The CARES Act and Businesses: A Small-Business Guide to the Coronavirus Stimulus Package
Let’s cut to the chase: the coronavirus crisis has had a huge effect on small businesses (and everyone else) across the United States.
If you’re a business owner who has been affected, you may be able to get help via the CARES Act, also referred to as the coronavirus or COVID-19 stimulus package.
This guide will explain what’s in the CARES Act, how to know if you’re eligible for help, and how to apply for aid.
What is the coronavirus stimulus package?
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law at the end of March. The Act contains several provisions that provide help for small businesses, individuals, big businesses, and more. Altogether, the economic stimulus package provides some $2 trillion in aid from the federal government.
Many of the programs described in the CARES Act are beginning to go into effect. Our guide will break down the provisions that matter the most to businesses like yours.
- : Forgivable loans for small businesses
- : Payment relief for existing SBA loans
- : Tax credits for keeping employees
- : New benefits (including for the self-employed)
- : Direct payments for individuals
- : More parts of the CARES Act
Paycheck Protection Program
If you’ve heard anything about COVID-19 help for small businesses, you’ve probably heard about the Paycheck Protection Program. This program offers loans to small businesses. They come with super low interest and―most importantly―they’re forgivable.
We’ll explain the program here, but you can also check out our guide to the Paycheck Protection Program for more details.
Who can qualify for PPP loans
The requirements to get a PPP loan are simple:
- Your business must have fewer than 500 employees.
- You must have been in business before February 15, 2020.
That’s it. There’s no credit check, no collateral requirements―none of the criteria usually used by lenders.
Note that pretty much all types of small businesses can get PPP loans. In addition to your typical small business, the following groups can qualify:
- Self-employed individuals
- Sole proprietorships
- Veterans organizations
- Tribal organizations
In other words, there’s a really good chance you can get a PPP loan.
How PPP loans work
The U.S. Small Business Administration (SBA) is funding PPP loans, but you’ll apply through normal lenders. (More on how to apply in just a second.)
PPP loans go up to $10 million. You can qualify for a loan that’s up to 2.5 times your monthly payroll costs. Note that payroll costs include things like salaries, paid time off, health care premiums, and state and local taxes. They don’t include income taxes, payroll taxes, or salaries over $100,000.
You can use your PPP loan for the following costs:
- Paid sick leave
- Insurance premiums
- Interest on mortgage
These small-business loans have a 1% interest rate (that’s very, very low). They have a two-year maturity term.
All PPP loans have deferred payments for the first six months. You’ll still accrue interest on the loan during that time, but you won’t have to make any payments.
Unlike other SBA loans, PPP loans have no fees. And these loans do not require collateral or a personal guarantee (both a usual requirement for SBA loans).
PPP loan forgiveness
The real highlight of the Paycheck Protection Program is the opportunity for loan forgiveness. It’s a fantastic feature, but there are some very specific rules you need to follow if you want to qualify.
To qualify for loan forgiveness, you must do the following:
- Use your loan for the approved uses above.
- Spend at least 75% of the forgiven amount specifically on payroll (the remaining 25% can cover things like rent and utilities).
- Keep the same number of full-time employees (so if you’ve let anyone go, you’ll need to rehire by June 30, 2020).
- Keep salaries and wages at the same level (except for employees that make more than $100,000).
Keep in mind that you cannot use your PPP loan on sick leave related to the Families First Coronavirus Response Act, since that qualifies you for a tax credit.
If you don’t stick to these rules, your forgiveness amount may be reduced.
To actually get your loan forgiven, you’ll have to apply for forgiveness with your lender. You’ll need documentation to prove that you stuck to the guidelines, so make sure you keep good records.
How to get a PPP loan
You can get an SBA Paycheck Protection Program loan from many different lenders. Any SBA 7(a) lender can extend PPP loans, as well as all federally insured banks and credit unions. That gives you a lot of options.
Small businesses and sole proprietorships can apply as of April 3, 2020. Self-employed individuals and contracts can apply as of April 10, 2020. You can apply until June 30, 2020.
But don’t procrastinate your application. The Paycheck Protection Program has a funding cap, so funds could run out. The sooner you get your application in, the better your chances of getting funded. You should apply ASAP.
