What is it?
$349 billion is being loaned to small businesses to cover their payroll. Most (if not all) of this loan will be forgiven if payroll does not decrease. In other words, this is free money to cover your payroll for revenue-generating businesses and startups.
Do I qualify?
You are eligible if you have under 500 employees and are a “small business concern” (as defined by the SBA) and this includes most startups. Each industry has different criteria for what a small business concern is. You can use this SBA form to find out.
What is the maximum loan?
Take your average monthly payroll expense over the last 12 months and multiply it by 2.5 (that is, 2.5 months). That is the maximum loan you are eligible for. However, it can’t exceed $10 million.
When can I apply?
Treasury Secretary Steven Mnuchin said banks should be able to issue small business loans through the SBA (7) program by the end of week, April 3rd.
The SBA distributed $28 billion in 2019, and they are being asked to deploy over $400 billion in April.
Do I need to personally guarantee the loan?
Do I need collateral to get the loan?
How can I use the money?
You can only use the money for payroll, health care, rent/mortgage/utilities, and interest on debt.
How much of the loan is forgiven?
Put simply, the money used for payroll, mortgage interest, and rent and utility payments from February 15th through June 30th is forgiven, as long as you have the same number of employees on June 25th, and everyone receives at least 75% of their prior pay.
What is the interest rate and maturity date?
The legislation mandates that the interest rate cannot exceed 4% and the term cannot go over 10 years. SBA lenders may offer terms within those limits.
The CARES Act also has other sections that help small businesses.
SBA Debt Relief
If you have an SBA loan, the CARES Act allocates $17 billion dollars to covering your payments (principal + interest + fees) over the next 6 months.
Emergency Disaster Loans
The CARES Act allocates another $10 billion (in addition to $7 billion authorized in another bill last week) to the SBA Emergency Disaster Loans.
Most states now qualify as a disaster area. Max loans are $2 million. 3.75% interest. Loan period up to 30 years. Personal guarantee required. If you have any collateral, it must be pledged.
The process to apply for these loans is cumbersome and long. The SBA web site has currently crashed under the load.
The CARES Act gives businesses a tax credit for the 6.2% Social Security payroll taxes paid for employees kept on payroll during the crisis. It’s equal to 50% of what you spent, capped at $5,000 per employee. Some businesses may also defer their payroll tax due in December 2020 to December 2021.
You may qualify if you do not have an SBA loan, and had a 50% loss compared to the prior quarter.What does the coronavirus stimulus package mean for small business owners?
Many small business owners have been hit particularly hard by the effects of the coronavirus pandemic. Most have shuttered their physical locations, either shifting to a work-from-home model wherever possible or suspending operations completely.
The stimulus plan’s direct payments to individuals, loans for small businesses, distressed industry loans and unemployment insurance expansion are designed to keep the economy afloat while the coronavirus pandemic is addressed. For many small business owners, the stimulus package could buy some much-needed time, but it is not a cure-all.
As details of the stimulus plan become clearer, small businesses across the country are wondering how to take advantage of it. Whether they use direct individual payments to inject their businesses with capital or accept small business loans, entrepreneurs have some strategizing to do. However, stimulus is but one part of the larger equation.
While $2 trillion might seem like a lot, when broken down to its individual parts across all the small businesses and individuals in the country, it is not enough to carry entrepreneurs through the remainder of the pandemic.
So, how should small businesses spend any stimulus-related funding they receive?
Every small business should be actively planning today for a long-term recovery effort. At the core of that effort is understanding that even a return to normalcy won’t assuage the economic damage of the pandemic completely.
That means small business owners need to prepare for a lengthy crisis and plan for a long recovery period through less-than-ideal economic circumstances.
What is critical for small business owners right now, is shifting away from a “growth-first” mentality to a strategy of supporting cash flow for the midterm. This involves a reduction in expenses wherever possible, especially for businesses that have suspended operations during the coronavirus pandemic.
- HERE'S WHAT ELSE IS IN THE BILL: ( We have just summarized these )