It is hard to imagine we would be where we are today.
It seems like four weeks ago, when most businesses were experiencing their best quarter in company history, was years ago. Some companies may have imagined that nothing could stop them in this economy. Boy were we wrong!
Things are evolving by the day now, and most small business owners can't keep up with the volume of information that is being thrust at them. And its not just a financial strain, suppliers have been compromised, companies are forced to lay off employees in masses, government mandated shut-downs for certain industries, and landlords are unsure if they will receive their monthly rent.
The majority of businesses, even those who were preparing for a recession, couldn't have dreamed of this crisis.
As a result, federal and state governments as well as the Small Business Administration (SBA) and even local banks and landlords are offering different resources for small businesses impacted by COVID-19. Here are 10 steps to Take if Your Business Has Been Impacted by COVID-19 (Coronavirus) .
Apply for the Paycheck Protection Program (PPP) Loan
For companies with fewer than 500 employees
Nonprofits can also qualify
SBA will guarantee loans terms of 2 years and 1% interest
Eligible business can qualify for loans up to $10 million
Deferments of 6 months to a year
Portion of the loan used for payroll at the employees’ normal salary levels for 8 weeks can be forgiven
Loan can also be used for rent/mortgage interest and utilities up to 25% of the funding
You will need to apply with your financial institution for this loan
The application went live on April 3rd, and unfortunately there were a lot of challenges. Reach out to your banker as soon as possible as there is only $349 billion allotted in the CARES Act for the PPP loan program. You can read a more thorough explanation of this loan and the next two options here.
Apply for the Economic Injury Disaster Loan (EIDL)
For small business and nonprofits with less than 500 employees
SBA is providing working capital loans of up to $2 million
The terms of this loan are up to 30 years
Interest rates of 3.75% for small business or 2.75% for nonprofits
The previous collateral requirements with traditional SBA loans have largely been waived.
You can apply directly through the SBA website. There is a credit check but there are very minimal requirements to secure this loan. Please be advised it takes 10-14 days for the SBA to process your application currently.
Apply for an Economic Injury Disaster Grant for EIDL Applicants
When you apply for the EIDL you can elect to receive an advance of up to $10,000 to maintain payroll, provide paid sick leave and to service other debt obligations. You do this by checking a box in the application indicating you wish to be eligible.
It is my current understanding that even if you do not qualify for a larger loan or choose not to take the larger amount you will still potentially still receive the grant of up to $10,000.
There is a finite amount of money available for this program, and it is expected that this opportunity will run out quickly. Only the grant under the EIDL is eligible for forgiveness. This could reduce your PPP loan forgiveness as well. You can refinance your EIDL under the PPP program, and it will become eligible for forgiveness if used for the purposes allowed under the PPP loan.
Claim the Employee Retention Tax Credit (ERTC)
The ERTC is a fully refundable tax credit for employers equal to 50% of qualified wages (including allowable qualified health plan expenses) that employers pay their employees.
This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of wages considered for each employee for all calendar quarters during the period is $10,000, so the maximum credit for the Employer for wages paid to any employee is $5,000.
An employer may not receive the Employee Retention Credit if the employer receives a SBA Loan under the PPP that is authorized under the CARES Act. An employer that receives a paycheck protection loan should not claim Employee Retention Credits.
Federal (most state) income tax filings and payment deadlines extended until July 15th
The IRS has extended the amount of time you have to file and pay your 2019 income taxes from April 15th to July 15th. This includes your estimated tax payments for the 1st and 2nd quarters for 2020 as well the IRA and Health Savings Account funding deadlines. If you are unsure about your state filings, please reference the list maintained by the American Institute of Certified Public Accountants.
Payroll tax payment deferment
An employer may delay payment of the employer’s 6.2% of the Social Security tax. For the period beginning March 27, 2020 and ending before January 1, 2021, payment of applicable Employer SS Tax owed during the Deferral Period is due by: December 31, 2021 with respect to 50% of such amount, and December 31, 2022 with respect to the remaining 50% of such amount. As long as Employer SS Tax deposits are made in accordance with the above schedule, no penalty will be imposed. Like the ERTC the employer will not be eligible for deferment if they received the PPP funding mentioned earlier. Similar provisions apply in relation to the self-employment tax.
Ask your banks to defer payments
Many financial institutions have voluntarily extended additional payment terms to help with the financial stress of coronavirus including 3-month deferments of payments or offers to make interest only payments for a few months. Check with your financial institutions to see what might be available to you.
Take up to $100,000 withdrawal from your retirement with no penalty
You can withdraw up to $100,000 this year without the usual 10% penalty for early withdrawal, as long as it’s because of the outbreak. Many people will need long term capital resources, and they can now use their retirement accounts if need be. You will also be able to spread out any income taxes that you owe over three years from the date you took the distribution. And if you want, you could put the money back into the account before those three years are up, even though the rules may normally keep you from contributing that large. This exception applies only to coronavirus-related withdrawals. You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.
Borrow up to $100,000 from your retirement
You can take out twice the usual amount as a loan from your 401(k). For 180 days after the CARES Act passed, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000. Usually you can’t take out more than half your balance, but that rule is suspended.
Apply for Unemployment (UI)
Under normal circumstances you cannot qualify for unemployment if you are self-employed unless you have paid into the system. Also you must be available for work and typically must have been laid off by the employer due to lack of work (varies state-to-state). Due to COVID the Department of Labor is allowing significant flexibility for states to amend their laws to provide UI benefits to all those effected by the outbreak including self-employed workers and small business owners. Under the CARES Act everyone will qualify for an additional $600 per week until July 31st, on top of what the state would have already awarded them. Keep in mind the benefits vary greatly state to state. Most states are also waiving the waiting period and expanding the number of weeks you can draw. If you are paying yourself “payroll” under one of the other programs mentioned above you will not likely be able to draw unemployment.
As we discover more about how long this crisis will last, I suspect there will be additions to the small business resources gathered here. In the meantime, the important thing is for you to craft a strategy forward as the leader of your organization. Which resources you tap into is a crucial component of that. If you are unsure of your next steps, I am happy to answer any questions you might have.
Until then I wish you and your business health and wellness as we march forward!
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