cares act

What Small Businesses Impacted by COVID-19 Need to Know About the CARES Act

Small businesses have long been referred to as the backbone of the economy. As the COVID-19 pandemic continues, small businesses struggle on a day-by-day basis to weather the storm.

At least three-quarters of U.S. small businesses are counting on the financial assistance of The Coronavirus Aid, Relief, and Economic Security (CARES) Act. The full text of the $2 trillion package is about 880 pages long; so we’re going to summarize the CARES Act for you here.

What do small businesses need to know about the CARES Act? How can this legislation help small businesses get the cash they need to stay afloat?

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Skimming The CARES Act

The CARES Act, signed into law on March 27, 2020, is legislation created to help small businesses with $454 billion for loans under the SBA 7(a) loan program.

Eligible businesses that receive these loans may use them for a variety of small business needs. These include, but aren’t limited to, paying for mortgages and leases, putting financing toward any loss in sales, and paying additional costs of doing business expenses, such as employee pay and utilities.

What businesses are eligible for The CARES Act?

The Federal Reserve’s lending facilities have established criteria for businesses, states and municipalities that may receive loan funding and loan guarantees.

Your business may be eligible if it meets the following guidelines:

  • The company must be a U.S. business
  • Alternative financing is not reasonably available to the business
  • The business has incurred such losses that its operations are jeopardized
  • Borrowers and affiliates cannot engage in stock buybacks (unless contractually obligated) or pay dividends until loan is no longer outstanding or one year after date of the loan
  • Borrowers must maintain employment levels until Sept. 30, 2020. They must also retain no less than 90 percent of their employees as of that date
  • Limits executive compensation. Company officials who made more than $425,000 last year cannot receive a raise until at least a year after the loan is repaid
  • No loan forgiveness

Related: Resources for Small Business Aid Amidst the COVID-19 Crisis

Where else can startups and small businesses receive funds?

The CARES Act was quickly passed and signed into law. However, that does not mean small business owners have received the cash from the package yet. It’s also equally as important to note that the money business owners and entrepreneurs receive is still a loan that will be repaid with the company’s future cash flow.

The smartest strategy, especially if your small business needs cash now, is to begin looking into additional small business relief funds and apply for them as quickly as possible.

Some of these may include the following programs:

SBA Disaster Assistance

If your business has been severely impacted by COVID-19, you may apply for the SBA’s disaster assistance loan.

These loans, also referred to as Economic Injury Disaster Loans (EIDLs), offer up to $2 million for small businesses with a term rate of 30 years. EIDLs also have low interest rates for small businesses, at 3.75 percent.

Recently, EIDLs have received expanded provisions under the CARES Act. These include the ability to have the loan approved based on the applicant’s credit score, expanded access to sole proprietors and independent contractors, and access to a $10,000 emergency cash grant for borrowers.

Paycheck Protection Program Loan Guarantee

Part of the CARES Act, this SBA-backed program provides loans for small businesses that have fewer than 1,500 employees, 501(c)(3) non-profits with less than 500 workers, and some 501(c)(3) veteran organizations.

Much like EIDLs, the Paycheck Protection Program Loan Guarantee also looks out for individuals who are self-employed, sole proprietors, freelancers and gig economy workers. (Note: all small businesses and freelancers must have been in operation before February 15, 2020).

These loans have a maximum interest rate of 4 percent with a loan term of up to 10 years. Deferred payments may be made for up to six to 12 months. Additionally, if part of the loan is spent within its first eight weeks on operating expenses, that loan may be forgiven and not counted as your personal income.

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GoFundMe Small Business Relief Initiative

GoFundMe, the world’s largest fundraising platform, has teamed up with Yelp and Intuit QuickBooks to launch the Small Business Relief Initiative.

The Small Business Relief Fund provides small businesses with financial support and resources necessary to keep operating their companies.

GoFundMe, Intuit QuickBooks and Yelp have each donated $500,000 to the fund. Once the fund has been depleted, GoFundMe will continue to issue $500 in matching grants to qualifying businesses. Supporters of small businesses throughout various communities are also encouraged to donate to the fund.

Major corporations, like Facebook and Amazon, are also quickly establishing relief funds for small businesses throughout the world.

In addition to checking in to see what your state is offering and applying for federal assistance, keep an eye out on relief funds being created by major businesses specifically to help aid small businesses.

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