CARES Act Cash Flow Support for Small Businesses

April 1, 2020

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The economic impact of COVID-19 is temporary, but small businesses across the country are struggling to keep cash flowing long enough to avoid a permanent effect on operations. Many of the hardest-hit industries need cash now just to keep the doors open, and much-needed relief is on its way.

When President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27, 2020, it created the following cash flow support for small businesses:

Access to emergency grant payments. Businesses with fewer than 500 employees can request an advance of up to $10,000 on an Economic Injury Disaster Loan (EIDL). The grant will be paid in just three days, and applicants won’t be required to repay the advance even if the EIDL is denied. Advance payments must be used for providing sick leave, maintaining payroll, or other immediate operating expenses.

Greater flexibility in SBA-guaranteed loans. EIDLs are loans available through the U.S. Small Business Administration for businesses who need support to recover from physical or economic damage of a declared disaster. The CARES Act removed requirements for loans below $200,000 made in response to COVID-19. You no longer have to supply a personal guarantee on the loan, prove that a business has been in operation for one year, or demonstrate that credit was sought elsewhere but denied. However, businesses must have fewer than 500 employees to apply.

Accelerated and expanded small business loans. The SBA has expanded limits from $350,000 to $1 million on Express Loans through the end of 2020.

Forgivable loans to help maintain payroll. SBA-approved lenders can offer forgivable loans through the CARES Act’s Paycheck Protection Program. Businesses with fewer than 500 employees can apply for up to $10 million between Feb. 15, 2020 and June 30, 2020. If funds are used to cover payroll support, salaries under $100,000, paid sick or medical leave, insurance premiums, mortgages, rent, or utility payments, the loan may be forgiven. Eligible payroll costs will be compared to the same timeframe from the prior year. If wages are reduced, loan forgiveness will be reduced as well, but the funds can be used to rehire employees who were recently laid off. Check out the borrower’s guide and loan application here.

These measures are a necessary BAND-AID® to help businesses get through an incredibly challenging few months. Although you might be inclined to pursue every avenue to enhance business cash flow during this time, it’s important to talk with an accountant before accepting every form of relief to ensure you aren’t over-borrowing and creating debt that would be a hardship to pay back later.

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