The Coronavirus Aid, Relief and Economic Security Act (CARES Act) stimulus package helps companies and workers negatively impacted by COVID-19. Here’s what it means for your business.
About the CARES Act Coronavirus Stimulus Package
The $2 trillion CARES Act, introduced in the Senate as S.3548 and passed by the House as H.R. 748 on March 27, 2020, represents the third major federal legislative response to the COVID-19 pandemic.
The first bill, the Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6074) enacted into law on March 4, 2020, allocated $8.3 billion to help federal, state and local agencies contain the coronavirus and promote treatments. In conjunction with a March 13 White House executive order declaring a national emergency, it also released money to help extend Small Business Administration (SBA) Economic Injury Disaster Loans to qualifying small businesses impacted by the coronavirus.
The second bill, the Families First Coronavirus Response Act (H.R. 6201), enacted on March 18, allocated over $100 billion to expanding paid sick leave and unemployment benefits, along with paying for additional healthcare measures and nutrition assistance. This second bill was passed as a stopgap measure while Congress was developing a third, more comprehensive aid package, represented by the new CARES Act.
The CARES Act provides relief measures that include:
- Cash payments to individual households
- Increased unemployment payments
- Forgivable SBA loans for businesses
- Tax credits for distressed businesses and other measures.
Legislators are already debating following up the CARES Act with additional “phase 4″ measures that could potentially include additional cash payments to households, funding to protect pensions, payments for coronavirus treatment and other items.
What the CARES Act Coronavirus Stimulus Package Includes
The CARES Act is organized into 2 main divisions:
- Provisions to keep workers employed, support healthcare efforts against the coronavirus and stabilize the economy
- Emergency appropriations for federal branches, agencies and programs impacted by the coronavirus
The first part of the CARES Act includes 6 main categories of relief measures:
- Loans and grants to help small businesses affected by the coronavirus
- Economic relief for individuals, families and businesses
- Support for the healthcare industry to fight the coronavirus
- Assistance to industries hardest hit by the coronavirus
- Financing for state, local and tribal governments impacted by the coronavirus
- Funding for the U.S. Postal Service
Here are some highlights of how these measures affect businesses.
SBA Paycheck Protection Loans to Avoid Business Interruption
The CARES Act allocates $349 billion in Treasury funds towards guaranteeing Paycheck Protection Loans designed to help companies avoid business interruption, plus additional funds to help facilitate loan administration. Paycheck Protection Loans are special SBA 7(a) loans available between March 1, 2020 and December 31, 2020. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
What Can Loan Proceeds be Used For?
Loans can be used to cover certain expenses, such as:
- Payroll
- Salaries
- Rent
- Utilities
- Previous debt obligations
What Are Loan Terms and Conditions?
Loans are available in amounts up to $10 million and are extended at favorable rates. Interest rates cannot exceed 4%. Standard loan personal guarantee and collateral requirements are waived for Paycheck Protection Program loans. Typical fees for loan applications are also waived. Applicants cannot seek more than one Paycheck Protection Program loan.
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Who’s Eligible?
Paycheck Protection Loans are available to companies that employ 500 workers or less. This includes companies with multiple locations that employ 500 or fewer workers per location. Sole proprietors, independent contractors and eligible self-employed individuals can also qualify.
Typically, SBA loans are not available to businesses that can qualify for credit elsewhere. However, in the case of Paycheck Protection Loans, this limitation is waived.
In addition to Paycheck Protection loans, standard 7(a) loans and other SBA loans also remain available to qualifying small businesses.
How This Helps Businesses
This action makes it easier for companies to obtain financing to avoid cutting back hours, laying off workers or suspending operations.
Entrepreneurial Development Grants to Help Business Centers
The CARES Act provides grants to small business development centers and women’s business centers that have experienced coronavirus-related disruptions such as supply chain problems, staffing shortages or lost customers. These grants can be used to educate and advise business centers on topics including:
- How to apply for financing resources
- How to avoid transmitting coronavirus in the workplace
- How to manage supply chain challenges
- How to shift operations online through remote work and digital customer service to avoid spreading coronavirus
Matching funds are not required for these CARES Act grants.
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How This Helps Businesses
This step helps centers that assist small businesses to mitigate disruption to their operations so they can continue to help business owners.
Forgiveness on SBA Loans
The CARES Act extends forgiveness on portions of 7(a) loans used to cover certain costs such as payroll, rent and utilities. Under this portion of the CARES Act, obligations to repay covered portions of SBA 7(a) loans are canceled.
Costs covered cannot exceed specific caps. Amounts forgiven cannot exceed the loan principal. Reductions in the number of employees or salary or wages paid to employees will affect forgiveness amount calculations, as will rehires. Forgiveness does not cover wage or salary expenses exceeding annualized pay of $100,000 per employee for 2019.
