If you’re running a small business, you’ve likely heard that the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act will help businesses with financial assistance through various programs. Some parts of the CARES Act have been highly publicized in the news, but do you know all the different programs included in the Act that can provide some support for small businesses?

CARES Act small businesses

Keep reading for a breakdown of the different ways the CARES Act provides relief for businesses and their employees.

What is the CARES Act?

The CARES Act provides approximately $2 trillion in support for individuals and businesses impacted by COVID-19. It includes multiple initiatives to provide financial assistance to small businesses and their employees.

In general, the CARES Act provides relief to businesses and individuals through a few different channels:

  • Offering financial assistance to small businesses through Small Business Administration (SBA) lending programs
  • Small business debt relief program
  • Temporary tax breaks and deadline extensions for both individuals and businesses
  • Improved unemployment benefits

Here are some of the specific ways you can leverage these programs for your business.

SBA loan programs for small businesses

SBA Paycheck Protection Program (PPP)

The PPP is a newly created SBA lending program that is designed to get payroll assistance to small businesses quickly. Eligible businesses can apply to receive a loan that is equal to about 2.5x their monthly payroll up to $2 million. The loan comes with a 1% fixed interest rate, and no additional fees of any kind, including no origination fees or prepayment penalties. PPP loan payments are deferred until after you have applied for forgiveness and your forgiveness amount is approved by the SBA, but interest will continue to accrue during this time. Your payment deferral period may vary if you elect not to apply to loan forgiveness.

Borrowers that spend the majority of the loan on payroll and other allowable costs are eligible to have a portion of the loan forgiven.

Learn more about PPP loans, including how to apply, in our helpful guide.

When does a PPP loan make sense for my business?

PPP loans are a great option for small businesses looking for funds to primarily cover payroll and rent. They come with an already low interest rate, and if you use the loan to keep employees on payroll and pay rent or mortgage interest, you are likely to have most or all of the loan forgiven (essentially turning it into a grant).

Additionally, you can apply for both a PPP loan and an SBA disaster loan, but you will need to have different use cases for the funds from each loan (i.e., you can’t list payroll support as your reason for needing funds on both applications). Visit the SBA website for more information on applying for both programs.

SBA Economic Injury Disaster Loan Program (EIDL)

Prior to the CARES Act, the SBA EIDL program provided low-interest loans to businesses affected by natural disasters. As an example, if you live in a state that regularly experiences flooding or hurricanes, you may have heard about (or even applied) for an SBA disaster loan. The CARES Act expanded funding to this program so that businesses impacted by COVID-19 could apply for these loans too.

SBA disaster loans come with a 2.75-3.75% interest rate depending on your entity type, and payments are deferred for the first year of the loan. Loans of over $25,000 will require you to put up collateral to secure them. To get an SBA disaster loan, you will need to apply directly with the SBA.

The process to get an SBA disaster loan typically takes over 30 days. To get funds to businesses faster, the SBA simplified their typical application process and made it possible to apply online. They also now offer advances on the loan of up to $10,000 for businesses applying for disaster loans to get them some portion of the funds faster, and that advanced amount may be eligible for full or partial forgiveness. These come with limitations, so be sure to check the SBA site for more details.

Learn more about how SBA disaster loans work in our handy guide.

When does an SBA disaster loan make sense for my business?

A disaster loan can be a good option for your business if you need funds to cover payroll, sick leave, mortgage or rent payments, or to cover pre-existing debt obligations. Payments are deferred for the first year, so you do have some time to get your business back up and running (and revenue coming back in) before you have to start repaying the loan.

However, SBA disaster loans do not come with loan forgiveness, and the interest rate is higher than a PPP loan (though still relatively low). While the advance grant on the disaster loan will get you a portion of your funds faster, it may still take some time for your application to be approved and funds disbursed by the SBA.

SBA Small business debt relief program

In addition to expanding small business lending programs, the CARES Act also created a small business debt relief program for any existing SBA loans (not including disaster or PPP loans) that businesses may currently hold. As part of this program, the SBA will automatically cover payments, including principal, interest and fees on existing loans for 6 months. You can learn more about the debt relief program on the SBA’s website.

When does this make sense for my business?

If you currently hold a 7(a) loan (excluding PPP loans), 504 loan, and/or a micro loan, this program can be really helpful for your business. You can use it to save on loan payments while your business revenue is impacted by COVID-19. This can help maximize your current business cash flow. It can also help you protect your business credit score, since you don’t have to worry about missing loan payments. Additionally, you can apply for a PPP loan or a disaster loan and still take part in this program.

Extra assistance for your employees

Federal unemployment support

As you might guess from the unprecedented unemployment numbers, many U.S. businesses have had to lay-off or furlough employees in the past few weeks due to shutdowns and social distancing. To provide some temporary relief to the newly unemployed, the CARES Act provides an additional $600 per week in unemployment benefits on top of your state’s benefits. State unemployment benefits were unchanged by the CARES Act, though some states have expanded benefits – check with your state to learn more.

Furloughing or laying off employees may be an option for a small business when the alternative is shutting down your business altogether, though it is still a very hard decision to make. Just be aware that if you are applying for a PPP loan you will be expected to bring headcount back quickly to qualify for loan forgiveness.

Tax provisions for businesses

Beyond some of the immediate financial relief programs, the CARES Act also introduced a number of temporary tax provisions to support businesses and individuals. One of the first steps the federal government took was to extend filing deadlines to July 15, which many local and state governments quickly followed with their own extended deadlines.

Here are a few of the other tax provisions included in the CARES Act that can help small businesses. For a comprehensive overview of every tax provision included in the CARES Act, visit the IRS website.

Payroll tax credit for 50% of wages paid

Businesses impacted by COVID-19 are eligible for a payroll tax credit for 50% of wages paid (plus some portion of employee health insurance). To show that they are eligible, businesses must have been closed due to COVID-19 or demonstrate that revenues dipped by more than 50%. The tax credit is available for payroll period covering March 13 – December 31, 2020.

However, businesses who receive a PPP loan will not be eligible for this payroll tax credit. Work with your accountant or financial advisor to decide which option works best for your business.

Payroll tax deadline extended

Businesses impacted by COVID-19 can delay their payroll tax payments over the next two years as well. They must pay 50% by the end of 2021, and the other half by the end of 2022.

Under the Paycheck Protection Program Flexibility Act (passed in June 2020), businesses who receive a PPP loan are now eligible to defer payroll tax payments. Work with your accountant or financial advisor to decide if this option is a good fit for your business.

Deduction for business interest expense raised from 30% to 50%

Typically, businesses can deduct their business interest expense plus 30% of adjusted taxable income. This means that if you have a loan or pay a mortgage for your business, you can deduct these expenses from your taxable income, thereby lowering your business tax rate. The CARES Act raised the amount you can deduct on top of your business interest expense from 30% to 50%. Learn more about business interest expense deductions at the IRS website, and work with your accountant or financial advisor to make sure your business is taking advantage of all the tax provisions within the CARES Act.

For more comprehensive information on the CARES Act, check out this guide from the U.S. Senate. OnDeck is here to support small businesses – visit our COVID-19 Resource Hub for more helpful information for small businesses impacted by COVID-19.


*This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for health, tax, legal or accounting advice. You should consult your own health professionals or tax, legal and accounting advisors before implementing any business changes.

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