cover the costs listed above. In other words, small businesses must maintain payroll — that is, not lay off employees — to avoid repaying these loans once they mature.

Businesses are not required to provide collateral or personal guarantees as part of the application process.

How Can My Small Business Apply For A Paycheck Protection Program Loan?

The government is accepting applications now through June 30, 2020. Small businesses can apply through any existing U.S. Small Business Administration (SBA) 7(a) lender, federally insured credit union, participating depository institution, or Farm Credit System.

Ready to apply for a Paycheck Protection Program (PPP) loan for your small business?


What Is An Economic Injury Disaster Loan Emergency Advance?

The CARES ACT has also earmarked $10 billion for small businesses looking for a direct and immediate cash infusion via what the SBA is calling an Economic Injury Disaster Loan Emergency Advance. This is a one-time, $10,000 loan that does not have to be repaid. The SBA further promises that loan funds will be delivered within three business days of a successful application’s approval.

Who Qualifies For An Economic Injury Disaster Loan Emergency Advance?

Small businesses that have experienced or are experiencing a temporary loss of revenue due to COVID-19 are welcome to apply for this advance. This would include businesses currently shuttered because they are considered non-essential as well as businesses — such as restaurants, bars, and gyms — coping with severe hardships due to social distancing policies meant to curb the spread of the coronavirus.

All small business owners in the United States, Washington, D.C., and the U.S. territories are eligible for an Economic Injury Disaster Loan Emergency Advance.

As with the PPP, the SBA’s size standards still apply.

How Is An Economic Injury Disaster Loan Emergency Advance Different From An Economic Injury Disaster Loan (EIDL)?

The SBA’s Office of Disaster Assistance has traditionally offered Economic Injury Disaster Loans (EIDLs) to small businesses that experience “substantial economic injury” as a result of hurricanes, earthquakes, floods, and other such force majeure events. That coverage is now being expanded to businesses impacted by COVID-19.

Individual businesses can apply directly for an Economic Injury Disaster Loan Emergency Advance. EIDLs, on the other hand, are administered by the SBA in cooperation with state governments. Governors must request disaster assistance from the SBA to acquire the working capital distributed through this loan program.

On March 25, 2020, President Donald Trump approved Governor Greg Abbott’s Major Disaster Declaration request for the State of Texas. Consequently, small businesses in Texas are currently eligible to apply for an EIDL

How Much Financial Assistance Is Available Via These Expanded Economic Injury Disaster Loans (EIDLs)?

Small businesses with no other access to lines of credit can apply for up to $2 million in EIDL funds. The SBA has set the interest rates for these loans at 3.75 percent for commercial enterprises (LLCs, C-corps, S-corps) and 2.75 percent for nonprofits (501(c)(3)s).

Repayment terms are determined on a case-by-case basis. However, the SBA has designed these terms to be as friendly to small businesses as possible. In many instances, borrowers have up to 30 years to repay these loans.  

Can My Small Business Get Any Tax Relief Through The CARES Act?

Yes. In another effort to keep employees on the payroll, the Internal Revenue Service (IRS) has implemented the Employee Retention Credit. As long as the wages are paid between March 12, 2020, and January 1, 2021, an employer may receive up to $5,000 in tax credits per employee.

However, on April 30, 2020, the IRS announced that PPP loan recipients cannot deduct any business expenses paid via loan funds from their annual tax return. This ruling is consistent with the IRS’ policy of disallowing deductions on exempt income. Congress may ultimately reverse this decision, but, for now, PPP loan applicants and recipients can read the notice explaining this ruling at the IRS website.

Who Qualifies For The Employee Retention Credit?

According to the IRS, one of two conditions must apply for a business to qualify for the Employee Retention Credit.

  • The business must have partially or wholly suspended operations “during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19.”
  • The business must have experienced “a significant decline in gross receipts during the calendar quarter.”

Further, the IRS defines “a significant decline” as 50 percent less in gross receipts from the same quarter in 2019.

What About State Business Tax Relief Here In Texas?

The Comptroller’s Office has extended the filing date for 2020 Texas franchise tax reports to July 15, 2020, which is consistent with the IRS’ new tax guidelines for COVID-19.

Is More Help For Small Businesses On The Way?

Very likely. Since the passage of the CARES Act, both the state of Texas and Congress have taken additional actions to help small businesses experiencing financial hardship because of COVID-19.

On April 13, 2020, Governor Greg Abbott announced that Goldman Sachs, LiftFund, and several other community development financial institutions (CDFIs) would be collaborating to direct $50 million in lending to Texas-based small businesses impacted by COVID-19. Loans granted through this program are subject to the same eligibility requirements and forgiveness rules as the SBA-administered PPP loans. Learn more about how to apply for this funding at the LiftFund website.

Also in mid-April, the Federal Reserve created the Main Street Lending Program. These loans do not carry the same forgiveness terms as PPP loans. Instead, they offer interest rates friendly to small and medium-sized businesses “that were in good financial standing before the onset of the COVID-19 pandemic.” The minimum loan amount is $1 million, and the maximum $10 million. All Main Street Lending Program loans must be repaid in four years. For comparison, PPP loans — if not forgiven — must be repaid within two years. For more information about the Main Street Lending Program, visit the Federal Reserve website.

On April 21, 2020, Congress approved an additional $310 billion in PPP funding. Of that total, $60 billion has been earmarked for loans made by community banks and credit unions holding less than $50 billion in assets. Of that $60 billion, half has been earmarked for community banks and credit unions holding less than $10 billion in assets.

Further, on April 29, 2020, the SBA announced that it would place a temporary block on PPP applications originating with any lender whose assets total more than $1 billion. “Temporary” in this instance turned out to be eight hours. According to an email circulated by the SBA, agency officials implemented this measure “to ensure access to the PPP loan program for the smallest lenders” — and, presumably, the businesses most in need. The SBA has also not ruled out the possibility of future restrictions on access to the PPP loan application system.

Finally, to improve cash flow for small businesses, financial institutions across the country are altering how they provide lines of credit. By working with your lender, you may be able to defer repayments, reduce your interest payments, or secure an interest-free line of credit.

At Guaranty Bank & Trust, we understand that the challenges currently facing small businesses are rather daunting — and, in many ways, unprecedented. But we also believe that, with the right tools and contingency planning, you and your employees can continue to look forward to a future in which you grow together.

If you have questions about your account, your finances, or Guaranty’s own business banking solutions, call our Customer Care Center at 888-572-9881 today. Any of our friendly, caring, and collaborative team members will be happy to talk with you about your COVID-19-related money needs.

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