As of this article’s publication date, COVID-19 cases in the United States have risen above half a million. To prevent further spread of the virus, the federal government has urged everyone to take social distancing seriously. To ensure this, as many as 43 states and Washington D.C. have issued official stay-at-home orders to residents that will last—at least—through April. Global trade continues to decline across sectors and 3.3 million people applied for unemployment mid-March according to the U.S. Labor Department. Individuals and businesses all over the world are struggling greatly under these conditions. A special report from the U.S. Chamber of Commerce on April 3rd found that 1 in 4 small businesses have temporarily shut down. The government has put forth 3 stimulus packages since the beginning of March trying to address different areas of concern for public health, the economy, and social services. Totaling trillions of dollars all told, these are the most expensive stimulus measures ever approved. The following content will cover the basics on these stimulus packages with a special focus on the SBA loans available for small businesses.
What are the existing stimulus packages?
There have been 3 coronavirus stimulus packages passed so far with Capitol Hill already buzzing about a fourth phase. Here’s what you need to know about these 3 phases.
Phase 1: For public health measures and economy
On March 6th, extra funding totaling $8.3 billion was approved under the Coronavirus Preparedness and Response Supplemental Appropriations Act. Funding will be given to national entities including the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH), the U.S. Food and Drug Administration (FDA), the United States Agency for International Development (USAID), and the Small Business Administration (SBA). Much of this funding will work through these entities to be distributed to state and local organizations across the country.
Broken down, $950 million will be dispersed by the CDC for state and local health needs including surveilling and testing for coronavirus as well as other efforts to control for infection at the community level. These funds will also be used to improve state and local facilities. $100 million is additional funding will be used specifically for Community Health Centers. The biggest portion, which will be managed by the Office of the Secretary of Health and Human Services (HHS), will dedicate $3 billion to vaccine development and treatment with the stipulation that what is developed must eventually be accessible and affordable to the average American. $500 million will also be allotted to purchase masks and personal protective gear (PPE) where there are shortages. $1.25 billion will be set aside for international response efforts in low- and middle-income countries. $1 billion will be used for small businesses through loan subsidies. The remaining funds will also be used for reimbursement of COVID-19 costs accrued by states since January 20th.
Phase 2: For individuals adversely effected by COVID-19
Phase 2 of the federal coronavirus response was signed into law on March 18th as the Families First Coronavirus Response Act. While phase 1 measures were allotted to organizations at all levels, phase 2 focuses on the needs of individual Americans. With an estimated cost of $100 billion, the funding includes free COVID-19 testing, 2 weeks of paid sick leave and 12 weeks of family leave through the Emergency Family and Medical Leave Expansion Act, increased funds for Medicaid and food security programs, and increased unemployment insurance benefits through the Emergency Unemployment Insurance Stabilization and Access Act of 2020.
To accomplish this, the Department of Agriculture will be in charge of distributing over $100 million to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), The Emergency Food Assistance Program (TEFAP), and the Supplemental Nutrition Assistance Program (SNAP). The COVID-19 Child Nutrition Response Act will cover a waiver for children needing continued food assistance now that schools are closed. An additional $100 million will also be granted to Puerto Rico, American Samoa, and the Mariana Islands for nutrition assistance.
The Emergency Family and Medical Leave Expansion Act comes with several stipulations. For example, the reason for leave must be to care for the employee’s own child if their school has been shut down or the usual childcare provider is now unavailable. The cap for compensation is $200 a day and $10,000 total during the period of leave. See more details here. The Emergency Paid Sick Leave Act covers 2 weeks of pay (80 hours of work) if an individual suspects they have coronavirus and are seeking diagnosis, a healthcare provider has recommended self-quarantine, or they have been ordered to quarantine. The cap for compensation is $511 a day and $5,110 over the period of leave. See more details here. Employers should be able to reclaim the amount paid to employees under these Acts through federal tax credits but is it unclear when that will begin to happen.
Free testing will be made available through the Department of HHS in $1 billion of funding to cover uninsured patients and those on employer-sponsored group health plans. Hundreds of millions in funding will also go toward supporting specific vulnerable groups such as the elderly, veterans, and the disabled through the Department of HHS and Veteran Affairs. The Emergency Unemployment Insurance Stabilization and Access Act of 2020 has $1 billion in funding available to states to ensure that they can meet the demands of high-volume unemployment compensations. See more details here.
Phase 3: For economic relief to governments, individuals, and businesses
On March 27th, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. Over $2 trillion in funding will be allotted to various measures. First of all, federal agencies will be granted emergency spending which eliminates caps on discretionary spending. In additional to this, tax rebates of up to $1,200 per person plus $500 for each child in a household will start going out across the country. To qualify for this aid, your income must not exceed $75,000 if single and $150,000 if a married couple. Additionally, unemployment benefits will be expanded and federal student loan payments will be suspended. Along with student loans, many requirements have been modified for programs including banking and accounting processes, mortgage payments, health insurance regarding COVID-19 care, the FDA drug approval process, the IRS excise tax, and more.
One of the heftiest elements of this Act is the internal Keeping American Workers Paid and Employed Act. This will provide billions in funds to small businesses, small business centers and agencies, emergency grants, emergency loans, loan forgiveness, waivers, and more. You can see more details for each of these elements here. For the remainder of this article, we will focus on the Payment Protection Program (PPP) which falls under this Act and allots billions of dollars in potentially forgivable loans to SBA designated small businesses.
The Payment Protection Program (PPP) and SBA loans for small businesses
The following information comes from guidelines published by the U.S. Department of the Treasury. The PPP is a program that authorizes $350 billion to be used for small business loans that can be forgivable if certain requirements are met. All businesses who receive loans from this program will be under the same terms. If you want to find out more about what qualifies these loans as forgivable, visit the SBA website here. These loans are meant to cover payroll, rent, utilities, and mortgage interest costs as an incentive to retain workers. The size of the loan can be up to 2.5 times your average monthly payroll costs with a cap at $10 million. Payroll costs are capped at $100,000 annual income for a single employee. Every loan has a fixed interest rate of 1 percent. If the loan money is used for expenses outside of what is designated as qualifying for loan forgiveness, then you will have to start paying back on your loan 6 months after receiving it. You will have 2 years to pay back anything you owe on it.
Starting on April 3, small businesses and sole proprietorships were authorized to start applying for these SBA loans. As of April 10, independent contractors and self-employed workers could apply. The application needs to be processed through an SBA lender by June 30, 2020. Businesses are encouraged to apply soon since there is a cap on the overall available funding. As of April 10th, around $150 billion remains available. These loans can be applied for through a participating SBA approved 7(a) lender or participating federally insured financial institution. You can take a look at the loan application here. In addition to filling out the application with a lender, you will need to be prepared to provide them with your payroll information.
Who qualifies and how to apply for PPP SBA loans
The breadth of who qualifies has been widening over the past few days. Per publication of this article, those who can apply include any business that qualifies as a small business under the SBA size standards which can be reviewed here. Partnerships, C-Corps, S-Corps, LLCs and other business structures are all invited to apply if the size standards are met. The SBA provides tools to help you know if you fit these standards if you are unsure. You can also contact an SBA lender for help. The SBA also lists the following as qualified entities:
- “Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons.”
If you know that you qualify for a PPP loan under these standards and your business has been adversely affected by COVID-19, reach out to a participating lender to complete an application soon. As an SBA preferred lender, Continental Bank is ready to help you apply for the financing your business may need right now.
