So, you are wondering how the new 883-page, $2 trillion stimulus bill passed in response to the coronavirus pandemic will help you as a small business owner?
Look no further.
The Senate passed the bill, 96-0, and the House quickly followed suit Friday, March 27, with its eyes toward getting relief quickly into the hands of business owners across the country.
What is the Care Act for Small Businesses?
While there are a lot of detailed provisions in the bill that take into account taxes and unemployment among other topics, small business coronavirus relief certainly takes center stage of the stimulus package, with the point of the bill squarely being to keep people employed.
Being this is the largest stimulus in the history of the United States, $353 billion of the $2 trillion is focused on small businesses alone, which are the backbone of America.
Given the nature of how quickly things are changing in the world today with the coronavirus pandemic, speed is the name of the game — and one in which lawmakers are trying to fuel to prevent a 30% unemployment rate.
“We have a lot of small businesses that are struggling,” West says, “so how can (the government) get this into small business’ hands?
“They have taken the SBA 7(a) loan program as a shell and they have expanded it and that’s how they will get this into cash quickly.”
One thing to note is this loan from the coronavirus stimulus bill is not the same as the Disaster Loan being touted lately. This is separate as these loans will come from a private lender.
Who is Eligible for the Coronavirus Stimulus Package?
In order to remove as much red tape as possible and speed up the funding process, the stimulus bill has outlined the following requirements you must meet:
- In business before Feb. 15, 2020.
- Employ less than 500 employees.
- Have been impacted by the coronavirus.
While the amount of proof and paperwork required will be crystalized in the days ahead, West and Hartsock agree there is a presumption that if you are applying, you have been impacted. Even so, you will have to sign an affidavit acknowledging you need these funds as a result of the coronavirus.
Some ways you could have been impacted are though lost sales, supply chain issues, product chain issues and lost opportunities. There is gray area there, and experts agree this is for speed to get the funds released and available to those who need it.
How Do I Calculate My Loan Amount?
Small business owners are eligible to receive 2.5x payroll to use for things such as payroll, rent, utilities and health care benefits. The loans from the coronavirus stimulus bill are based on a 12-month trailing payroll average, but what does this mean?
Essentially, you will want to take your payroll average from Feb. 15, 2019 to Feb. 15, 2020, up to $100,000 employee salary, excluding employer tax. This also includes commissions and bonuses. Then, average that for a 12-month period and multiply that times 2.5 for your eligible loan amount. There is a $10 million cap to the loan as well.
Even businesses that have been operating for less than a year are eligible; however, you will have annualize it based on the months you have been operating.
Additionally, if you pay 1099 contractors, their wages are also included in the formula. Hartsock and West also believe retirement benefits will be included based on what they have reviewed as well.
How Do I Receive Funds from the Coronavirus Stimulus Bill?
While the process still remains to be ironed out further, in a nutshell, most business owners should plan on heading to their home bank (as long as it’s FDIC Insured) and being prepared to fill out minimal paperwork. There are a lot of lenders that are SBA preferred lenders, but they are releasing regulations to where every bank that is FDIC Insured is able to release these loans.
Then starts an 8-week clock for small business owners to use the funds on qualifying expenses to keep their business afloat and become eligible for loan forgiveness.
“Payroll is what is used to calculate the amount you can take for a loan, but you can use the proceeds for rent, utilities, health benefits. There are other things you can count as using the proceeds for,” Hartsock says. “It’s not designed for you to find somewhere to spend the money; it’s designed to give you enough money to keep the doors open and keep your employees paid over this 8-week period, because that is exactly what it was designed to do.”
Suggested Paperwork to Get Together
Hartsock and West suggest you start now and begin pulling together the following to bring to the bank to apply for your loan.
- Proof you were in business before Feb. 15
- Proof you had employees or payroll
- Load calculation based on Payroll
- Tax return
- EIN documentation
- Payroll tax return
How Do I Become Eligible for Loan Forgiveness?
Let’s assume you receive a $100,00 loan. Once the funds hit your account, it starts an 8-week clock for you to use it for payroll, utilities and rent, and other qualifying expenses during that time frame.
Assuming you do that, that full amount is eligible for loan forgiveness at the end of the 8 weeks. However, there is a caveat. Since the entire coronavirus stimulus bill is intended to keep people employed and small businesses afloat, if you maintain employees you had before the crisis began, then 100% of the loan is forgiven. If you have to let go of 50% of the employees, then 50% is eligible to be forgiven. The goal is to maintain your previous headcount through the 8-week cover period and be committed to maintain it.
The exception to this is anyone you let go from Feb. 15 for 30 days after the bill is signed, if you bring their role back by June 30, you are eligible for full forgiveness as well. Additionally, you are required to keep those employees, but you are also required to keep their pay within 25%.
What Happens to the Unforgiven Portion of My Loan?
After 8 weeks, whatever is not forgiven, you then have a 10-year loan not to exceed 4% without personal guarantee. No collateral is needed as well.
Lender is required to defer interest and principle for the first 6 months of loan (either date of origination or 8 weeks after, TBD). This is designed so you get the loan, go through the 8 weeks and not have to pay principle.
Tax Implications of the Stimulus Bill
Another great piece of good news comes in the form of tax law. Any proceeds that you don’t have to spend on qualifying funds will not be taxable. Additionally, the loan forgiveness portion is NOT taxable.
On the nonprofit front, 501(c)(3) are eligible to participate in the coronavirus stimulus bill as well.
When Can I Apply for the Loan?
As of now, all indications point to the program up and running by the beginning of April, with the goal of the entire process being to approve loans within 2 hours. It’s happening so fast that some banks are apparently pre-approving, while others say they will approve and release on the same day. We are also hearing that they want to start with their clients.
But as far as an exact when?
“I would say call your bank,” West suggests.
The Bottom Line of the Coronavirus Stimulus Bill?
“The point of the bill is to keep people employed,” Harstock says. “So even if your business is closed, is this a bridge to get you to the point until you reopen to keep people on your payroll and you not have to come out of pocket. Basically, we are providing you with the funding to keep you on your payroll until you can open and then we are going to forgive the loan and just call it even.”
Gravy is Your Additional Revenue Protection Source
Landlords are expected to see a rise in voluntary and involuntary churn in the weeks and months ahead. REIA is dedicated to providing personalized tenant retention and failed payment recovery during this crisis.