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Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was designed to provide economic relief due to the devastating effects of COVID-19.
Later, the CARES Act was amended and extended as part of the Consolidated Appropriations act in 2021. From grants to loans, the amended CARES Act is a $2 trillion dollar package here to help American businesses get back on their feet.
Small business owners and the CARES Act
How does the CARES Act help your business recover from the financial hardship brought on by the pandemic? Below, we’ll discuss the five ways your small to medium-sized business can legally take advantage of the programs offered within the CARES Act.
#1. PPP: Paycheck Protection Program
The Paycheck Protection Program (PPP) gave loans totaling nearly $350 billion to small businesses to cover payroll costs, but the funds were used up within two weeks. Fortunately, new legislation in the form of the Coronavirus Relief Bill added additional funding and easier PPP access for the smallest businesses.
If your business met the Small Business Association’s (SBA) ’s size requirements and was in operation on February 15, 2019, it may have been eligible for the PPP. In fact, even if your company took advantage of a PPP loan, it may have been eligible for a Second Draw PPP loan. This loan was offered to help compensate employees, pay out retirement and paid vacation, and more. This program is now closed to new applicants, but your business can still apply for PPP loan forgiveness up to the maturity date of its loan.
#2. Small business debt relief programs
If a small business has a loan with the SBA, it may be eligible for relief if it was impacted by COVID-19. Under the CARES Act, the SBA can pay up to six months of principal, interest, and any associated fees owed by borrowers for all reported 7(a), 504, and Microloans. This does not apply to PPP loans or EIDLs.
However, borrowers don’t need to apply for assistance, as the SBA provides the relief automatically for all eligible borrowers. If the SBA collects payments on your SBA loan after March 27, 2020, it can be applied to the outstanding balance or returned to you at your discretion. It could be a huge benefit to get these payments repaid back to you so your small business can continue to grow.
#3. Small business tax provisions
As part of the CARES Act, the Employee Retention Credit (ERC) is a tax credit created to reward small to medium-sized businesses that kept their employees on payroll during 2020, 2021, or both years during COVID-19.
Even if your business took advantage of the PPP or was deemed an essential business, it can still apply for the ERC to help offset any additional amount that wasn’t covered by a PPP loan.
But how do you know if your business qualifies?
Since the ERC is available to claim for 2020 or 2021, you’ll want to make sure your business:
- Had less than 100 employees during 2019 to qualify for the 2020 ERC and had less than 500 employees in 2019 to qualify for the 2021 ERC.
- Suffered disruptions due to:
- Group meetings
- Supply chain shortages
- Difficulty hiring new employees
- Reduced hours of operation
- Reduction in goods or services offered
- Inability to travel or attend business-related events
- Was partially shut down during either year OR its gross receipts in any quarter of 2020 declined 50% or more in comparison to the same period of 2019 (for 2021, qualifying business disruption is reduced to allow a 20% decrease in gross receipts during a single quarter of 2021 for eligibility)
- Had employees on its payroll
If you believe your business may qualify for the ERC, you should act immediately to claim its credit. If eligible, your business could get a significant refund.
#4. Counseling and training
The CARES Act provides opportunities for free counseling and training for your small business by funding resource partners such as your local Small Business Development Center (SBDC), Women’s Business Center (WBC), and SCORE mentorship chapters.
Additionally, the Minority Business Development Agency’s Business Centers (MBDCs) received funding to support their clients in response to COVID-19. However, not every state has an MBDC, so you may want to see if there is one in your area.
#5. IRA and retirement plan distributions
The 2020 calendar year will have no minimum distributions from IRAs or employer-sponsored retirement plans. In addition, the 10% premature distribution penalty tax that would normally apply for distributions made before age 59½ (unless an exception applied) is waived for coronavirus-related retirement plan distributions of up to $100,000. The tax obligation may be spread over three years, with up to three years to reinvest the money.
The CARES Act can help your small business grow
The CARES Act continues to help many eligible businesses recover from COVID-19’s impact. However, some programs have already ended or have a deadline approaching soon.
Especially when it comes to the ERC, it’s smart to act now as it can take the IRS months to process your business’s application if it qualifies for a refund. Fortunately, ERC companies like Innovation Refunds help make the process as easy as possible so you can focus on running your business.