On March 27th, the United States government passed a relief bill for people and businesses who have experienced financial difficulties due to the self-isolation measures enacted to prevent the spread of the COVID-19 virus. This Coronavirus Aid, Relief and Economic Security bill, also known as the “CARES” Act, is the largest one-time spending bill in U.S. history. It offers unprecedented amounts of relief to Americans in a time they need it most. What does this relief bill encompass, and how can you sign up to receive its benefits?
Background
The CARES Act, widely accepted by both political parties, offers a $1,200 check for every adult who makes less than $75,000 per year with various adjustments made for families and adults with children, depending on their income. These “recovery rebates” also expand unemployment benefits significantly, defer certain loans and mortgages, and offer tax deductions for charity donations. The President will appoint an Inspector General for Pandemic Recovery in charge of the program, with further stipulations in place on who he can appoint to the position as well as a five-person oversight board elected by Congress.
While this is incredible for the American people, how does this bill help businesses?
Small business
Many companies, restaurants especially, are worrying about how long they can stay in business if this quarantine lasts as long as current experts suggest it should. Here’s a brief rundown of how the Paycheck Protection Program, which sets aside $349 billion for small businesses, affects each one:
Small Businesses receive up to $10M that will cover rent or mortgage, debt, utilities and employee payroll for eight weeks.
This loan will become a grant if it’s used solely for its intended purposes. Companies will only have to pay back interest.
Interest rates for the loan will max out at 4%, with specific rates dependent on how much employees earned in January and February 2020.
The Program will backdate to February 15th and apply through June 30th.
These measures define “small business” as any company with fewer than 500 employees, and includes nonprofits and self-employed individuals in a landmark decision. It aims to avoid mass unemployment that would severely upset the economy during this time of mass isolation.
Different stipulations and exceptions apply for calculating payroll totals, such as for seasonal businesses. Check in with a lender to see how much you qualify for.
Big businesses
They can get up to a 50% tax credit if they’ve have closed or lost significant profit because of COVID-19.
They can get a refund of up to $10,000 for each worker’s lost wages.
Employers can delay half of this year’s payroll tax and half of next year’s as well.
90% of employees must stay on payroll through September.
By the end of May, companies must get back the same total workforce that they had in February.
Executives—those who made over $425,000 last year—cannot receive a raise or other compensation benefits for a full year.
Executive severance packages can’t total more than twice the amount they made in 2019.
Executive pay cuts might occur. Anyone making over $3 million a year now earns $3 million plus half of what they made over that limit.
Companies may not pay dividends or buy back stock until they’ve paid off the entire relief loan.
They cannot outsource or move jobs overseas.
They may not break union agreements or prevent unions from organizing.
This bill further covers specific industries, such as airlines and critical industries such as those that directly relate to national security.
How Small Businesses Can Apply for the Loan
The entire loan will get forgiven if you use it for its intended expenses within the first eight weeks of receiving it. Violating these stipulations could result in a reduction of how much is eligible for forgiveness, for example if you employ fewer people than the previous year or if your employees take a pay cut of more than 25%. Circumvent this by maintaining your current workforce and payroll, or by rehiring laid off employees and increasing wages back to their previous amount before June 30th.
Although most small businesses will be eligible for this loan, they still have to apply so that the Small Business Administration, who will oversee the approval and allocation of these funds, can verify that they meet all the necessary qualification criteria detailed above.
Lenders partnered with the Small Business Administration will distribute loans to individual companies. This refers to banks, credit unions and other qualified lenders. The Small Business Administration will largely focus on oversight; they guarantee all the loans that their partners give out and ensure small businesses get the money they need to stay afloat in these worrying times.
Submit loan applications through the lenders, not the Small Business Administration. If approved, these loans could go out much faster than usual; typically, borrowers have to wait weeks to receive funds. Under the CARES Act, the government will attempt to approve and send out that money the same day. Obviously, the amount of work this will entail requires a lot of planning to go smoothly and operate as expected, but the outlook and foundation has a lot of promise and would give the American economy a much-needed safety net.
