Are you a small business owner or tech start-up trying to survive during the coronavirus pandemic? Do you wonder, “What is the stimulus package?”
Continue reading this article to learn more about the CARES ACT. You will learn how it can assist your California business.
What Is the CARES ACT?
The Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) passed on March 31, 2020. The act provides emergency help to those affected by the pandemic and may provide you access to thousands of dollars (or more) in stimulus funds (i.e. free money) and favorable loans
There are three central programs targeting startups and small businesses under the CARES Act:
- Paycheck Protection Program
- Economic Injury Disaster Loan Program
- Employee Retention Credits
CARES ACT – Paycheck Protection Program (PPP)
The Paycheck Protection Program is a loan program operating under the Small Business Administration’s pre-existing Section 7(a) loan program. The concept is that the loan would be available to provide assistance in maintaining payroll and meeting certain other enumerated critical business expenses.
Generally, business with 500 or fewer employees will be eligible for PPP loans. This includes sole proprietors, independent contractors, and self-employed individuals.
There are restrictions on how PPP loans can be used. Specifically, the loans can be used for, subject to applicable caps:
- Payroll costs
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- employee salaries, commissions, and similar compensation
- payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
- rent (including rent under a lease agreement);
- utilities; and
- interest on any other debt obligations that were incurred before the covered period.
The CARES Act has a loan forgiveness provision for PPP loans. Generally, PPP loans can be forgiven up to a maximum of 8 weeks’ worth of certain of the expenses set forth above, measuring from the loan origination date. The amount of loan forgiveness is reduced in the event of an unremediated layoff or significant reduction in employee salaries.
CARES ACT – Economic Injury Disaster Loan Program
The Economic Injury Disaster Loan (“EIDL”) program is another pre-existing SBA grant program which has been expanded under the CARES Act. It is an amendment to the pre-existing Section 7(b) loan program.
Unlike the PPP loans, loans under the EIDL program generally have to be paid back. In addition, unlike the PPP loan program, you can both get an EIDL loan and participate in the Employee Retention Credit Program. Like the PPP loan program, there are some favorable terms available. The interest rate on the loan cannot exceed 4%. There is no personal guaranty required for loans of up to $200,000. And the SBA can approve the loan based simply on your credit score without the need for submitting tax returns.
CARES ACT – Employee Retention Credit
Another program that is worth considering is the Employee Retention Credit Program (“ERCP”), which provides a refundable tax credit towards a portion of employee wages paid between March 13, 2020, and December 31, 2020. Under the ERCP, eligible employers can get a refundable tax credit of up to 50% of an employee’s wages, maxing out a total benefit per employee of $5,000 (i.e. 50% of an employee’s wages up to $10,000 over the applicable period). “Wages” not only include amounts paid via payroll, but also deductible health plan subsidies.
Is Your Small Business or Startup Struggling During the Pandemic?
Help is available for small business or tech start-ups affected by the pandemic. This article has provided answers to the question, “What is the stimulus?” The good news is that you do not have to navigate this changing climate alone.
Grellas Shah LLP is a full-service boutique law firm. We specialize in tech startups, VCs, angel funding, intellectual property protection, licensing and more. Our experts can guide your business to optimize your relief benefits related to the pandemic.
Contact us today to ask questions and learn more about our services.