Forgiveness applies to loan amounts used to pay tip wages for tipped workers.
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How This Helps Businesses
This measure helps companies avoid laying off workers and enables them to continue covering expenses.
Direct Appropriations and Assistance to the SBA Loan Program and the Minority Business Development Agency
The CARES Act appropriates over $300 billion in U.S. Treasury funds for the SBA’s business loan programs and for the Department of Commerce’s Minority Business Development Agency. Additionally, it releases funds to provide training for minority business centers, similar to that described above for small business development centers and women’s business centers.
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How This Helps Businesses
This makes more SBA financing available to small businesses. It also helps minority business centers to continue providing resources to minority-owned businesses.
Emergency Economic Injury Disaster Loan (EIDL) Grants
The CARES Act follows up on previous legislation authorizing SBA coronavirus emergency disaster loans by allowing loan administrators to extend advances to EIDL applicants. The act allocates $10 billion for this purpose.
Eligible applicants may request an advance of up to $10,000 within 3 days of submitting an EIDL application. Funds can be used for purposes such as:
- Providing paid sick leave
- Covering payroll costs
- Paying for increased materials costs due to supply chain disruption
- Meeting rent and mortgage obligations
- Repaying debt obligations that cannot be covered due to revenue loss
Administrators must verify applicant eligibility before disbursing funds. Advances are extended as grants. They do not need to be repaid, unlike the remainder of EIDL loans.
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How This Helps Businesses
This provision provides disaster loan applicants with expedited, immediate financing while they are waiting for their applications to process. It also eases loan repayment burdens by reducing the total amount to be repaid.
Unemployment Assistance
The CARES Act allocates federal funds to states for distribution to workers eligible for unemployment benefits.
States can provide eligible workers with up to $600 a week in addition to standard unemployment benefits.
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How This Helps Businesses
This reduces the burden on businesses to cover increased unemployment benefits, freeing up more funds to retain workers and cover other expenses.
Cash Payments to Individual Households
The CARES Act authorizes recovery rebate payments calculated as credits against taxes for certain individuals and families.
- Individuals earning up to $75,000 will receive $1,200.
- Couples earning up to $150,000 will receive $2,400 plus $500 per child.
- Payments decrease for individuals earning over $75,000, for heads of household making over $112,500 and for couples earning over $150,000. Reductions are calculated at 5% of adjusted gross income exceeding these amounts, but cannot be reduced below 0.
- Payments are based on either your 2018 or your 2019 tax filings.
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How This Helps Businesses
These cash payments provide small business owners with money that can be used to offset business and personal expenses. They also put money in the pockets of consumers, providing more purchasing power.
Tax Deadline Changes and Deferments
In response to the coronavirus crisis, the IRS has moved the deadline to file and pay annual income taxes from April 15, 2020 to July 15, 2020.
The IRS has also moved the deadline for first-quarter individual and corporate quarterly estimated tax payments to July 15, 2020. Second-quarter quarterly tax payments are currently due at that time (June 15, 2020). If you are unable to pay on July 15, you can file for an extension to October 15.
The CARES Act further allows employers to delay payment of employer payroll taxes. Employers are generally responsible for paying a 6.2% Social Security tax on employees’ wages. The CARES Act allows employers to deposit 50% of the deferred taxes on or before December 31, 2021, and the remaining 50% by December 31, 2022.
These tax adjustments are subject to change as the situation develops. The IRS has posted a coronavirus FAQ page with ongoing updates to tax requirements.
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How This Helps Businesses
These adjustments let business owners put money that would normally be spent on taxes towards covering operating costs, making it easier to stay in business. They also provide consumers with more cash to spend on goods and services provided by businesses.
Assistance to Impacted Industries
A provision of the CARES Act called the Coronavirus Economic Stabilization Act allocates approximately $500 billion to cover loans and loan guarantees to assist corporations in industries hardest hit by the economic impact of the coronavirus. These include passenger and cargo airlines as well as businesses in other industries.
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How This Helps Businesses
By helping the airline industry, these funds help protect businesses from supply chain disruption. They also protect businesses that depend on travelers and tourism, such as travel agencies, hotels and restaurants.
Is Your Business Eligible for Relief?
The items above summarize some of the highlights of the CARES Act that most directly affect the majority of companies and small business owners. Still, the full legislation includes many other provisions.
Your company may be eligible for loan consideration, grants or tax relief. The best way to determine your eligibility is to review your situation with a specialist. You can turn to your local Small Business Development Center (SBDC), Women’s Business Center (WBC) or SCORE mentorship chapter. These resource partners can support small business owners with counseling and up-to-date information regarding COVID-19. To find a local resource partner, visit this page.
