What Small Businesses Should Know About the CARES Act

What Small Businesses Should Know About the CARES Act
The federal government passed a $2.2 trillion relief package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Here's what it means for small businesses.
by Sydney Cohen Apr 03, 2020 — 5 min read
What Small Businesses Should Know About the CARES Act

This article was updated to reflect changes from the Paycheck Protection Program Flexibility Act which President Trump signed into law on June 5, 2020. This act amends some provisions of the PPP program.

This article is only for educational purposes and does not constitute legal, financial or tax advice. Make sure you consult a professional regarding your unique business needs.

The federal government passed a $2.2 trillion relief package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This package affects individuals, big corporations, hospitals and public health organizations, the federal safety net, state and local governments, and small businesses.

This is what small businesses should know about the CARES Act.

Paycheck Protection Program (PPP)

This program allocates funds to provide loans to cover the cost of retaining their employees and/or lost income (for certain business types). Generally, if you spend at minimum, 60% of your PPP loan on payroll within a 24 week period after you receive PPP funds, or through a maximum date of December 31, 2020, the loan will be eligible for forgiveness. This loan can be used on:

These expenses can take place during a 24 week period, starting the day you receive your loan up to a maximum date of December 31, 2020.

Sole-proprietors, independent contractors, and self-employed individuals can apply for and receive loans to cover lost income and other expenses.

Who is eligible for the Paycheck Protection Program?

All businesses that are eligible must have been operational by February 15, 2020 and as of that date were paying employees or contractors. Borrowers must also certify that current economic conditions necessitate the loan to support ongoing operations.

Details of the loan

Under the Paycheck Protection Program the amount businesses will receive is calculated using your average payroll. If your business was operational from February 15, 2019 – June 30, 2019 the maximum amount of the loan will be equal to 250% of your average monthly payroll cost during that period. If your business wasn’t operational between February 15, 2019 – June 30, 2019 then the maximum amount of the loan will be equal to 250% of your average payroll monthly costs between January 1, 2020 and February 29, 2020. The maximum amount a business can receive is $10 million, with an interest rate of 1% (for amounts not forgiven) and five years to pay it back. Lenders will defer fees, principal, and interest from six months to the date on which the amount of forgiveness is determined by the SBA or 10 months after the last day of the covered period if the borrower fails to apply for forgiveness within 10 months. If you apply and meet the requirements for PPP loan forgiveness, then the loan will be converted to a nontaxable grant.

How to apply

You can apply through any existing SBA lender, federally insured credit union, or Farm Credit System institution that is participating. Other lenders are being approved and enrolled in the program, so be sure to check with your local lender to see if they are participating. You’ll need to fill out the application for the Paycheck Protection Program to apply.

Square is rolling out PPP loan applications. Take a look at this application guide to help you prepare and gather information and documents you’ll need to apply. If you’ve already applied elsewhere but have not received funding, you can still apply through Square Capital if you receive an invite.

Be on the lookout for an email or update in your Square Dashboard for an invitation to apply. If you don’t use Square currently, sign up for a Square account to begin the application process. Remember, demand for PPP loans remains high and funding may run out quickly. To improve your chances, submit your application as soon as you possibly can.

Economic Injury Disaster Loans (EIDLs) from the SBA

Typically, EIDLs are for businesses that need financial help because of a natural disaster. As of early March, eligibility for these loans has been extended to businesses that are affected by COVID-19. The CARES Act expands this program and makes it easier to apply.

Who is eligible for EIDLs

Details of the loan

These loans are processed through the SBA. Other lenders aren’t approved to give these loans yet, but they might be in the future. The maximum amount a business can receive with an EIDL is $2 million, with a 3.75% interest rate and a maximum term of 30 years. Loans under $200,000 can be approved without a personal guarantee. Additionally, borrowers can receive an advance of up to$10,000 . This $10,000 can be forgiven if it’s spent on the following:

How to apply

You can apply for EIDLs online. Visit the SBA COVID-19 Economic Injury Disaster Loan application.

Business tax changes

In addition to the Paycheck Protection Program and expanded EIDL, the CARES Act implements changes to some business taxes to help ease the financial burden on small businesses.

Here are some of the tax changes:

Families First Coronavirus Response Act (FFRCA)

The CARES Act was signed into law after the FFRCA. Consequently, the CARES act made some changes in regards to paid sick leave as well as paid family and medical leave. Learn more about what employers should know about the FFRCA (inclusive of those changes).

Additionally, stay up to date with our regulatory updates, and be sure to check with official sources in your location for the latest local information. To get more guidance and tools for your business during this time, check our resource hub.

Sydney Cohen
Sydney Cohen is Content Manager for Square Payroll. She writes about hiring, tax compliance, management, and of course payroll.


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