Guide to the CARES Act and Other Federal Relief for Businesses
Learn about the loans, grants and other financial assistance available to small businesses under the CARES Act
Update: Note that as of April 16, 2020, the SBA announced that due to funding constraints, it is no longer accepting new PPP applications or EIDL applications. If you find a lender, bank or credit union that is still accepting PPP applications, you may still want to apply, pending additional funding appropriations that Congress is expected to pass.
In March, Congress passed and the president signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion stimulus package designed to help with the economic pain inflicted by the coronavirus pandemic. Of that, $377 billion was allocated to help small businesses stay open and keep their workers employed by providing emergency funds, low-interest loans and forgivable loans.
“These are incredibly generous programs,” says Thomas C. Jardim of Jardim, Meisner & Susser in New Jersey. Jardim spoke with Houzz during a recent webinar. “If you haven’t applied, particularly for the [Paycheck Protection Program], you should.”
In March, Congress passed and the president signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion stimulus package designed to help with the economic pain inflicted by the coronavirus pandemic. Of that, $377 billion was allocated to help small businesses stay open and keep their workers employed by providing emergency funds, low-interest loans and forgivable loans.
“These are incredibly generous programs,” says Thomas C. Jardim of Jardim, Meisner & Susser in New Jersey. Jardim spoke with Houzz during a recent webinar. “If you haven’t applied, particularly for the [Paycheck Protection Program], you should.”
Forgivable Loans Through the Paycheck Protection Program
Business owners who have been in operation since at least Feb. 15 can apply for the Paycheck Protection Program to help keep workers employed during this emergency and help their business more quickly recover after the crisis. Independent contractors and self-employed people are also eligible and can use the program to pay their own wages.
If your application is approved, you will receive a forgivable loan of up to $10 million (up to $100,000 per employee on an annualized basis) to cover eight weeks of payroll costs for full-time and part-time employees, plus some money you can use for rent and utilities.
Your loan will be calculated using your business’ average monthly payroll from 2019. If your business is less than a year old, your lender will calculate your average monthly payroll.
How the Money Can Be Used
You can use this money for eight weeks of payroll costs, including keeping employees on staff or hiring back those you had to lay off or reduce hours for between Feb. 15 and April 26. If you can’t get a particular employee hired back, that’s OK.
“You have to document that you hired the same amount of people by June 30, but they don’t necessarily have to be the same people,” says Paige Marie Griffith, attorney at The Legal Paige.
In order for the loan to be completely forgiven, staffing needs to be back at 100% by June 30, and the employees’ wages paid for the next eight weeks. Additionally, 75% of the money you receive needs to be used for payroll expenses, which include wages, tips, state and local taxes, health care premiums and retirement payments, but do not include federal taxes.
If you do not use the money in this way, you will need to repay all or some of the loan within two years from when the loan is issued, at a 1% interest rate. You will apply for loan forgiveness through your lender, who will determine how much, if any, of the loan needs to be repaid. If you’re required to pay back any portion, the first payment will be required six months after you receive the loan.
“The great thing about the Paycheck Protection Program is that it’s structured theoretically as a loan, but if you use the money as they want you to use it, the loan is completely forgiven. It just becomes a grant,” says Scott Salmon of Jardim, Meisner & Susser. “In other words, it’s free money.”
Business owners who have been in operation since at least Feb. 15 can apply for the Paycheck Protection Program to help keep workers employed during this emergency and help their business more quickly recover after the crisis. Independent contractors and self-employed people are also eligible and can use the program to pay their own wages.
If your application is approved, you will receive a forgivable loan of up to $10 million (up to $100,000 per employee on an annualized basis) to cover eight weeks of payroll costs for full-time and part-time employees, plus some money you can use for rent and utilities.
Your loan will be calculated using your business’ average monthly payroll from 2019. If your business is less than a year old, your lender will calculate your average monthly payroll.
How the Money Can Be Used
You can use this money for eight weeks of payroll costs, including keeping employees on staff or hiring back those you had to lay off or reduce hours for between Feb. 15 and April 26. If you can’t get a particular employee hired back, that’s OK.
“You have to document that you hired the same amount of people by June 30, but they don’t necessarily have to be the same people,” says Paige Marie Griffith, attorney at The Legal Paige.
In order for the loan to be completely forgiven, staffing needs to be back at 100% by June 30, and the employees’ wages paid for the next eight weeks. Additionally, 75% of the money you receive needs to be used for payroll expenses, which include wages, tips, state and local taxes, health care premiums and retirement payments, but do not include federal taxes.
If you do not use the money in this way, you will need to repay all or some of the loan within two years from when the loan is issued, at a 1% interest rate. You will apply for loan forgiveness through your lender, who will determine how much, if any, of the loan needs to be repaid. If you’re required to pay back any portion, the first payment will be required six months after you receive the loan.
