Stimulus  Details - Small businesses

– Employee Paycheck Protection Program

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?
No. 

Do I need collateral to get the loan?
No. 

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.

- Other Helpful Programs

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.

- Employee Retention Credit

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.

  • Try to delay payments or establish payment plans with any landlords or creditors.
  • Renegotiate loan terms to lower payments, if possible.
  • Cancel all planned nonessential expenditures.
  • Begin daily monitoring of expenses, revenue and cash flow plans.

- HERE'S WHAT ELSE IS IN THE BILL: ( We have just summarized these )

  • Direct payments: Americans will receive a one-time direct deposit of up to $1,200, and married couples will get $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable, means-tested benefit programs, such as Social Security.
  • Use of retirement funds: The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1.
  • Small businesses: $350 billion is being dedicated to prevent layoffs and business closures while workers have to stay home during the outbreak. Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.
  • The unemployed: The program’s $250 billion extended unemployment insurance program — expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed and independent contractors
  • Hospitals and health care: The deal provides over $140 billion in appropriations to support the U.S. health system, $100 billion of which will be injected directly into hospitals. The rest will be dedicated to providing personal and protective equipment for health care workers, testing supplies, increased workforce and training, accelerated Medicare payments, and supporting the CDC, among other health investments.
  • Coronavirus testing: All testing and potential vaccines for COVID-19 will be covered at no cost to patients.
  • Large corporations: $500 billion will be allotted to provide loans, loan guarantees, and other investments, overseen by a Treasury Department inspector general. These loans will not exceed five years and cannot be forgiven.
  • Airlines will receive $50 billion (of the $500 billion) for passenger air carriers, and $8 billion for cargo air carriers.
  • Payroll taxes: The measure allows individuals to delay the payment of their 2020 payroll taxes until 2021 and 2022.
  • States and local governments will get $150 billion, with $8 billion set aside for tribal governments.
  • Agriculture: The deal would increase the amount the Agriculture Department can spend on its bailout program from $30 billion to $50 billion. 

 

 

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