The CARES Act and Businesses: A Small-Business Guide to the Coronavirus Stimulus Package

Let’s cut to the chase: the coronavirus crisis has had a huge effect on small businesses (and everyone else) across the United States.

If you’re a business owner who has been affected, you may be able to get help via the CARES Act, also referred to as the coronavirus or COVID-19 stimulus package.

This guide will explain what’s in the CARES Act, how to know if you’re eligible for help, and how to apply for aid.

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law at the end of March. The Act contains several provisions that provide help for small businesses, individuals, big businesses, and more. Altogether, the economic stimulus package provides some $2 trillion in aid from the federal government.

Many of the programs described in the CARES Act are beginning to go into effect. Our guide will break down the provisions that matter the most to businesses like yours.

If you’ve heard anything about COVID-19 help for small businesses, you’ve probably heard about the Paycheck Protection Program. This program offered loans to small businesses. They came with super low interest and―most importantly―they’re forgivable.

We’ll explain the program here, but you can also check out our guide to the Paycheck Protection Program for more details.

The requirements to get a PPP loan were simple:

1. Your business must have fewer than 500 employees.
2. You must have been in business before February 15, 2020.

That’s it. There was no credit check, no collateral requirements―none of the criteria usually used by lenders.

Note that pretty much all types of small businesses could get PPP loans. In addition to your typical small business, the following groups could qualify:

• Nonprofits
• Self-employed individuals
• Contractors
• Sole proprietorships
• Veterans organizations
• Tribal organizations

The U.S. Small Business Administration (SBA) funded PPP loans, but you had to apply through normal lenders. (More on how to apply in just a second.)
PPP loans could go up to $10 million. You could qualify for a loan that’s up to 2.5 times your monthly payroll costs. Note that payroll costs include things like salaries, paid time off, health care premiums, and state and local taxes. They don’t include income taxes, payroll taxes, or salaries over $100,000.

PPP loans could be used for the following costs:

• Payroll
• Paid sick leave
• Insurance premiums
• Interest on mortgage
• Rent
• Utilities

These small-business loans had a 1% interest rate (that’s very, very low). They also had a two-year maturity term.

All PPP loans had deferred payments for the first six months. You’d still accrue interest on the loan during that time, but you wouldn't have had to make any payments.

Unlike other SBA loans, PPP loans had no fees. And these loans did not require collateral or a personal guarantee (a usual requirement for SBA loans).

The real highlight of the Paycheck Protection Program is the opportunity for loan forgiveness. It’s a fantastic feature, but there are some very specific rules you need to follow if you want to qualify.

To qualify for loan forgiveness, you must do the following:

• Use your loan for the approved uses above.
• Spend at least 60% of the forgiven amount specifically on payroll (the remaining 40% can cover things like rent and utilities).
• Keep the same number of full-time employees 
• Keep salaries and wages at the same level (except for employees that make more than $100,000).

Keep in mind that you cannot use your PPP loan on sick leave related to the Families First Coronavirus Response Act, since that qualifies you for a tax credit.

If you don’t stick to these rules, your forgiveness amount may be reduced.

To actually get your loan forgiven, you’ll have to apply for forgiveness with your lender. You’ll need documentation to prove that you stuck to the guidelines, so make sure you keep good records.

Do you already have an SBA loan? Then you probably qualify for SBA debt relief through the coronavirus stimulus package.

For the next six months, the SBA is covering loan payments on these types of SBA loans:

• 7(a) loans
• 504 loans
• Microloans

If you have one of these types of SBA loans, and it was issued before September 27, 2020, you should qualify for this relief.

To be clear, this relief covers your entire payment, including principal, interest, and fees. (But your loan will continue to accrue new interest.) And these are not deferred payments―you will never be responsible for these six months of payments.

You don’t have to do anything to get this debt relief―the SBA will automatically start making payments for you.

In another effort to help businesses keep their employees, the CARES Act has created the Employee Retention Credit. Note that you cannot get both the Employee Retention Credit and a Paycheck Protection Program loan―it’s an either/or situation.

This tax credit amounts to 50% of up to $10,000 in employee qualified wages between March 12, 2020 and January 1, 2021. For each of the first three quarters in 2021, you can also apply for 70% of up to $10,000 per employee. In other words, you can get up to $26,000 per employee—$5,000 in 2020 and $21,000 in 2021.

You’ll claim your Employee Retention Credit on your quarterly federal tax return.

To qualify for the Employee Retention Credit, your business must meet one of the following criteria:

• Have been partially or fully closed because of a government order relating to COVID-19
• You paid employees between March 2020 and September 2021
• Your business qualifies as a recovery startup business
• You had a big loss in your gross receipts (at least 50%)

Unfortunately, self-employed individuals cannot get the Employee Retention Credit.

The definition of qualified wages depends on how many people you employ.

If you employed more than 100 people in 2019, qualified wages apply only to wages paid to employees who are not working because of one of the reasons above.

If you employed fewer than 100 people in 2019, qualified wages can apply to any of your employees―as long as your business meets the qualifications above.

You can get more details about the Employee Retention Credit on the IRS website.

If you’re self-employed, a freelancer, or a contract worker, then you’ll be happy to know that the CARES ACT has expanded unemployment insurance to cover people in your situation. So if you’ve lost wages and clients because of COVID-19, you may qualify for unemployment benefits.

The coronavirus stimulus package expands unemployment benefits for everyone else too. It adds another $600 per week in unemployment benefits on top of any state-level benefits. You can get up to four months of these benefits.

Plus, the Act creates extensions for state-level benefits. So if your unemployment benefits were about to expire, you can apply for another 13 weeks.

There’s a good chance you’ve already heard about the individual stimulus payments, but here’s a quick refresher.

The government sends direct payments to Americans as part of its coronavirus relief efforts.

To qualify, you’ll need to have filed taxes in 2018, 2019, or 2020. Your income matters too. If you earn more than $99,000 in gross income as an individual, $146,500 as a head of household, or $198,000 as a jointly filing couple, you won’t be getting money. (Sorry.)

And the amount you receive changes based on your income. For example, if you earn over $75,000 individually or $150,000 as a couple, your stimulus payment will be lower.

The IRS will either directly deposit money in your bank account or send you a check.

The programs above are the most relevant to small businesses, but there’s plenty more going on in the COVID-19 stimulus package. Here are a few more highlights:

• The tax filing deadline for the 2019 tax year was extended to July 15, 2020.
• Employers can provide non-income (tax-free) student loan repayment benefits (up to $5,250) until 2025.
• Private insurance must cover COVID-19 testing and treatment.
• Funds have been provided for airlines, hospitals, food banks, and more.
• Businesses getting aid from the CARES Act cannot have stock buybacks.

And again, there’s more.

If you really want to get into the weeds, you can get all the details by reading the CARES Act. (But honestly, it’s probably a little dense and boring for most of us.)

We know that the coronavirus crisis has been incredibly hard on everyone, and small-business owners are no exception. Fortunately, the COVID-19 stimulus plan provides some ways for businesses and individuals to get relief―from loans to tax credits to direct payments.

And remember, the CARES Act isn’t your only option for help. Many state and local governments have created relief packages too.

We hope you and your business stay healthy―or that you recover quickly.

Interested in getting one of the SBA’s loans to help your business? Check out our SBA business loan calculator to estimate your costs.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.