“The great thing about the Paycheck Protection Program is that it’s structured theoretically as a loan, but if you use the money as they want you to use it, the loan is completely forgiven. It just becomes a grant,” says Scott Salmon of Jardim, Meisner & Susser. “In other words, it’s free money.”
How to Apply for the Paycheck Protection Program
- Meet the June 30 deadline. Apply via a participating bank or lender. Most experts recommend you apply as soon as you can.
- Submit your documents. You will need to submit a PPP application form, payroll records and any other documentation your lender might require.
- Don’t worry about your credit. Credit scores aren’t considered, and no other collateral or personal guarantees are required.
- Decide which account to use. Check with your lender on whether you need to use an existing account or if you can open a new account (in case you want to keep these funds separate). This will be up to your bank.
- Don’t take no for an answer. If you applied already and were rejected, try again. Some banks were slow to accept applications or were applying restrictions that have since been lifted.
- Apply right away. Though the deadline to apply isn’t until June 30, Griffith advises business owners to apply as soon as they can. “It’s a first-come, first-served process, so if you’re applying later, it’s wise to ensure your application is as solid as possible, especially since some earlier applications will get rejected,” she says. “This is where it could be smart to hire a CPA and work with a financial institution to ensure your application is strong.”
Other Things to Know About the Paycheck Protection Program
But small businesses can face a clear downside to laying off employees rather than furloughing them. “If you lay off employees, it might be hard to hire them back when business picks back up,” Marks says. “I do think that the PPP loan is the best option because it allows employees to keep their health insurance and retirement benefits, and when business picks up you’re already ready to go and not trying to hire people.”
- Filing for the PPP doesn’t hurt your furloughed or laid-off employees. Employees who have been laid off or had their hours reduced can still file for unemployment if you receive a PPP loan, so long as they stop receiving unemployment payments and your company is back to full staff at full salaries by June 30.
- The PPP has advantages for business owners over layoffs. “Furloughing or laying off employees might be a better option for some companies,” Marks says, as it temporarily relieves employers who might be having a hard time making payroll right now.
But small businesses can face a clear downside to laying off employees rather than furloughing them. “If you lay off employees, it might be hard to hire them back when business picks back up,” Marks says. “I do think that the PPP loan is the best option because it allows employees to keep their health insurance and retirement benefits, and when business picks up you’re already ready to go and not trying to hire people.”
- You don’t need to apply for PPP on behalf of your freelance workers. Freelancers or independent contractors should apply for their own PPP loans.
- The PPP covers most, but not all, of your payroll costs. The CARES Act (which includes the PPP) covers payroll costs, which includes employee benefits. It excludes qualified sick and family leave wages, since a prior program — the Families First Coronavirus Response Act (FFCRA) — covers these costs through a tax credit.
Emergency Funds and Loans Through the Economic Injury Disaster Loan Program
In addition to applying for the Paycheck Protection Program, small-business owners in operation since at least Jan. 31 can apply for an EIDL, a long-standing program for small businesses suffering substantial economic losses in disaster areas.
This SBA loan can be used to cover the next six months of operating expenses of a business and includes an emergency cash advance.
“The best way [to show that the loan is needed] is to demonstrate revenue loss as a result of the crisis, whether it’s project cancellations, projects put on hold, losing projects,” Marks says.
“If you have tried to mitigate circumstances, such as by selling more items online, it’s smart to show that good-faith effort as well,” Griffith adds.
If approved, you will receive a loan of up to $2 million per business (the loan amount is determined by the SBA), with no money due for one year. After that, the loan can be repaid over 30 years at a 3.75% interest rate.
“Who knows what will happen with interest rates, so this might end up being a genius move to take advantage of,” Marks says.
Emergency grants of up to $10,000 are available to all businesses that request them during the loan application process, regardless of whether the loan is approved. The advance will never need to be repaid, although the emergency grant money would be subtracted from the amount forgiven in the PPP, if you participate in that program.
How the Money Can Be Used
This money is intended to keep your business running for the next six months and should be used for expenses like utilities, payroll and paying off existing loans at higher interest rates. “It’s especially good if you have really high rent,” Salmon says.
In addition to applying for the Paycheck Protection Program, small-business owners in operation since at least Jan. 31 can apply for an EIDL, a long-standing program for small businesses suffering substantial economic losses in disaster areas.
This SBA loan can be used to cover the next six months of operating expenses of a business and includes an emergency cash advance.
“The best way [to show that the loan is needed] is to demonstrate revenue loss as a result of the crisis, whether it’s project cancellations, projects put on hold, losing projects,” Marks says.
“If you have tried to mitigate circumstances, such as by selling more items online, it’s smart to show that good-faith effort as well,” Griffith adds.
If approved, you will receive a loan of up to $2 million per business (the loan amount is determined by the SBA), with no money due for one year. After that, the loan can be repaid over 30 years at a 3.75% interest rate.
