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How the Federal Government Is Helping Small Businesses Navigate COVID-19

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The American flag sits folded in the background, with a stack of hundred dollar bills spilling out one of the folds. Depicting the federal government helping small businesses during COVID-19.

Brenda Krauss is a Senior Online Marketing Specialist for BizBuySell.com, BizQuest.com and FindaFranchise.com.

Article updated to include the 07/06/20 extension to the Paycheck Protection Program

Article updated to include Phase 3.5 on 04/27/20

As we continue to protect our health and well-being against the coronavirus (COVID-19), the U.S. economy is already taking a hit. Yet it’s small businesses, which provide jobs, support families and meet many of our everyday needs, that are getting hit the hardest. While we stay safe at home, our favorite restaurants, hair salons and retail stores are struggling.

The federal government is responding and has already put together several bills to assist small business owners, as well as their employees. Plus, additional relief efforts are currently being negotiated in Congress. The ongoing information about COVID-19 can be hard to sift through. With that in mind, we’ve distilled these relief programs into a few short paragraphs.

Phase 1: The Coronavirus Preparedness and Response Supplemental Act

Enacted on March 6, 2020, this bill, also known as HR 6074, offers provisions for several health agencies to advance response efforts and medical research. It also provides funding for the Small Business Administration (SBA), unlocking up to $7 billion dollars in low interest disaster loans for businesses of all sizes impacted by the coronavirus.

  • SBA Economic Injury Disaster Loans are currently being offered to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Affected businesses can borrow up to $2 million dollars for working capital in order to meet ordinary and necessary financial obligations. These loans are offered at an interest rate of 2.75 – 3.75% with a one year payment deferment from time of disbursement. For more information, visit SBA’s Disaster Assistance Program.

Phase 2: The Families First Coronavirus Response Act

Enacted on March 18, 2020, this bill, also known as HR 6201, provides free COVID-19 testing, expanded unemployment benefits, food assistance, increases Medicaid funding, paid family and medical leave and paid sick leave to individuals impacted by COVID-19. The following provisions only apply to businesses with fewer than 500 employees. Small businesses with fewer than 50 employees may be exempt when the imposition of such requirements jeopardizes the viability of the business as a going concern.

  • Paid Family and Medical Leave. Employers will offer up to 12 weeks of family and medical leave for employees, who are unable to work or telework, to care for the their child if the child’s school or childcare provider is closed or unavailable. However, the first 10 days may be unpaid. Employers will receive a refundable tax credit equal to 100 percent of qualified wages.
  • Paid Sick Leave. Employers will also offer 80 hours of paid sick leave to employees to self-isolated because of a COVID-19 diagnosis, to obtain medical care if experiencing symptoms, to care for an individual who is self-isolating, or to care for their child if the child’s school or the childcare provider is closed or unavailable. Employers will receive a refundable tax credit equal to 100 percent of qualified wages.


Phase 3: Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act”

Enacted on March 27, 2020, this bill, also known as HR 748, is intended to keep businesses and individuals afloat while speeding up relief across the American economy. This $2 trillion package includes $1,200 one-time payments to many Americans, expanded unemployment benefits to $600 per week for four months, a $500 billion corporate liquidity fund to help struggling industries, and $377 billion to aid small businesses, among many other provisions.

  • Emergency Grant Program. This program establishes that small businesses may request an advance against an Economic Injury Disaster Loan (EIDL) of up to $10,000, which would be considered grant instead of a loan and not subject to repayment. Funds would be disbursed within 3 days. Applicants do not have to be in business for the 1-year period before the disaster, but need to be in operation on January 31, 2020.
  • Paycheck Protection Program. This program specifically addresses business disruption caused by COVID-19 by enabling any eligible business to maintain payroll and/or rehire employees who were laid off due to the pandemic. The loans may also be used for utilities, rent and other business operations.
    • Loan amounts will be based on average monthly expenses related to payroll during the 1-year period before the date on which the loan was made.
    • Loans are capped at 4% interest with a maximum maturity of 10 years. Principal and interest payments are deferred for at least six months, but not more than a year.
    • The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan.
    • The amount of the loan subject to forgiveness may be reduced if employees are terminated during the covered period or compensation is reduced by more than 25%.
  • Deferment for Existing Loans. The CARES Act allows lenders to defer payments on existing SBA loans for six months. In these cases, the SBA will pay the principal, interest, and any associated fees owed directly to lenders.
  • Employee Retention Credit. Businesses that have experienced a 50% drop in gross receipts relative to the same quarter last year may qualify for a payroll tax credit worth up to $10,000 per employee so long as they are still paying their employees wages and/or health benefits.
  • Payroll Tax Delay. Employers may defer payment of the employer share of the Social Security tax, beginning after the effective date of the CARES Act through December 31, 2020. Deferred tax amounts would be paid over two years, in equal amounts due on December 31, 2021 and December 31, 2022.

