In less than a month, the COVID-19 pandemic has changed our entire society and done serious damage to our economy. If you’re a small business owner, you may be wondering about the future of your company. Will you have to make staff cuts, change the way you do business, or maybe even close the doors for good? You should know that recent legislation could help you avoid these disastrous outcomes. The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers assistance to small businesses to help them stay open and keep their employees paid during the coronavirus shutdown. Bryant Consultants and our small business coach, wants to make sure you understand the CARES Act and its associated loans, so we’ve written up some answers to the most pressing questions.
Who is eligible for a business loan through the CARES Act?
Small businesses or 501(c) non-profits with less than 500 employees qualify for these loans, but they’re not the only ones. Other qualifiers include sole proprietors, independent contractors, and any self-employed person who regularly carries on a trade or business. Tribal and 501(c) veterans organizations also are eligible if they meet the Small Business Administration’s size standard. Be sure to note that the 500-employee threshold includes workers of any status: full-time, part-time, and contract combined.
How do I apply for a CARES Act small business loan?
First, you’ll need to complete the Paycheck Protection Loan application. Lenders also will ask for a good faith certification that stipulates as follows:
- You need the loan to support the ongoing operations of your business.
- You will use the money lent to maintain payroll or to make mortgage, lease, and utility payments.
- You have filed no other applications for this type of loan.
For independent contractors, sole proprietors, and the self-employed, you will need to present payroll tax filings, 1099s, and records of your income and expenses.
How much money can you borrow?
Loans under the CARES Act are calculated using a simple formula and payout up to 2.5 times the average monthly payroll costs. These loans are capped at $10 million.
To calculate this cost, first, add up your included payroll. This sum encompasses sales, wages, commissions, tips, net earnings, and any other form of compensation. Now subtract the compensation of any individual with an annual salary of $100,000. Also, subtract any payroll and income taxes, as well as any compensation for an employee whose primary residence is outside the United States.
Is it true these loans can be forgiven?
Yes! This is one of the biggest benefits of receiving a loan under the CARES Act. You are eligible for loan forgiveness equal to the amount spent on these items in the eight weeks after the original date of the loan:
- Payroll costs
- Interest on any mortgage obligations
- Rent
- Utility payments (including gas, power, water, transportation, phone, and Internet)
- Additional wages paid to employees who work on tips
The loan forgiveness cannot exceed the principal, and non-payroll costs can comprise no more than 25 percent of the forgiven amount.
Small Business Consulting During COVID-19
This is a difficult time for the entire world, and your small business probably is facing an unprecedented challenge caused by the coronavirus pandemic. Don’t go through it alone. Download our small business plan, and keep visiting our site for continuing updates on advice, tips, and news related to COVID-19. You also can call us at (877) 768-4799 to schedule a remote consultation. To make sure you receive the latest updates, please follow us on Facebook and Instagram.
