How the CARES Act Can Help Small Businesses

Coronavirus-related stay-at-home orders and falling consumer demand have been extremely challenging for small businesses. If you’re a small-business owner, make sure you’re taking advantage of the help that’s available.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress and signed into law on March 27th, includes two primary provisions to help small businesses:

  • The Paycheck Protection Program, which makes as much as $10 million available to pay up to eight weeks of payroll costs, including benefits, during the COVID-19 crisis. Funds can also be used to pay interest on mortgages, rent, and utilities.
  • The Economic Injury Disaster Loan (EIDL) and EIDL emergency advance. EIDL is a longstanding program that provides aid to small businesses in disasters. The emergency advance provides up to $10,000 of economic relief to businesses facing temporary difficulties related to COVID-19.

The CARES Act included $349 billion in funds for the programs, which were fully tapped by April 19th. However, Congress passed a new aid package that will add $320 billion for the PPP and EIDL, which was signed into law on April 24th. The bill includes limits on the size of businesses receiving loans, in response to concerns that larger businesses received loans intended for small businesses. The bill also includes aid for hospitals, with most directed to facilities in rural areas.

How the Paycheck Protection Program can help

The Paycheck Protection Program (PPP) authorizes forgivable loans to small businesses to pay their employees. The loans are made by banks associated with the Small Business Administration (SBA). Small business owners can borrow up to $10 million (but no more than two-and-a-half times their average monthly payroll for the past 12 months).

The loan will be forgiven as long as (1) at least 75% of the funds is used to cover payroll costs, mortgage interest, rent, and utility costs over an eight-week period after the loan is made and (2) employee and compensation levels are maintained. The program caps payroll at $100,000 on an annualized basis for each employee.

Borrowers can repay the loans over two years at an interest rate of 1%, and the SBA defers the first payment for six months. All loans have the same terms regardless of lender or borrower.