Photo of a business owner learning about the CARES act.

Federal stimulus for business: CARES Act, PPP Flexibility Act, and loan forgiveness

Updated November 9, 2020

Hundreds of thousands of businesses coping with the COVID-19 crisis rushed to apply for emergency benefits through the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, an unprecedented $2.3 trillion of federal stimulus.

The initial $350 billion for its Paycheck Protection Program (PPP) all had been claimed by mid-April, prompting Congress to add $310 billion more to PPP as part of the most recent $484 billion relief bill. And then the PPP Flexibility Act in June gave businesses more time and options for spending their loans. As of August 8, 2020 and until further notice, the SBA is no longer accepting PPP applications and companies are shifting focus to spending the proceeds in the most beneficial way.

The act makes it easier to get the most out of your PPP loan and maximize forgiveness. For background on how the CARES Act was designed to help your business, watch our April webinar.

Stay connected to Principal® for more ideas for navigating this year’s challenging economy. We also have tools to help you match federal relief programs to your business need:

Here we cover 3 main points:

  • How businesses are categorized:  Nearly every business can access a portion of the CARES Act and its wide variety of assistance. The concise breakdown below can help you see where you fit.
  • How to use it: Consider your critical business need. Whether you need to maintain workforce, a quick cash infusion, or a different kind of help should dictate which benefit you pursue.
  • Where else to turn: Government agencies and other sources can help in the crisis, including your trusted financial professional.

Which businesses are eligible for the CARES Act?

Nearly all who need help. The nation’s largest stimulus bill in history arrived quickly, only about two months after the United States confirmed its first case of COVID-19.

“It’s a huge shot in the arm,” says April Caudill, advanced solutions director for Principal®. “Thought was given to every level of business need.”

Congress, through the Small Business Administration (SBA) and local banks, included billions in forgivable low-interest (1%) loans for small- and medium-sized businesses striving to maintain operations.

The act is complex and loaded with detail—down to a specific tax break for distilled spirits used to manufacture hand sanitizer. The general parameters:

  • Much of the act is aimed at businesses with fewer than 500 employees per business location, although there may be exceptions according to the SBA definition of “small business” for certain industries.
  • Special provisions are included for large businesses in troubled industries, such as airlines.
  • Sole proprietors, gig workers, and independent contractors also are eligible, as well as nonprofits and veterans’ organizations.
  • Ineligible: private equity or venture capital firms, or businesses connected to Congress or the White House.

How to approach the CARES Act

What you need most should dictate how you seek help from the act and its four main types of assistance:

  • Loans
  • Grants
  • Payroll tax relief
  • Other miscellaneous tax provisions

Yes, you can seek multiple SBA loans during this crisis, but generally they must cover different expenses.

Be ready to document the past year of your company payroll and any expenses you intend to cover with the loan (mortgage, rent, retirement benefits, insurance premiums, debt, etc.).

Different ways to tap into CARES depending on your business need

If you need help maintaining payroll because of a business shutdown or downturn

The PPP loan helps businesses cover the cost of payroll—including salaries, paid sick or medical leave, insurance premiums, mortgage, rent, and utility payments. The amount is based on 2½ times last year’s average monthly payroll cost, up to $10 million. Depending on your situation, payroll costs (as well as rent, mortgage interest, and utilities) during your forgiveness period of either eight or 24 weeks may be forgiven as incentive to retain or rehire employees.

The main requirement is that businesses must maintain approximately the same number of employees and not cut salary more than 25%. Any reduction in workforce or salary beyond guidelines also will reduce the amount of the loan. (Generally, if your loan is $50,000 or less, you are exempt from having your forgiveness reduced based on any reductions in FTE and/or salary and wages under the de minimis exemption). For any loans approved on or after June 5, 2020, you have five years to repay any loan amount not forgiven, while loans approved prior to that date must be repaid within two years.

“They wanted to protect those businesses that wanted to keep employees,” says Patti Bell, assistant vice president of advanced solutions for Principal.

Keep in mind that businesses taking a PPP loan cannot receive the employee retention credit. (As of August 8, 2020, and until further notice, the SBA is no longer accepting PPP applications.)

If you just need a cash infusion to get through the worst of the crisis

An Economic Injury Disaster Loan (EIDL) of up to $2 million was offered within CARES as a financial bridge. The loan can be used for payroll, increased material costs, rent or mortgage payments, or for other financial obligations that can’t be met due to COVID-19.

More: Ideas from business owners to preserve small business cash flow.

If you already have a loan from the SBA

The act also includes $17 billion to help with existing SBA loans and to pay for six months of principal, interest, and fees. This same relief is available for new loans taken before September 27, 2020.

If you must declare bankruptcy

The CARES Act extends help even in the worst circumstance: For one year it more than doubles the debt covered by Chapter 11, from $2.4 million to $7.5 million. It also excludes COVID-19 payments from consideration in Chapter 7 and Chapter 13 filings.

Are there any tax benefits for my business in the CARES Act?

Quite a few.

  • Your business may be eligible to receive a payroll tax credit covering half a worker’s compensation, including health benefits, up to $10,000. (In other words, it’s a credit for up to $5,000 per employee, from March 13, 2020, until the end of the year.) For businesses with more than 100 employees, this is available only for wages paid to employees who aren’t working (furloughed or reduced hours). For businesses with 100 or fewer workers, it’s available for all wages paid and doesn’t depend on whether the employee works. Keep in mind that businesses can’t benefit both from this tax credit and a PPP loan.
  • You can defer the employer portion of the 2020 Social Security tax—paying half by the end of 2021, the other half by the end of 2022.
  • The act also loosens the restrictions on net operating losses (NOLs) to help businesses qualify for more tax refunds, especially for previous tax years.
  • The act potentially accelerates the refund of certain corporate alternative minimum tax (AMT) credits.
  • It boosts the business interest deduction for 2019 and 2020 from 30% to 50%.
  • The cost of certain facilities improvements can be written off immediately rather than spread over decades.

What loan programs are available for larger businesses?

For businesses and nonprofits that have 15,000 or fewer employees, or 2019 revenues of $5 billion or less, the Main Street Lending Program may be another option:

  • The business must have been in a strong financial position prior to COVID-19 and must now need the loan to support operations and manage employment to help weather the impact of the pandemic.
  • These loans are not forgivable and must be repaid.
  • For a new loan, generally, the minimum loan amount is $100,000 and, depending on the loan type, the maximum ranges from $35-$50 million (check out more information).
  • The loans have a five-year term with a floating interest rate (a LIBOR of one or three months, plus 3%), and principal payments are deferred for two years, while interest payments are deferred for one year.
  • This loan program is available to for-profit businesses and certain nonprofits until December 31, 2020. For specific information, see the FAQ and other resources on the Federal Reserve Bank of Boston.

What’s next?


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