If you’re grappling with the financial hardships that COVID-19 has placed on your small business, you’re not alone. According to eMarketer, 44% of small businesses have not taken any measures to prepare for a potential recession.
To alleviate some of the economic effects that have plagued small business owners, the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) act has included provisions that provide financial relief to small businesses. Check out MediaCrossing’s deep dive on the newly approved bill, and its biggest takeaways for your small business:
What does the CARES act entail?
The $350B initiative provides federally guaranteed loans to small businesses in an effort to mitigate the financial burden associated with the COVID-19 pandemic. Businesses that take advantage of these loans may qualify for loan forgiveness if they are able to maintain or restore payroll in the future.
Is my small business eligible for relief?
Your business may be considered for financial relief under the CARES act if it meets certain qualifications, which include:
- The number of employees your business has (the magic number being 500 employees or less for most circumstances)
- Your enterprise type (must clarify employer, sole proprietor, or independent contractor status)
- Your business meeting other SBA criteria, or special rules for eligibility
- Lenders will also be evaluating your business on a good faith certification, which will address the following:
- Is this loan necessary for your business?
- Will the loan be used for essential business expenses?
- Have you already applied for a similar type of loan?
- Keep in mind, lenders will not be evaluating any failed attempts to get credit elsewhere. Collateral and/or personal guarantees are also not required.
In what ways can the Economic Stimulus Package benefit my small business?
If you meet all of the qualifications, your company can be eligible for a loan of up to 2.5x your average monthly payroll cost - not to exceed $10 million.
To find out how much your business is capable of receiving, you must calculate your average monthly payroll costs. To do so, you must account for the following:
- Sum of included payroll costs (salary + wages + vacation + retirement benefits, etc.)
- Excluded payroll costs (excess compensation + payroll taxes + certain qualified sick leave wages, etc.)
- Keep in mind these calculations will vary depending on your enterprise type and your business’s seasonality
Can the loan be forgiven?
You may be eligible for forgiveness equal to the amount that was spent on certain essential business expenses within the 8-week period after receiving the loan. Forgivable expenses are considered payroll, incurred mortgage interest, rent, utilities, and other additional wages.
You will not be forgiven for any amount greater than the loan principal. In addition to this, the amount of loan forgiveness you receive can be reduced under certain circumstances, such as:
- If your business reduced the number of employees
- If your business reduced employee salaries
If your business is able to bring back employees or restore wages by June 30th, 2020, and the employment or wage reductions occurred between February 15th, 2020 and 30 days after the enactment of the CARES act, your loan forgiveness will not be reduced.
What can your business do now to get moving on the opportunity?
Perform a thorough evaluation of the current state of your business’s finances before applying for the loan. Ensure that you understand the qualifications and responsibilities that come with taking out the loan. In addition to this, determine the best use case for the loan, so you’re using it to your business’s full potential.For more information, visit the U.S. Chamber of Commerce website to learn more about the CARES act and if your business qualifies.