SBA loan debt relief
Do you already have an SBA loan? Then you probably qualify for SBA debt relief through the coronavirus stimulus package.
For the next six months, the SBA is covering loan payments on these types of SBA loans:
- 7(a) loans
- 504 loans
If you have one of these types of SBA loans, and it was issued before September 27, 2020, you should qualify for this relief.
To be clear, this relief covers your entire payment, including principal, interest, and fees. (But your loan will continue to accrue new interest.) And these are not deferred payments―you will never be responsible for these six months of payments.
You don’t have to do anything to get this debt relief―the SBA will automatically start making payments for you.
Employee Retention Credit
In another effort to help businesses keep their employees, the CARES Act has created the Employee Retention Credit. Note that you cannot get both the Employee Retention Credit and a Paycheck Protection Program loan―it’s an either/or situation.
This tax credit amounts to 50% of qualified wages between March 12, 2020 and January 1, 2021―but there’s a maximum of $10,000 in qualified wages per employee. In other words, you can get up to $5,000 per employee.
You’ll claim your Employee Retention Credit on your quarterly federal tax return.
Who can qualify for the Employee Retention Credit?
To qualify for the Employee Retention Credit, your business must meet one of two criteria:
- Have been partially or fully closed because of a government order relating to COVID-19
- Had a big loss in 2020 quarterly revenue (less than 50% of the same quarter in 2019)
Unfortunately, self-employed individuals cannot get the Employee Retention Credit.
What are qualified wages for the Employee Retention Credit?
The definition of qualified wages depends on how many people you employ.
If you employed more than 100 people in 2019, qualified wages apply only to wages paid to employees who are not working because of one of the two reasons above.
If you employed fewer than 100 people in 2019, qualified wages can apply to any of your employees―as long as your business meets the qualifications above.
You can get more details about the Employee Retention Credit on the IRS website.
If you’re self-employed, a freelancer, or a contract worker, then you’ll be happy to know that the CARES ACT has expanded unemployment insurance to cover people in your situation. So if you’ve lost wages and clients because of COVID-19, you may qualify for unemployment benefits.
The coronavirus stimulus package expands unemployment benefits for everyone else too. It adds another $600 per week in unemployment benefits on top of any state-level benefits. You can get up to four months of these benefits.
Plus, the Act creates extensions for state-level benefits. So if your unemployment benefits were about to expire, you can apply for another 13 weeks.
Individual stimulus payments
There’s a good chance you’ve already heard about the individual stimulus payments, since talk of a stimulus check has been all over the news. But here’s a quick refresher.
The government is sending direct payments to Americans as part of its coronavirus relief efforts.
To qualify, you’ll need to have filed taxes in 2018 or 2019. Your income matters too. If you earn more than $99,000 in gross income as an individual, $146,500 as a head of household, or $198,000 as a jointly filing couple, you won’t be getting money. (Sorry.)
For those who do qualify, individual taxpayers will get $1,200. (Married couples will get $2,400.) You also get $500 for dependents under the age of 17.
Note that those numbers can change based on your income. If you earn over $75,000 individually or $150,000 as a couple, your stimulus payment will be lower.
The IRS will either directly deposit money in your bank account or send you a check.
The programs above are the most relevant to small businesses, but there’s plenty more going on in the COVID-19 stimulus package. Here are a few more highlights:
- The tax filing deadline for the 2019 tax year has been extended to July 15, 2020.
- Employers can provide non-income (tax-free) student loan repayment benefits (up to $5,250).
- Private insurance must cover COVID-19 testing and treatment.
- Funds have been provided for airlines, hospitals, food banks, and more.
- Businesses getting aid from the CARES Act cannot have stock buybacks.
And again, there’s more.
If you really want to get into the weeds, you can get all the details by reading the CARES Act. (But honestly, it’s probably a little dense and boring for most of us.)
We know that the coronavirus crisis has been incredibly hard on everyone, and small-business owners are no exception. Fortunately, the COVID-19 stimulus plan provides some ways for businesses and individuals to get relief―from loans to tax credits to direct payments.
And remember, the CARES Act isn’t your only option for help. Many state and local governments have created relief packages too.
We hope you and your business stay healthy―or that you recover quickly.
Interested in getting one of the SBA’s loans to help your business? Check out our SBA business loan calculator to estimate your costs.
At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.