There are a few programs that small businesses can apply for that were authorized by the CARES Act. In most cases, a business can apply for more than one. Below are the steps for some of the main programs.
You will be required to provide documents in order to determine eligibility, so you should ensure your books are in order before you apply. If you need help, BooksTime will review your books for FREE
Economic Injury Disaster Loans (EIDL) for small businesses suffering economic injury as a result of COVID-19:
These federally guaranteed loans are low-interest and can have a repayment term of up to 30 years, with repayments starting after 12 months. EIDLs can be used to cover payroll, accounts payable, certain types of fixed debts, and more generally, almost any kind of expense that you’re having trouble paying because of the pandemic.
When applying for the economic disaster loan, you may want to ask for the $10,000 advance on this loan. Even if your loan does not get approved, you can still get that money, and the entirety of that sum is forgivable, i.e. it turns into a small business grant.
Here is what you’ll need to prepare:
- Your personal and business financial statements
- Investment statements
- Mortgage statements (personal and business)
- Personal & business tax returns
- Student loan statements
- Any other personal liabilities
- Other sources of income, if any
- Profit & Loss statements for 2018 to now
In short, gather of every document you’d normally use when doing your business and personal taxes. The money allocated for these SBA loans is finite, so businesses will be helped on a first come, first served basis. If you’re missing any documents or the numbers do not match what they will cross-reference with the IRS, you might lose the opportunity to obtain financial support for your business.
To apply for the SBA Economic Injury Disaster Loan:
Make sure all your documents are in order before you start filling out the application. If you need help with your books, contact BooksTime for a FREE review.
When ready, you can click this link to apply online: https://disasterloan.sba.gov/ela/
Towards the end of your application, fill out Form P-019. While it is not required, filling out this form will make for a stronger application, as it will show the SBA that you’ve suffered a substantial economic injury due to COVID-19.
Paycheck Protection Program
The Paycheck Protection Program offers a low-interest loan of up to $10 million dollars to qualifying businesses that is designed to fund payroll, rent, utilities, and mortgage interest incurred between February 15th and June 30th. So long as the funds are used to cover those expenses, this loan will be forgivable and in essence, turn into an emergency grant.
To apply, you will need the following:
- Your business payroll
- Taxes for 2019 or 2018 if you’ve not yet filed for last year
- If sole-proprietor or self-employed, proof of draws
Note that if you’re a sole-proprietor and do not do payroll, the amount of the loan you’re eligible for will be calculated from your net profit number in your last tax return (line 31 on 1040)
Paycheck Protection Program loans are for 2.5 times your average monthly payroll. Any portion that is not used for qualifying expenses will have to be repaid, but the payments are deferred for six months, and the interest rate on repayments is 1%.
If you have questions about your payroll, contact a BooksTime bookkeeping adviser for a free consultation!
Where to apply:
If you already work with an SBA-approved lender, we recommend you start there. If you do not, you will need to try to find a lender who is approved to provide these loans. Follow this link to search for lenders in your area: https://www.sba.gov/paycheckprotection/find
You should check with every lender with whom you have a relationship, no matter how tenuous. For example, if you accept Square for your small business, you will be able to apply through them. You may have a business line of credit with Bank of America or another major financial institution, for example. Even if you don’t have a business checking account with them, your line of credit still constitutes an existing relationship with that lender, which means they can help you apply for this loan.
Tax Credits and Deferrals
There are two ways to get small business relief from the IRS: Employee Retention Tax Credit & Tax Deferral.
The Employee Retention Credit applies to taxes on wages paid between Mar. 13 and Dec. 31, 2020, and is equal to 50% of qualifying wages of up to $10,000 per worker and can be claimed against quarterly payroll taxes. Please note that if you applied for the Paycheck Protection Program, you are NOT eligible for this tax credit.
To claim your employee retention tax credit, report your total qualified wages and the related health insurance costs for each quarter on your quarterly employment tax returns starting with the second quarter (Form 941 for most employers). If you are uncertain or need help with getting your payroll accounting in order, reach out to BooksTime bookkeeping adviser for a free evaluation.
Additionally, the CARES Act allows businesses to defer their portion of the Social Security Payroll Tax (a 6.2% rate for 2020 tax year). You will still have to pay this tax, but if your small business is struggling and you need additional debt relief, you can get an extension from the IRS on when this bill will be due.
Under the CARES Act, you may be eligible for more than one of these programs. It is important to evaluate all the criteria and terms carefully before choosing the one(s) that may be right for your business. We are here to help if you need us.
The original CARES Act is almost 900 pages, so by necessity, we’re summarizing things in a highly simplified and incomplete way here. This article was not written by nor reviewed by a lawyer or a CPA. It is not intended or written to be used as, and cannot be used as legal, tax, investment or financial advice. Any advice or information contained in this article was not intended or written to be used for, and cannot be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
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Author: Charles Lutwidge