Small businesses have been hit hard by COVID-19, across all sectors. To provide some coverage to bridge the gap of regular business conditions, the CARES act stimulus bill offers five supports for eligible small businesses:
- Paycheck Protection Program
- Emergency Economic Injury Grants / Economic Injury Disaster Loans
- Small Business Debt Relief Program
- Tax Credits and Relief
- Training, Advice, and Counseling from Resource Partners
Companies that meet the Small Business Administration’s definition of a small business as well as other entities as listed by the program can qualify for these loans and relief. The loan programs operate on a first-come, first-served basis, so many businesses are rushing into loans that may not provide the support they need for the long run.
Your company’s resilience depends on smart planning and adaptability. Once you know where you’re going, you can be assured that the loans and relief options are part of a plan that will take your company forward. When you understand the meaning behind the programs, you will have better insight as to whether applying for funding is the right step for your business.
Paycheck Protection Program
The loans in the Paycheck Protection Program (PPP) provide support to small businesses looking to cover their payroll costs. Companies that maintain their staffing levels through June 30, 2020, may be able to have their loan forgiven. Because of this feature, it is a very popular program for business owners who foresee needing their staffing levels to stay the same during this period of uncertainty and beyond.
PPP loan applications quickly overwhelmed the act’s first round of appropriated funds, so these loan applications were closed in mid-April until additional appropriations could be added. However, the program was officially refunded on April 24.
Unfortunately, this program may not be feasible for businesses that need to streamline their staffing and adapt to a leaner business model in response to economic conditions. While the loan is intended to cover payroll costs like compensation, health coverage premiums, and employee leave, other expenses connected to staffing are not covered.
For example, the bill does not make it clear whether employer-paid insurance premiums like workers’ compensation are included in payroll costs. Even the costs of cheap workers’ compensation insurance can become a burden to a business if it is unable to shift staffing levels to accommodate a steep loss of income.
Emergency Economic Injury Grants / Economic Injury Disaster Loans
Economic Injury Disaster Loans (EIDL) are low-interest federal disaster loans to help small businesses pay for expenses that they are unable to cover due to the unforeseen impacts of COVID-19 on their operation. These loans can be used for payroll costs, operating expenses, and business obligations.
There is also the added option of an Economic Injury Disaster Advance Loan, which allows for quick, forgivable funding of up to $10,000 for businesses with immediate needs while their approved EIDL is being processed. Like the PPP loans, the appropriated funds for EIDL ran out less than two weeks after their announcement, closing applications for this assistance until additional appropriations were made April 24.
With more flexibility than a PPP loan, the EIDL can provide a needed boost to small businesses. These loans do not come with the same promise of forgiveness, though they may be allowed to be refinanced as PPP loans. Still, you should make sure to consider whether the added loan is something your business can manage once the payments come due. Recovery post-COVID still has many unknowns, so it’s vital that your business has a contingency plan for managing offset costs.
Small Business Debt Relief
Businesses receiving 7(a) loans, 504 loans, and microloans from the Small Business Administration (SBA) will automatically have their loan principal, interest, and fees covered for six months by the SBA. Principal, interest, and fees will also automatically be paid for new borrowers who are issued 7(a) loans, 504 loans, and microloans prior to September 27, 2020.
If you did not already have a loan from the SBA, applying for a 7(a), 504, or microloan may be another way to stay afloat. These loans could potentially provide a cushion to small businesses experiencing cash flow and supply issues due to the COVID-19 pandemic. However, without knowing what the economic conditions will look like in six months and beyond, small businesses may have concerns about taking out a new loan.
Unlike the PPP and EIDL loans, this loan relief is not attached to appropriation amounts. However, the SBA and SBA-affiliated lenders have been tied up with the rush for stimulus bill loans, so it may take longer than normal to receive a loan through these programs.
Tax Credits and Relief
The CARES act provides a refundable tax credit for 50% of payroll taxes up to $10,000 to businesses whose operations have been partially or fully suspended during the COVID-19 pandemic. This provision also serves for employers who can show a 50% reduction in quarterly receipts during the pandemic. Affected businesses are also given the option to defer paying the employer portion of certain payroll taxes through the end of 2020. These provisions do not apply to businesses that receive a PPP loan.
Training, Advice, and Counseling from Resource Partners
The final prong of CARES support is often overlooked, but it may make a big difference to small businesses needing information and assistance to determine their options in this uncertain time. To help with this need, SBA’s resource partners including Small Business Development Centers, Women’s Business Centers, and Minority Business Development Agencies were granted with additional funds to offer support to business owners. Specific areas for training, advice, and counseling include:
- Training on telework and remote customer service, including the risks and prevention of cyber threats
- Advice on accessing and applying for resources and capital
- Counseling on hazards and prevention of COVID-19 transmission and communication in the workplace, and mitigating the effects of COVID-19 on supply chains, distribution, and sale of products for small businesses
To find a resource partner near you, you can use the SBA search tools. In addition to helping you navigate the current loans and relief packages, these programs can guide you to adjust your business models and improve your agility despite uncertain markets.
At Cerity, we offer more than just cheap workers’ compensation insurance. We got into this work to help small businesses overcome the everyday curveballs that can hit companies hard. We’ve been working on ways to accommodate businesses dealing with the uncertainties of the current moment. Our PayGo option adds the flexibility you need to make our affordable workers’ compensation work even better for you.
Want to learn more about how we can help shave unnecessary costs and headaches from workers compensation insurance? Get a free quote for workers’ comp insurance with our free online quote tool.