COVID-19 and Small Businesses: Financial Resources to Help Your Business Survive
We don’t have the full picture yet, but one thing is certain; coronavirus related mandatory closures and other safety measures, implemented to slow the spread of the virus, are hurting businesses across the United States. The financial strain is particularly acute for small businesses.
In March, Goldman Sachs surveyed small business owners and discovered the majority (96%) are experiencing COVID-19 related financial hardship.
Sales are down, and more than half of business owners surveyed will be unable to sustain operations for more than three months. Very few small businesses have business contingency plans that meet the unprecedented demands of the current coronavirus crisis.
Financial help is arriving, albeit not as quickly as some would hope. New legislation, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Families First Coronavirus Response Act (FFCRA), makes several types of loans and tax credits available to small and mid-sized businesses, including:
1. COVID-19 Related Tax Credits Available to Employers
FCCRA Family and Medical Leave Tax Credits. Under the FFCRA, certain employers with fewer than 500 employees must now provide expanded paid leave under the Family and Medical Leave Act (FMLA) and paid sick leave to employees in circumstances related to the COVID-19 pandemic. Both new paid leave requirements are scheduled to expire on December 31, 2020.
To help offset the cost of the FCCRA paid leave requirements, the FFCRA also provides a tax credit to employers. Eligible employers can claim these credits based on qualifying leave wages paid for the period between April 1 and December 31, 2020.
The U.S. Chamber of Commerce explains,
“Each quarter, private companies are entitled to fully refundable tax credits for both paid sick leave and paid [family and medical leave]. The tax credits are applied against an employer’s already-owed Social Security taxes. However, if that offset is not enough to cover these payouts to employees, then the Treasury Department is authorized to help cover the rest with cash payouts.”
CARES Act Employee Retention Tax Credit. The CARES Act provides a tax credit to qualified employers whose operations are suspended or reduced due to COVID-19.
The tax credit is equal to 50% of qualified wages, up to $10,000 per each eligible employee. The credit applies to wages paid from March 12, 2020 through the end of the year.
Visit “FAQs: Employee Retention Credit under the CARES Act” from the IRS.
Both tax credits mentioned above are applied against the employer portion of the Social Security tax. Employers can use the tax credits immediately by reducing the federal employment tax deposits they otherwise are required to make.
Employers receive an immediate dollar-for-dollar tax offset and, if the total amount of the tax credits exceeds an employer’s Social Security tax liability and a refund is owed, the check will be sent as quickly as possible, reports the IRS.
The tax credits mentioned in this blog post are newly enacted, and limited guidance exists and is subject to change. Employers should consult their tax advisors for detailed information about COVID-19 related tax credits.
2. The Paycheck Protection Program. The Paycheck Protection Program is implemented through the U.S. Small Business Administration (SBA) with support from the U.S. Department of the Treasury, and authorizes up to $349 billion in forgivable government-backed loans to small businesses.
The SBA loans are provided by SBA approved lenders, including banks and credit unions. The SBA will guarantee loans of up to $10 million to an eligible business.
If the Paycheck Protection Program loan proceeds are used to cover the cost of payroll for eight weeks after the loan is made, at employees’ normal salary levels and for other qualifying expenses, the portion of the loan so used is eligible to be forgiven.
The U.S. Department of the Treasury explains,
“The loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.”
View the list of SBA approved lenders.
3. Economic Injury Disaster Assistance Loans and Loan Advance for Small Businesses. In response to the coronavirus pandemic, Congress authorized new funding so the SBA can leverage $7 billion in Economic Injury Disaster Loans (EIDL) for small businesses (less than 500 employees) hurt economically by COVID-19.
Disaster assistance loans can extend up to 30 years, are usually capped at $2 million and offer relatively low interest rates. Small business owners apply for the loans through the SBA.
In addition, small businesses are eligible to apply for an EIDL advance of up to $10,000. This advance is meant to provide economic relief to businesses that are currently experiencing a temporary loss of revenue and will not have to be repaid.
News reports suggest the federal government is considering new ways to provide financial assistance to small businesses. New information and guidance is reported daily regarding coronavirus related financial relief for businesses, employers and individuals.
As always, you should consult your financial and tax advisors for detailed information about COVID-19 related loan programs and tax credits and how it relates to your particular situation.
Millennium Trust is committed to helping small businesses understand their options during these challenging economic times.
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The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.