4 Ways Small Businesses Can Benefit From the CARES Act

As a business owner, you’re probably always searching for ways to keep your business running smoothly. However, with the ongoing COVID-19 pandemic, it’s not as easy as it used to be. Small businesses have been hit particularly hard, with many struggling to stay afloat. Thankfully, the CARES Act offers several benefits that can help small businesses navigate economic challenges.

Signed into the law in March 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES ACT aims to provide economic relief to individuals and businesses impacted by the COVID-19 pandemic. The act includes several provisions that are aimed specifically at helping small businesses.

Small businesses are vital to the US economy. In fact, they account for 99.9% of all enterprises in the United States and employ more than 47% of the private workforce. However, many small businesses are struggling to stay afloat due to the ongoing pandemic. The CARES Act can help ease some financial burdens small businesses face.

If you’re a small business owner, it’s important to understand the benefits of the CARES Act and how you can take advantage of them. To help you get started, the ERC Today has created a CARES Act Eligibility Guide. This guide can help you determine which benefits you’re eligible for and how to apply for them.

In this article, we’ll look at the benefits of the CARES Act for small businesses and how you can use these programs to keep your business afloat during these challenging times.

Paycheck Protection Program

As a small business owner, navigating the financial impact of the COVID-19 pandemic has likely been a major challenge. Fortunately, the Paycheck Protection Program (PPP) is one part of the CARES Act that can help ease the burden.

PPP was established to help small businesses keep their workforce employed during the COVID-19 crisis. The program provided $349 billion in loans to eligible businesses to cover payroll and other operating expenses to maintain employment levels. Loans can be partially or completely forgiven if firms meet certain criteria.

To be eligible for a PPP loan, your company must have fewer than 500 employees and have been in existence on or before February 15, 2020. Some other eligibility requirements include the following:

You must use at least 60% of the loan amount for payroll expenses for full forgiveness.
Sole proprietors, self-employed persons, and independent contractors

The Payment Protection Program (PPP) in the CARES Act offers the following benefits:

Provides small businesses with forgivable loans to cover payroll and other essential expenses during the COVID-19 pandemic.
Allows businesses to keep employees on payroll and avoid layoffs.
Offers a streamlined application process with reduced paperwork requirements.
Offers loan deferral for up to ten months, with interest rates capped at 1%
Provides additional funding for minority-owned and rural businesses through set-asides and dedicated funding.
Supports independent contractors, sole proprietors, and self-employed individuals who are eligible for loans based on their payroll costs or net income.

Economic Injury Disaster Loans (EIDL)

The EIDL program offers loans of up to $2 million to eligible small businesses and non-profit organizations affected by a disaster, including the COVID-19 pandemic. These loans are intended to cover operating expenses that the company could have covered if the tragedy had not occurred. Here are some benefits of EIDL for small businesses:

Low-interest rates of 3.75% for small businesses and 2.75% for non-profits
Repayment plans that can last up to 30 years.
For loans of up to $25,000, no collateral is required.
The money can be utilized for various business needs, such as rent, utilities, and payroll.
EIDL advances of up to $10,000 are also available, which do not need to be repaid.

To apply for an EIDL, you must have been in business as of January 31, 2020, and meet certain eligibility criteria. You can apply directly through the Small Business Administration (SBA) website.

It’s important to note that EIDL loans are not forgivable like PPP loans, meaning you’ll have to repay the loan amount and interest. However, the low-interest rates and long repayment periods can make it a manageable solution for businesses struggling during the pandemic.

Employee Retention Tax Credit (ERTC)

The ERTC is a refundable credit that can be used to offset certain employment taxes. The ERTC aims to motivate firms to retain employees throughout the COVID-19 epidemic.

To claim the ERTC, your business must have experienced either a partial or full suspension of operations due to a government order related to COVID-19 or a significant decline in revenue. Additionally, businesses must have fewer than 500 employees to qualify.

To claim the ERTC, you must report the credit on your quarterly employment tax return. If the credit exceeds the amount of employment taxes due, you can request a refund of the difference.

There are several benefits of the ERTC for small businesses, including:

The credit is worth up to 70% of eligible wages paid between March 12, 2020, and December 31, 2021.
The maximum credit is $7,000 per employee per quarter, making it a substantial financial relief for small businesses.
The credit can be applied retroactively to 2020, meaning businesses that did not claim the credit in the year can still do so on their amended returns.
The ERTC is available to businesses that received PPP loans, meaning businesses can take advantage of both programs to help them through the pandemic.

Flexibility with Retirement Plans

The temporary flexibility offered to retirement plans is one of the CARES Act measures that might help small enterprises. This provision is designed to provide small business owners and employees with greater financial flexibility during the pandemic.

One of the key changes to retirement plan rules is the increase in the loan limit. The CARES Act allows eligible participants to borrow up to $100,000 from their retirement accounts, compared to $50,000 from the previous limit. This higher loan limit may provide additional funding to small business owners and employees to help them withstand the economic effects of the pandemic.

In addition, the CARES Act also includes provisions that allow for penalty-free distributions from retirement accounts for individuals affected by the pandemic. Eligible individuals can withdraw up to $100,000 from their retirement accounts without incurring the 10% early withdrawal penalty that typically applies to distributions made before age 59½. These distributions can be spread out over a three-year period and can be repaid within that time to avoid tax liability.

Conclusion

In conclusion, the CARES Act can significantly benefit small businesses facing economic challenges due to the COVID-19 pandemic. It’s important to explore all options and take advantage of the assistance available. By utilizing the CARES Act benefits, small businesses can overcome financial hurdles and continue to contribute to the