“Who knows what will happen with interest rates, so this might end up being a genius move to take advantage of,” Marks says.
Emergency grants of up to $10,000 are available to all businesses that request them during the loan application process, regardless of whether the loan is approved. The advance will never need to be repaid, although the emergency grant money would be subtracted from the amount forgiven in the PPP, if you participate in that program.
How the Money Can Be Used
This money is intended to keep your business running for the next six months and should be used for expenses like utilities, payroll and paying off existing loans at higher interest rates. “It’s especially good if you have really high rent,” Salmon says.
How to Apply for an Economic Injury Disaster Loan
- Apply online directly through the SBA.
- Act now. The deadline to apply for the $10,000 cash advance is at the end of 2020, but extended wait times for advances and concerns that funds may run out should incentivize you to apply as soon as possible.
- Credit does matter here. The application process involves a credit check, but other requirements typically required for SBA loans have been relaxed.
Small Business Debt Relief Program
This program eliminates loan payments for six months on existing nondisaster SBA loans or those issued before Sept. 27, 2020, particularly 7(a), 504 and microloans. During the six-month period, the SBA will cover your loan payments, including principal, interest and fees. You won’t have to pay this money back.
For those who are interested in taking out a new nondisaster SBA loan, visit the SBA loan resources page for more details on the requirements and benefits of each loan.
This program eliminates loan payments for six months on existing nondisaster SBA loans or those issued before Sept. 27, 2020, particularly 7(a), 504 and microloans. During the six-month period, the SBA will cover your loan payments, including principal, interest and fees. You won’t have to pay this money back.
For those who are interested in taking out a new nondisaster SBA loan, visit the SBA loan resources page for more details on the requirements and benefits of each loan.
How to Get More Help With Your Business Now
If you’re feeling overwhelmed by the decisions that lie ahead of you, you’re not alone. “The global pandemic, the shutdown in business, the shutdown in commercial activity is touching every single aspect of society, and people are literally unable to do anything normal anymore,” says David Adler of Adler Law in Illinois, who also joined the Houzz legal webinar.
These organizations can provide guidance — most of it free.
Houzz editor Bryan Anthony contributed to this report.
Tell us: Have you applied for help from the federal government for small businesses? If so, please tell us about your experience in the Comments.
More for Pros on Houzz
Watch the Houzz webinar that covers the CARES Act and stimulus
Read stories in our Resilience series
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
If you’re feeling overwhelmed by the decisions that lie ahead of you, you’re not alone. “The global pandemic, the shutdown in business, the shutdown in commercial activity is touching every single aspect of society, and people are literally unable to do anything normal anymore,” says David Adler of Adler Law in Illinois, who also joined the Houzz legal webinar.
These organizations can provide guidance — most of it free.
- Your local Small Business Administration district office can offer free guidance and counseling.
- SCORE, a volunteer network of over 10,000 business experts, can offer free online help.
- The Association of Women’s Business Centers offers free counseling and other assistance to female, underserved or low-income entrepreneurs.
- The Minority Business Development Agency’s Business Centers support minority-owned businesses of all sizes, and they will be providing support to their clients dealing with COVID-19.
- Professional financial experts. You can also always work with a financial expert, though of course this would involve a cost. “I tend to lean toward financial representation, such as a CPA, because this is really a financial issue, not a legal one,” says Marks (himself a CPA). “Having a representative fill out these forms won’t take very long, so you’re really only looking at a few hours of billable work. Paying $500 to do it right in order to receive potentially tens of thousands in loans is probably worth it.”
Houzz editor Bryan Anthony contributed to this report.
Tell us: Have you applied for help from the federal government for small businesses? If so, please tell us about your experience in the Comments.
More for Pros on Houzz
Watch the Houzz webinar that covers the CARES Act and stimulus
Read stories in our Resilience series
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
How to Get Federal Assistance for Your Business
Owners of businesses with 500 or fewer people are eligible for the new federal programs as well as enhanced existing ones. The money is available to small businesses of all types, including sole proprietorships, self-employed individuals and independent contractors.
Your business is eligible to apply for the following three programs administered by the Small Business Administration.
- Forgivable loans through the Paycheck Protection Program. Provides eight weeks of payroll for retaining employees — or rehiring and paying those you’ve already laid off — at their full salaries. Caps out at $10 million per business.
- Emergency funds through the Economic Injury Disaster Loan program. Provides up to $10,000 in emergency grants to cover payroll, rent and other business costs. Small-business owners can access the advance as part of the application for an EIDL, a low-interest loan of up to $2 million that can be used to pay for business expenses affected by the disaster.
- Debt relief through the Small Business Debt Relief Program. All existing nondisaster SBA loan payments, or those taken out within six months of the bill signing, including principal, interest and fees, will be covered by the SBA for six months — and you won’t owe this money in the future. This applies to 7(a), 504 or microloans from the SBA.
Now let’s go into a little more detail on each of these programs.