What loan and grant assistance is available for small businesses?
Paycheck Protection Program
Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $349 billion for the new Paycheck Protection Program (PPP). On April 23, Congress allocated an additional $310 billion for PPP, which included set-asides of $30 billion for small- and mid-sized lenders and $30 billion for Community Development Financial Institutions, Minority Depository Institutions, and other community-based lenders to ensure eligible small businesses can access this critical funding and are not turned away by financial institutions.
Under this program, small businesses with 500 or fewer employees may access loans to cover payroll costs and most rent, utilities, and interest on mortgage obligations. If at least 75 percent of the loan is used for payroll costs over the eight-week period after the business receives the loan, and the business maintains its employment and compensation levels, the full loan can be forgiven.
These Small Business Administration (SBA) loans are capped at $10 million, are 100 percent federally guaranteed, and have no fees. Any amount of the loan that is not forgiven will carry a two-year term and a one percent interest rate.
Small businesses interested in securing a PPP loan should contact their primary financial lender (and not the SBA portal). Businesses that meet the SBA’s industry size standards and the following entities with 500 or fewer employees are eligible for PPP loans:
Economic Injury Grants
The newly-enacted law created an advance of up to $10,000 for small businesses that apply for an SBA Economic Injury Disaster Loan (EIDL). The legislation Congress passed on April 23 also provided additional funds to ensure SBA can continue to offer these grants and loans. The advance does not need to be repaid, and it can be used to pay for certain expenses that could have been met, had the disaster not occurred, including paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent and mortgage payments, and repaying obligations that cannot be met due to revenue losses. If a business also obtains a PPP loan or refinances an EIDL into a PPP loan, any advance will be subtracted from the amount forgiven in the PPP loan.
Businesses that meet the SBA’s industry size standards and the following entities with 500 or fewer employees are eligible for EIDLs:
Small Business Debt Relief Program
The new law provides $17 billion for debt relief for existing and new SBA borrowers. SBA will cover all loan payments for borrowers with existing SBA loan products, including microloans, regular 7(a), and 504 loans. SBA will cover principal, interest, and fees for six months. This relief will also be available to new borrowers who take out these SBA loans prior to September 27, 2020. SBA borrowers who are receiving the six months of debt relief may also apply for a PPP loan to keep their employees on the job. However, the six months of SBA payment relief is not applicable to PPP loans or SBA disaster loans.
Employee Retention Tax Credit
Congress also recently created an Employee Retention Credit with the goal of incentivizing employers affected by COVID-19 to keep employees on their payroll. The fully refundable tax credit is 50 percent of employees’ qualified wages paid in a calendar quarter by employers impacted by COVID-19. The credit is provided for up to $10,000 in wages and compensation paid by the employer to each eligible employee.
For employers with 100 or fewer full-time employees in 2019, all wages paid can be claimed under the credit. For employers with more than 100 employees, qualified wages are only those paid to employees who are not working. This credit is available to companies whose operations have been fully or partially suspended as a result of government orders related to COVID-19 or who have experienced a greater than 50 percent reduction in quarterly receipts on a year-over-year basis. Businesses that take this tax credit are ineligible for the Paycheck Protection Program.
Deferment of Employer Payroll Taxes
Under the new law, small businesses may defer paying the employer share of certain payroll taxes, including the Social Security portion of Federal Insurance Contributions Act (FICA) taxes, through the end of 2020. All 2020 deferred amounts would be due in two equal installments. One installment would be due at the end of 2021 and the other at the end of 2022. Employers utilizing the Paycheck Protection Program (PPP) may no longer use this deferral once a lender decides to forgive the PPP loan.
Tax Credit for Sick Leave and Child Leave
The Families First Coronavirus Response Act created refundable tax credits for required paid sick leave and paid child care leave related to COVID-19. Eligible employers may receive a refundable sick leave credit for providing up to 80 hours of sick leave (up to $511 per day) per employee. The refundable child care leave credit cannot exceed $200 per day, or $10,000 in aggregate, for each employee taking such leave. Employers that use these tax credits cannot include the relevant wages as payroll costs for purposes of receiving loan forgiveness for a PPP loan.