What the CARES Act Means for Your Small Business

With all the mandated closures, many small businesses are feeling the pinch. On Friday, The Senate's $2 trillion stimulus bill passed, one of the most significant spending bills in U.S. history. The CARES (Coronavirus Aid, Relief, and Economic Security) Act will help small businesses get the resources needed to stay afloat.

At Basis 365, we want you to understand how these benefits impact your company, and we're gearing up to help you do so.

Increased SBA Loan Limits

Small businesses (under 500 employees) who have been experiencing additional financial worries around how they will be able to pay employees and settle outstanding debts, like a mortgage, through a period without much income are now qualified for funding through the CARES Act.

The CARES Act increased loan limits and broadened the qualifications needed to take out a 7(a) loan from the Small Business Administration during the covered period (February 15, 2020, through December 31, 2020). All organizations with fewer than 500 employees are eligible to borrow 2.5 times their total monthly payroll costs for the last year, with the amount capped at $10 million.

Eligible businesses must have been operating on February 15, 2020, and have had employees with accompanying salaries and payroll taxes that have been significantly impacted by COVID-19.

The CARES Act enables the Small Business Administration (SBA) 7(a) loans or “paycheck protection loans” can be used towards:

• Mortgage, rent, utilities, and payments on any other debts

• Wages, commissions, salaries, or compensation for independent contractors

• Payments for vacation, parental, family, medical, or sick leave

• Costs associated with group health care benefits, including premiums

• Fees related to retirement plans and benefits

Loan Forgiveness

Small businesses that apply for the Paycheck Protection Program can apply for loan forgiveness equal to what was spent on payroll, and interest paid on a mortgage, rent, or utilities, as long as they were in place before February 15, 2020. The available amount for forgiveness can be reduced based on the number of employees who were not retained compared to the prior year and any reductions in pay beyond 25 percent of previous year employee salaries.

Deferral of Payment for Taxes

The CARES Act includes legislation that allows companies to delay in paying their share of the Social Security tax up until December 31, 2020. The deferred taxes would then be paid in two different 50 percent portions, one on December 31, 2021, and the other on December 31, 2022. Those who are self-employed can defer paying 50 percent of their taxes, which would be due in two 25 percent portions with the same due dates.

Employee Retention Credit

This new legislation introduces a one-year-old credit against the employer's 6 percent share of Social Security payroll taxes for any business forced to close or suspend operations due to COVID-19, and who continue to pay employees throughout the shutdown. The credit will be equal to 50 percent of qualified wages capped at $10,000 for each employee for businesses that were wholly or partially suspended during any quarter in 2020 due to COVID-19. It also applies to those that remained open with gross receipts during available quarters; less than 50 percent it was the in the same quarter in 2019.

Grant and Emergency Loan Eligibility

The CARES Act expands access to Economic Injury Disaster Loans to include startups, sole proprietors, independent contractors, and ESOPs with 500 employees or less. The SBA is required to waive many of the qualifications for emergency loans or grants in response to COVID-19 before December 31, 2020, and includes the personal guarantee on advances and loans below $200,000.

It also establishes the ability for applicants for an Economic Injury Disaster Loan to request and receive up to a $10,000 advance payment from the SBA. If the loan is denied, the advancement would not need to be repaid.

For more information about the CARES Act, visit Congress.gov to read the entire bill.

We encourage you to do your research and apply for any applicable loans available to help you during this time of uncertainty.

If you would like personalized help, please let us know. As an outsourced accounting team, we're passionate about entrepreneurs and small businesses. Remember, we are here for you.