Phase 3.5: Paycheck Protection and Health Care Enhancement Act

Enacted on April 25, 2020, this bill, also known as HR 266, was passed in order to provide additional funding for small business loans, health care providers, and COVID-19 testing. This $484 billion package includes $310 billion in funding for the Paycheck Protection Program (PPP), $60 billion of which is reserved for community banks and small lenders; $75 billion for hospitals; $25 billion to support testing efforts; and $60 billion for emergency disaster loans and grants.

  • $310 billion for Paycheck Protection Program, plus new SBA guidelines to discourage publicly traded companies. After the initial round of funding ran out and many small businesses were left empty handed, it was learned that over 200 large, publicly traded companies had received PPP loans. Since then, the SBA has included new guidelines, stating that companies applying for the program must certify that the loans are necessary and that they cannot tap other sources of funding. Furthermore, the SBA urges those that did take the money but could tap into other sources of funding, to return it.
  • $50 billion for Economic Injury Disaster Loan (EIDL) program, plus expanded eligibility. Under this new bill, small farming operations with no more than 500 employees will also be eligible to participate in the EIDL program.
  • $10 billion for grants under the EIDL program. This new bill increases the EIDL program’s authorized grant level to a total of $20 billion that disaster loan recipients can obtain.

Phase 3.6: Paycheck Protection Program Flexibility Act

UPDATE: PPP Extended Until August – On Saturday, July 4th, President Trump signed into law S.4116, legislation giving businesses another five weeks to apply for funds through the Paycheck Protection Program. Businesses now have until August 8th, 2020 to submit their application.

Enacted on June 5th, 2020, the Paycheck Protection Flexibility Act, also known as H.R. 7010, is an amendment to the Paycheck Protection Program created under the CARES Act. This bill loosens many of the restrictive guidelines around loan forgiveness, plus it allows for payroll tax deferments and extends the “covered period” in which the loan must be used in order to be forgiven. Below are seven key provisions in this amendment.

  • Extends the covered period of loan forgiveness. The current 8-week covered period that ends on June 30, 2020 has been extended to a 24-week period that ends on December 31, 2020. The deadline to apply for a loan remains June 30, 2020.
  • Increases the non-payroll portion of the forgivable amount to 40%. Borrowers no longer need to spend 75% of their loan on payroll expenses. Instead, they are only required to spend 60% and can use the remaining 40% on other expenses, such as rent and utilities.
  • Relaxes requirements for restoring worker headcounts. Borrowers now have until December 30, 2020 to be fully staffed again. Also, under certain conditions, forgiveness amount will not be reduced if some employees do not return to work.
  • Extends PPP loan maturity from 2 years to 5 years. Now borrowers have 5 years to repay the remaining balance of the PPP loan.
  • Deferment of payroll taxes for 2 years. Borrows can now defer half their taxes payments by Dec. 31, 2021 and the other half by Dec 31, 2022.
  • PPP loan payments can be deferred for 12 months. Instead allow for a 6 month deferment, borrowers that apply for forgiveness can now defer their loan payments up to 12 months.

The Paycheck Protection Flexibility Act amends many of the restrictive guidelines for loan forgiveness in the original PPP loan program, plus it includes additional provisions to help small business owners get through COVID-19.

Federal Reserve Main Street Lending Program

On March 23, 2020 the Federal Reserve Bank said that it will soon announce the details of a new program that will support loans to small and medium-sized businesses, complementing programs offered by the Small Business Administration. This program, which could be done in conjunction with the Treasury department, may offer more direct help to businesses, but the specifics have yet to be announced.

IRS Coronavirus Tax Relief Programs

On March 21, 2020, the IRS announced that, due to the COVID-19 pandemic, the federal income tax filing due date as well as the payment due date is extended until July 15, 2020. This extension includes both individuals and businesses. Individuals and non-corporate tax filers (including self-employed filers) can defer up to $1 million dollars. Corporate taxpayers can defer up to $10 million dollars.

The IRS also announced that high-deductible health plans (HDHPs) can pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA). For more information on IRS Coronavirus Tax Relief, visit irs.gov/coronavirus.

SBA Free Resources, Advising and Assistance for Businesses Impacted by COVID-19

SBA district offices and their partners, including America’s Small Business Development Centers, are offering free consulting, including assistance in preparing SBA loan applications and educational training to small businesses. In light of the COVID-19 pandemic, many SBDCs will be forced to work virtually and in some cases close their centers. Contact your local SBDC to see how you can receive advising virtually.

Keeping Calm and Carrying On

The coronavirus pandemic is an unprecedented situation requiring the U.S. to shut down parts of its economy. We can expect months of economic disruption. Yet, eventually we will emerge from the worst of the virus and our doors will open again for business. This could result in a spike in activity due to pent up demand, as people go back to enjoying restaurants, shopping and travel. In the meantime, it’s important that we remain calm as we focus on our health and safety.

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