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ARCHIVED (4/1/2020): Small Businesses and the CARES Act

On 3/27/2020, Congress passed the CARES Act, the largest economic stimulus plan ever at $2.2 Trillion.  The intent is to help everyone who has been affected by COVID, effectively everyone.

Of the $2.2 Trillion, about $360 Billion has been allocated to help small businesses through the Economic Injury Disaster Loan (EIDL) and the Payment Protection Program (PPP).

$10 Billion has been allocated the Economic Injury Disaster Loan (EIDL):

  • This is an existing program.
  • You must apply directly with the SBA at :  There are no loan fees, prepayment penalties, or guarantee fees.
  • This is a loan that requires full repayment, therefore there is an underwriting process and you must prove that you have been harmed by the disaster.  A slight decrease in income is not sufficient.  This can be challenging to obtain.
  • You must be in a county that has been declared a disaster by the governor.
  • Max of $2M
  • Loan can be used for any business expense (i.e. fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact).
  • The interest rate is fixed at 3.75% over 30 years.  (2.75% for non-profit organization)
  • You can apply for EIDL and PPP concurrently, however, the money spent must be for different expenses.  If you receive both, $10K may be used to offset your PPP.

$349 Billion has been allocated to the Paycheck Protection Program (PPP):

  • This program is a loan that can be forgiven if certain qualifications are met.
  • No underwriting requirements since the only requirement is to have been affected by COVID - which is everyone.
  • Applies for any employer under 500 employees, including sole proprietorship (with only 1099 income).
  • The loan amount is 2.5x your average payroll expense (prior to 2/15/2020).  Highly compensated employees are capped at $100,000.  You'll need to provide a year's worth of 941 (for W2 employees) and/or 1096 (for 1099 independent contractors).
  • The interest rate is fixed at 1% over 24 months, with a 6 month deferral period.  So essentially, you'll have to pay the unforgiveable portion of the loan back within an 18 month period. 
  • Once you receive your loan, you have 2 months to spend at least 75% of the loan on payroll AND keep your employee headcount the same.  You can terminate an employee, but you must hire another one to keep the total headcount the same.  As long as you meet those conditions, the loan will be forgiven.
  • Applying for or accepting the loan does not impact credit score.  There is no credit pull for this process.
  • The amount that is forgiven will be taxable.  However, if you spend the entire loan on payroll, the expense is deductible and the net effect is zero.
  • Apply through any 7A approved SBA lender.

Remember that the amounts have already been allocated to each program.  Therefore, this is on a first come first served basis.  However, Congress seems very willing to spend whatever they need to stimulate the economy.  So, it's possible they will increase the amount allocated to include more employers and/or the situation continues to get worse.  

Depending on your business status, banks will start to accept PPP applications starting at 12am:

  1. 4/3/2020 for businesses 
  2. 4/10/2020 for sole proprietors (<--- This was completey ignored in the first round of stimulus funds since it was allocated so quickly.  And while there will likely be a second infusion of cash, most sole proprietors may still not be able to get the funding due to the backlog of business applicataions.  Separately, there seems to be a lack of guidance in how to meet the conditions to have the loan forgiven.  75% of the loan must be spent on payroll.  How would one provide proof that the loan was spent on "payroll" when the sole proprietor is the only "employee" of the business and cannot be put on payroll with a Schedule C?)

Pandemic Unemployment Assistance (PUA) provides assistance for unemployed or partially unemployed individuals due to a direct result of COVID for Californians.  You must certify that you are able to work, but cannot due to the pandemic.

  • Business owner, self-employed, independent contractor
  • Individuals with insufficient work history
  • Individuals who have exhausted all unemployment benefits

Benefits are based on prior earning, but will not be less than $167/week.  This is in addition to the $600 for weeks between March 29, 2020 and July 25, 2020.  Benefits can be retroactive to February 2, 2020 and last up to 39 weeks.

The Employment Development Department (EDD) will be accepting on-line applications for this program beginning on Tuesday, April 28, 2020.  More information can be found at the Department of Labor site.


Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.


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