Benefits of the CARES Act for Businesses (Part II)

In our last article, we introduced the details of the Coronavirus Aid, Relief, and Economic Security act (aka the CARES Act) benefiting individuals and families. This time we’ll be highlighting a few benefits for business owners. However, it’s important to remember that not all provisions of the CARES Act are available to every business, so conversations with a trusted and knowledgeable financial professional is highly recommended.

Protecting Paychecks

The Paycheck Protection Program, aka “PPP,” offers loans to small businesses that are fully guaranteed by the federal government. The loans are designed to cover eight weeks of operating costs during the crisis – so that means covering payroll and the costs of rent, utilities, mortgage interest, etc. These loans may be fully forgiven so long as the business complies with the federal rules. To qualify, your business needed to be operational on February 15th, 2020 and must’ve had 500 or fewer employees (includes full-time, part-time, seasonal and temporary).

In terms of the dollar amount, you may be eligible to borrow 2.5 times your monthly average payroll costs during the one year period prior to the date of the loan, capped at $10 million.

Economic Injury Disaster Loans

The CARES Act extends relief under a financial assistance program run by teh Small Business Administration called the Economic Injury Disaster Loan Program (EIDL for short). These loans have exclusively been distributed to businesses that have suffered some form of economic harm due to natural disasters such as Hurricane “Katrina.” Now it is extended to businesses impacted by Covid-19.

The loan has a max term of 30 years with a rate of 3.75% (2.75% for nonprofits) and capped at $2 milllion. The program also offers an advance up to $10,000 that can be requested and ulimately forgiveable. The advance is designed to quickly infuse cash into your business. Once the application for the advance is submitted, you can expect to see the money within three days.

Employee Retention Tax Credit

The CARES Act creates an employee retention tax credit for businesses affected by Covid-19. In other words, it is a refundable payroll tax credit up to $5,000/employee. But in order to qualify, a business must have closed completely/partially, or revenues had to have declined by more than 50% relative to the same time last year.

Sick and Family Leave Tax Credits

This is a credit for sick and family leave costs for businesses with fewer than 500 employees that can be applied on your tax returns. Businesses (including sole proprietors) are eligible to receive this refundable tax credit.

Deferral of Social Security Taxes

Small businesses (including self employed individuals can defer payment of the employer’s share of Social Security tax incurred from March 27th through December 31st of this year, but the deferred taxes must be paid over two years.

It’s Complicated

As a business owner, you’ll have choices to make when deciding which benefit to use. For example, a business cannot apply for both the Paycheck Protection program and the employee retention tax credit. There are a lot of nuances within the CARES Act to think through. As mentioned in the last article ‘Benefits of the Cares Act, Part I‘, reaching out to a financial planner can help make sense of this Relief package.