On March 25, 2020, the U.S. federal government announced a record-breaking stimulus package to help individuals and businesses handle the rockiness of COVID-19. Since before the announcement, many of us have been scrambled to get the most relevant information to figure out what help we qualify for.
Most of us have by now heard that the government approved $1,200 payments to individuals making less than $75,000 per year. But the details get a little fuzzier on the business side.
We’ve all read headlines and skimmed articles suggesting that we may be able to access grants or low-interest loans. But who qualifies? And how much can help is available? How do we apply?
Last week Tiffany Gonzalez, a CPA in Florida and founder of Accounting To Scale, joined us to distill the rumors, answer common questions, and ultimately set the record straight about the new coronavirus stimulus package.
This interview and blog post should help you understand what’s available to you and your business, as well as the steps you must take to receive aid.
Tiffany was kind enough to let us use some of her slides in this article to make explaining everything a much simpler process. She walks through each block during the interview, but if you want to skip ahead to see her points on your own, we’ve included her main slides, with context, below. You can visit the full deck online.
Understanding the Coronavirus Aid, Relief, and Economic Security (CARES) Act
The Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP)
There are two primary loans being provided through the CARES stimulus package: The Economic Injury Disaster Loan and the Paycheck Protection Program.
Here’s a graph to give you an overview of what each of these loans encompasses and who they’re for.
Now, let’s try to iron out some of the common questions people have regarding these loans/grants.
Loan Versus Grant
Obviously a 0% loan is a nice benefit. But what most of us really want to know is, “Do I qualify for the $10,000 grant?”
Ultimately this decision comes down to a few factors. The most important one is how you use the $10,000. If it’s for necessary business operating expenses like payroll, rent, or business mortgage, then yes, you can be awarded a $10,000 grant.
But be aware: you should track each penny carefully. This stimulus package includes a lot of oversight, so you want to make it obvious that you stayed within the government’s guidelines as you allocate the appropriated funds.
Disclosing Financial Situation
Many business owners have wondered if they have to disclose their personal financial situation when applying for one of these benefits. (In other words, do I have to tell the government about my $175,000 taco splurge fund?) The answer is yes.
We don’t know what role—if any—this plays in the decision factor. But we do know that it is information you’ll have to provide on your application.
How Do I Get My PPP Loan Forgiven?
What does it mean to have a loan forgiven?
Loan cancellations are an everyday experience. In normal times and cases, you might call your credit card company, tell them you can’t pay your loan, and they’ll negotiate with you. If some of your debt is forgiven, your economic situation has changed. You’ll have to report that forgiven debt as income on that year’s taxes, which also pings your credit.
In the case of PPP, if your loan is forgiven, you will not be taxed on the savings. It is essentially free and tax-free money. Also, this won’t ping your credit score.
How do I get my loan forgiven?
You must apply through your lender for loan forgiveness. This isn’t done directly through the Fed. If your lender forgives the loan, then that institution approaches the Fed for their reimbursement.
To be forgiven, you’ll have to prove through documentation that you spent the loan on payroll. This documentation will change depending on the loan-issuing institution. You will also need to demonstrate that you’ve had some impact on your business because of COVID-19.
A large portion of the stimulus bill is dedicated to oversight. So the government wants to make sure that the loans that end up forgiven indeed went toward the appropriate business causes.
Your ability to pay back the loan isn’t a factor in whether your loan will be forgiven. Anyone can request loan forgiveness. It would be forgiven if it was used for:
- Health insurance (under a group health insurance plan)
Can I Use the PPP Loan for Other Things?
Yes, business owners who don’t use the PPP loan for rent, payroll, or utilities can simply take advantage of the low-interest loan. You won’t be forgiven, so it isn’t free money, but you will have a little extra cash flow while we endure this rough season.
It should also be noted that paying 1099 contractors does not count as payroll. If you received the loan to pay contractors, that does not qualify your loan to be forgiven.
Can 1099 workers apply for unemployment?
Yes, the bill states that each state can determine the reasonable amount of unemployment benefits for contractors.
Can Business Owners Apply for Both Loans?
Yes, businesses can apply for both loans. However, your PPC forgiveness will be reduced by the amount you received from the EIDL.
If you receive benefits from both, Tiffany recommends separating these funds so that you can clearly prove where you used the loans or grants.
Counseling & Training
The stimulus also includes ample funding for business resource organizations like the Small Business Development Center, Women’s Business Center, and SCORE Mentorship chapter. This means you can access many free or low-cost business training programs and resources by contacting your local chapters.
In fact, here’s a website to help you find a chapter near you.
Small Business Tax Provisions
If you’re one of the businesses that has been partially suspended or heavily impacted (e.g. a 50% revenue drop) because of COVID-19, you can apply for tax help.
This is a tax credit that will show up on your July filing through your payroll company.
Tiffany recommends talking to whomever is in charge of your payroll. Let them know you’re interested and that you want to stay updated about this.
Delay of Payment For Employer Taxes
Payments for the employer portion of employee taxes can be deferred until next year. If you’re strapped for cash and want to pay a little less in taxes right now, you can postpone that portion of your owed taxes.
It’s almost like a zero interest loan on certain taxes. But be careful taking advantage of this fact, because it means taxes will be steeper next year. If you can handle it next year and want the immediate relief, it’s available.
Previous SBA Loan Help
Another amazing element of the stimulus package: The program provides immediate relief to small businesses with non-disaster SBA loans.
The SBA will cover all loan payments — yes, including interest and fees — for six months. Wowza!
Tiffany believes you’ll have to reach out to your lender to take advantage of this. Though it’s not explicitly clear, she hypothesizes that this will not occur automatically. So call your SBA lender, everyone.
Conclusion: What should you do now?
Tiffany unpacked a lot of resources available to small business owners through the recent stimulus package. Your next steps should be to take advantage of the resources and funds that are most accessible to you.
Whether you’re thinking about deferring some payroll taxes, accepting a grant, or taking out a low-interest business loan, the important thing now is to act.
These provisions are intended to help businesses like yours stay afloat during the uncertainty of COVID-19. Use the recommendations in this article and interview to talk to your preferred bank, lender, or CPA about taking advantage of some of these benefits.
And once again, we just want to thank Tiffany Gonzalez from Accounting To Scale for taking the time to educate us about all these technical benefits.
Stay healthy everyone!