COVID-19 pandemic has created an unprecedented disruption in all economic, social, and political spheres of human life. The health care system faces a daunting task of fighting at the frontlines of this global crisis. Small Businesses have been hit hard by the mandatory closures, lockdowns, and safety measures required to slow the spread of COVID-19. In such an alarming situation, the Federal Government has stepped forward with a variety of measures for protecting and promoting small businesses.
Today there are numerous resources and relief programs for businesses to turn to in times of need. Small Businesses struggling to make ends meet can take the help of various federal grants, emergency loans, and relief programs.
If your Small Business has been adversely impacted by COVID-19 then this blog can help you out! We are compiling a list of all federal business grants, loans, and assistance packages for Small Businesses so that you can explore all your financial options in such difficult times.
Issues faced by Small Businesses
COVID-19 has created a situation where Small Businesses are bound to encounter one or more of the following issues in these times:
1. Capital Access
Incidents like these can strain a small business’s financial capacity to make payroll, maintain inventory, and respond to market fluctuations. In such times, businesses should explore and test their capital access options so they have what they need when they need it.
2. Inventory and Supply Chain Shortfalls
It is a smart move to ensure that you have either adequate supplies of inventory for a sustained period and/or expand your distributor sources in case one supplier cannot meet an order request.
3. Clean-up Costs
There may be a need to improve the protection of staff and customers by increasing the frequency and intensity with which your business conducts cleaning of surfaces frequently touched by visitors and occupants. Check your maintenance contracts and supplies of cleaning materials to ensure they can meet the increase in demand.
4. Changing Market Demand
Due to the pandemic, there may be access controls or movement restrictions established which can impede your customers from reaching your business. Furthermore, there might be public concerns about public exposure to an untoward incident and they may decide not to approach your business out of concern of exposing themselves to greater risk.
5. Marketing Costs
It’s critical to communicate openly with your customers about the status of your operations, what protective measures you’ve implemented, and how they (as customers) will be protected when they visit your business. Promotions may also help incentivize customers who may be reluctant to patronize your business. This will add additional marketing costs which probably would’ve been lesser or spent differently in the pre-COVID days.
6. Workforce Capacity
Incidents like COVID-19 have an impact on everyone, your workers as well as your clientele. It has become more important now that they have the ability to fulfill their duties while being safe and protected.
Federal Government Assistance to Small Businesses
In the wake of the Coronavirus pandemic, the Federal Government had to come up with a new policy to assist and help Small Businesses. In such difficult times, it becomes the responsibility of the Federal Government to provide assistance, guidance, and direction to help support the economic and financial structures of the country, especially Small Businesses and enterprises.
The Federal Government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The provisions of this Act provide several relief options for employers trying to maintain payroll and liquidity during the coronavirus pandemic.
In the coming sections, we will take a look at all the major relief programs by the Federal Government for helping Small Businesses impacted by COVID-19.
U.S. Small Business Administration (SBA) Relief Programs
The CARES Act contained $376 billion in relief for American workers and small businesses. These funds were allocated to several new temporary programs, most of which are administered by the U.S. Small Business Administration. Let us take a look at all the options made available by the SBA for pandemic relief and support to Small Businesses.
SBA Paycheck Protection Program (PPP)
The program helps small businesses keep workers on payroll during the pandemic. The program is for any small business with less than 500 employees, including sole proprietorships, self-employed persons, independent contractions, private non-profit organizations, or 501(c)(19) veterans organizations. This has become one of the most popular programs because there is a high potential of all or the majority of the loan being forgiven.
Provides 100% federally-backed loans for certain payroll expenses, with up to eight weeks of forgiveness for small businesses, self-employed individuals, and certain nonprofits. The loans are forgivable if employers retain employees at salary levels comparable to those before the crisis. This program also waives all SBA fees and provides deferral on loan repayments for a minimum of six months and a maximum of one year.
SBA Economic Injury Disaster Loans (EIDL)
The SBA is providing working capital loans of up to $2 million to small businesses and nonprofits affected by the coronavirus as a part of its disaster assistance program. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary from applicant to applicant, up to a maximum of 30 years.
The CARES Act stimulus updated the program so that businesses with fewer than 500 employees qualify, and applicants don’t need to provide a personal guarantee on loans under $200,000. Collateral is required for loans over $25,000. Payments are deferred for 12 months but interest does accrue during the deferment. They can be deferred for up to four years.
You can essentially use EIDL money for any needs of the business with a few exclusions like dividends and bonuses, expansion of facilities or acquisitions or refinancing debt, among other things.
SBA Express Bridge Loans
SBA Express Bridge Loan Program allows small businesses who have a business relationship with an SBA Express Lender at present to access up to $25,000 quickly. These loans can provide crucial economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. It can be used to bridge the gap while applying for a direct SBA Economic Injury Disaster Loan.
Small businesses that need help quickly can apply for a bridge loan of up to $25,000 to help while they apply and wait for long-term financing. To qualify, a business must have had an existing relationship with an SBA Express Lender before March 13, 2020.
The funds will be received within 45 to 90 business days of an application. The loan carries a maximum interest of prime + 6.5% with a maximum term of 7 years. This is a rather fee-heavy option with an application fee, annual service fee, upfront guarantee fee, and higher interest.
SBA Debt Relief Program
The SBA Debt Relief Program provides debt-payment assistance on the principal, interest, and fees for up to six months for non-disaster-related SBA loans. The Debt Relief program applies to those who had already taken out a loan before the crisis and apply for new loans within six months after the CARES Act was passed (that is, until September 2020).
As part of the SBA Debt Relief Program, the SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. This relief is not available for Paycheck Protection Program loans or Economic Injury Disaster loans. Borrowers do not need to apply for this assistance.
Payroll Tax Credits and Deferred Payments
Employers are eligible for a 50% refundable payroll tax credit (“Employee Retention Tax Credit”) on wages paid up to $10,000 during the crisis. The credit would be available to employers whose businesses were disrupted due to the Coronavirus shutdowns and those that had a decrease in gross receipts of 50% or more when compared to the same quarter last year. The credit can be claimed for employees who have been retained but are not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees.
Moreover, under the CARES Act, certain employers may opt-out of having to pay employer-side Social Security payroll taxes until January 1, 2021. Once those payments resume, 50 percent will be owed on December 31, 2021, and the other half on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period. Firms that opt into the PPP cannot defer payroll taxes or take the employee retention credit.
It is a huge challenge for Policymakers as they seek to prevent payroll cuts while requiring workers to stay home to prevent the spread of the coronavirus. The small business provisions of the CARES Act support small businesses and nonprofits seeking economic relief during this downturn.
There are a lot of economic relief packages and options available for Small Businesses in these trying times. If your business is struggling due to COVID-19, then you should consider applying for some relief programs, grants, or loans to help your business.
We can also help you choose the relief package that is right for your business! Get in touch with us if you need assistance with choosing or applying for a Federal economic relief package.
Serina Johnson is a Financial Adviser and writer with Global Connect Pro Financial. She specializes in Business finance and is an accomplished writer & adviser. She regularly writes on subjects like Budgeting and Forecasting, Expense Management, Cash Management, Taxes, Internal Audits, Cost Accounting, Business Loans, Business Finance, Alternative Finance, and more. Having been a part of our team for over 3 years now, we trust her expertise in finance and accounting.