Understanding the CARES Act

by Coral Chung / Apr 13, 2020

As a small business that launched only 3.5 years ago, we have been struggling with many unprecedented challenges recently. The global pandemic has not only affected our Italian manufacturing, which is currently shutdown at least until May 3rd, but shelter-in-place has also forced the closure of our SF flagship store. We are very proud that we have kept our team intact so far, and despite the challenges, unlike many other companies, have not laid off a single employee. However, it’s undeniable that we are struggling everyday to keep the lights on and our team going. 

On March 27, the U.S. government put a historic $2 trillion economic recovery package into law in an effort to boost the economy and support struggling Americans in light of COVID-19. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is an emergency relief package designated to support seven main groups impacted by the mandated coronavirus shut-downs: individuals, small businesses, big corporations, hospitals and public health, federal safety net, state and local governments, and education. As we saw this take place, we wondered - what does this all mean?

Breakdown of how the economy recover package is being split up into 7 groups

For us, this act was critical because it could potentially help alleviate some of the financial stress and help us push through these difficult times. But the reality is, like many other legislations, the CARES Act is long, confusing, and difficult to navigate, especially if you aren't a legislator or a lawyer (and we aren’t!).  To help our community understand this complicated policy, we thought we’d openly share our process and resources that were helpful to us as a small business in hopes of saving you some time and headaches.  Note, we do not claim to be experts! But we certainly spent hours and hours conducting extensive research and distilled it down to 5 steps with references to various resources:

1. Understand the different elements of the CARES Act:
As a small business owner or if you work for a small business, there are four key elements you should be aware of. 

1. Loans: There are several loan options available through the CARES Act for small businesses with fewer than 500 employees. 
a. The Paycheck Protection Program grants low interest loans to cover payroll (including health insurance), utilities, rent and mortgage payments to keep your business afloat and retain employees. Some companies may qualify to have some or all of their loan forgiven, assuming they maintain headcount and salary levels. Applications for PPP loans are handled directly with your bank.
b.  Economic Injury Disaster Loan (EIDL) is another option for small businesses to help overcome a loss in revenue from COVID-19. The government is offering an advance of up to $10,000 for certain businesses and applications can directly be submitted through the U.S. Small Business Administration (SBA).

2.  Payroll Tax Credits: Employers severely impacted by the government-mandated shutdowns and have had a 50%+ reduction in revenue or have to shut-down their business may qualify for a credit of up to $5,000 per employee.

3.  Payroll Tax Deferrals: Payments made on the 6.2% employer portion of the Social Security tax can be deferred, with half due in 2021 and the other half due in 2022.

4.  Unemployment: Many small businesses will still need to make the difficult decision to lay-off or furlough employees. These employees will receive an additional $600 in federal unemployment in addition to state benefits. They should apply directly through state unemployment programs.

2. Understand your specific qualifications and reach out to experts who can help:
While the above may seem obvious at first, navigating the details and learning how it applies specifically to your business is a crucial next step. After conducting online research and listening to several webinars, we consulted 4 key types of “experts” to help us learn more about specific qualifications for us: Lawyers — to help understand if we met the legal requirements to apply for loans Bankers — to confirm they were a SBA lender and submit a PPP Loan application Accountants — to provide payroll data and discuss tax deferrals / credits available to us  Investors — to understand our affiliate relationships  

3. Use qualified public resources for help with the PPP Loan application:
If you are applying for a PPP loan, we found a few very helpful resources to estimate and calculate what the eligible amount is. Here's a downloadable spreadsheet template that gives you a rough estimate. 
Template to calculate average monthly payroll costs to see how much you can borrow from the CARES act

4.  Surprises and “watch-outs” we uncovered:
Be cautious with how you use the funds received from the CARES Act. PPP loans should only be used to provide funding for payroll, mortgage, rent, and utilities. PPP loans cannot be used for the same purpose as an EIDL We also learned that companies cannot take advantage of ALL the CARES Act benefits together. For example, tax credits are not available to employers that receive a PPP loan. Work with your accountants to calculate how you can get the highest benefits and consult your legal advisors to help navigate these “double-dipping” restrictions. Lastly, the definition of a small business is super confusing and not as simple as it initially sounds. Besides having a team under 500 employees, especially for companies with outside investors, you should be aware of affiliation rules. This means you would need to aggregate your total employees with the other investor companies to determine if you meet the 500 person threshold.

5.  A few of the highest quality articles and resource centers that we found to help you dig through the clutter! 

Coronavirus Aid, Relief, and Economic Security Act: What Small Businesses Need to Know
Here’s how to get a small business loan under the $349 billion coronavirus aid bill
COVID-19 Small Business Resource Hub
F.A.Q. on Coronavirus Relief for Small Businesses, Freelancers and More  

We’re navigating this tough time together and want to do our part to support other small businesses in our community in every way that we can. Given the ever changing nature of the situation, we will keep you posted along our journey. Please ask us any questions or provide us with comments, as we’re more than happy to share anything else we learned so far. We hope this helps alleviate one more stress point for you and our SENREVE community.