President Donald Trump has recently signed a $2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The in-depth and full details of this bill are still to be fully realized. As the Covid-19 pandemic continues to grow in size and strengthens its grip over the economy and people’s lives, there are speculations that another stimulus could be on its way.
The key features of this current bill are described in this guide. Here is what small businesses need to know about the CARES stimulus.
You will be eligible for support under this bill, if you are a business or 501(c)(3) entity having less than 500 employees. There is no SBA/Lender fee. The bill provides unsecured loans without any personal guarantees. The proceeds may be used to support payroll costs such as insurance premiums, group health care benefits, employee salaries commissions, other benefits, utilities, rental payments, regular mortgage payments, interests on some type of debts that were accumulated before February 15, 2020.
Some of the key takeaways from the Covid-19 stimulus bill are as follows:
The bill has provisions for providing a maximum of $10 million loan to each small business. Such a business should not have more than 500 employees. The loan will be provided through all large credit unions and participating banks. The good thing about this loan is it is ‘forgivable’.
Small business owners many to repay the loan if it is used for maintain workers’ paychecks, amounting to not more than $100,000 per year. Monthly rent payments, mortgages, and utilities also qualify for this clause. Otherwise, the loan will have to be repaid within a period of 10 years. The loan’s interest rate will be 4% and it will be protected by the government.
This is considered as an important step by the government to protect the interests of Americans running small businesses under the impact of shutdown by the Coronavirus. According to available data with the government, there are almost 6 million small businesses in the country having up to 500 employees. Small businesses employ a staggering 60 million people in the country, which is almost 50% of the total workforce in the private sector.
The government’s intention behind this stimulus is to encourage small business owners not to pursue layoffs. This will also prepare them to restart business when the lockdown is lifted.
It can take one or two weeks before the PPP loans will reach small businesses. An additional $10 billion has been injected by the government into the federal Small Business Administration emergency loan program. This will make it easier for owners to get the loans. These loans are already available at participating banks but they do not follow the ‘forgivable’ rule.
Because banks are ready to lend loans and small businesses have tended to build more cash that can be used when reopening, it is expected that these companies will be able to recover faster compared to the 2008-09 economic recession.
The forgivable rule applies to only those small businesses where not less than 75% of the loan amount will go towards maintaining the continual employee payments. There will be partial ‘forgiveness’ when the payroll allocation is less than 75%. There is also a clause to prevent small businesses from cutting employee pay or laying off employees.
The Payroll Protection loans are available for the next 3 months, that is up to the month June. It is expected that America will return to normalcy by then. This stimulus is intended to help maintain liquidity and cash flow as well. Besides, small businesses that expect to find it difficult to keep up with payments have been encouraged to reach out to their creditors and landlords to seek extensions. And these requests are bring granted.
It is recommended to reach out to your bank through phone or email. The shutdown and other limitations associated with the coronavirus mean that it will not be a good strategy to visit the bank. You may also reach out to the loan officer handling SBA 7(a) loans or the PPP program.
As a small business owner, you may apply for the loan through the following points:
Because participating lenders can be different in different states, you should check on SBA’s website to find the nearest participating bank or financial institution.
The new CARES Act will give the federal government the opportunity to play a bigger role in the country’s economy. It is feared that the cost of recovery can create price inflation. The shortages in a wide range of materials such as drugs, fabric for making masks, and rubbing alcohol can cause the government to strengthen anti-trade policies. This can raise consumer costs to boost US manufacturing.
This can mean increased investments and jobs. For example, a major US drug maker has announced acceptance of $1 billion in funds from the government to be invested in the development of the Covid-19 vaccine. The $450 million factory will be set up in the United States itself. As the number of cases of the virus continues to increase in the US, the Trump administration is expected to release even more funds to support small businesses and corporate America. All small business owners are encouraged to reach out to participating banks, credit unions, and their existing lenders to explore the options.