The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) recently passed by Congress presents a lot of potential opportunities for startup and small business financing.
As stipulated by the CARES Act, the U.S. Small Business Administration (SBA) is tasked with allocating $2 trillion in federal funds. Amidst record unemployment claims in the COVID-19 era, this comprehensive stimulus package is being distributed to provide financial help to startups, small businesss and American workers through a variety of new and existing programs.
At Zeni, we’ve pinpointed six distinct ways for founders and small business owners to receive startup support from the CARES Act and are actively working with our customers to assess the financial support best suited for their needs. More relief may be pending, so be sure to check back for future updates. In the meantime, here are the top forms of assistance for startups currently available through this legislation:
1. Employee Retention Credit
A 50% tax credit is being offered to employers who retain their workforce despite suspending operations to comply with government orders or witnessing a significant decline in gross receipts. This credit is applied directly to Social Security taxes for eligible startups.
The cap for qualified wages is $10,000, so startups can receive up to $5,000 for each staff member kept onboard. Health plan expenses are also factored into the determination of available aid. Qualifying wages may span any time between March 12th of 2020 and January 1st, 2021. All employees are deemed eligible for startups with 100 workers or less.
This Employee Retention Credit system is designed to help small businesses across the board, but your startup may be disqualified if you choose one of the more expansive CARES Act options detailed below.
2. Emergency Paid Sick Leave
As part of the CARES Act, the Families First Coronavirus Response Act (FFCRA) mandates employers provide two weeks of paid sick leave to workers affected by the pandemic. For full-time staff, a total of 80 hours of leave can be reimbursed through tax credits. This provision covers either $511 per day or $5,110 per employee.
Caretakers and individuals under self-quarantine are also allocated 66% of their pay-rate for two weeks. This is equivalent to $200 per day, and it maxes out at $2,000 for each employee. Considering the complexity involved in these business decisions, you might want to hire a startup controller to make sure you get the most aid possible.
With the Emergency Family and Medical Leave Expansion Act (EFMLEA) now in place, paid family leave may be extended for parents and guardians. The wages are still calculated at 66%, but the aggregated amount is capped at $12,000 per worker. Employers can be mandated to grant these 10 additional weeks of paid sick leave to accommodate school closings; however, startups with less than 50 employees may be deemed exempt from this requirement.
3. Paycheck Protection Program (PPP Loans)
Startups and small businesses can access up to eight weeks of payroll costs reimbursement via this CARES Act loan program. Most companies with less than 500 workers are eligible for paycheck protection loans. Repayment is not expected if 75% of the money granted is used for payroll. It's rare to find small business loans with zero fees, low interest rates and no personal guarantee; plus a six-month deferment covers the time period prior to complete loan forgiveness.
Because this is perhaps the most extensive form or government relief being provided, and raised questions as to whether venture capital-backed startups qualify based on the affiliation rules, Zeni has compiled a detailed PPP guide covering the necessary steps to determine eligibility and apply. Assistance is given on a first-come, first-serve basis, so be sure to make your request soon, especially since there is a funding cap in place.
4. Social Security Tax Deferrals
Here’s some good news for employers: The standard 6.2% tax rate for Social Security can be deferred for all wages paid after March 27th, 2020. This delay can be applied through the remainder of the calendar year. This form of temporary startup aid is established under Section 2302 of the CARES Act.
Bi-weekly deductions can now be temporarily halted. Instead of paying upfront, 50% of the owed amount can be postponed until December 31st, 2021. The other half can be withheld until December 31st, 2022. Don’t fret when tax season comes around because Zeni has all of your startup's filing covers all of your startup's filing needsneeds covered.
Of course, if you receive a PPP, the deferment only lasts until the date of your loan’s forgiveness.
5. Economic Injury Disaster Loans (EIDL)
A grant of $10,000 for working capital expenses may also be available to startups with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organizations or 501(c)(19) veterans organizations. The disbursement is offered as a loan, but repayment is not expected for small businesses that qualify. Loan approval isn’t needed for startups to get their EIDL Advance either. If your business is green-lit for borrowing more — up to $2 million — the $10,000 will be deducted from your overall eligibility amount.
Due to an unprecedented number of EIDL requests, the SBA is currently only accepting submissions for businesses in the agricultural industry. Non-farming companies that applied before this restriction was established are still being considered.
6. Lesser Known CARES Act Stipulations for Startups
With a price-tag of approximately $2 trillion, the CARES Act presents a variety of monetary resources that can be utilized by startups. Here's a look at the other methods to receive startup funding via this bill:
- SBA Debt Relief: For a six-month window, the SBA is covering interest and principal for borrowers. This crucial startup aid is applied to existing loan accounts automatically. Thus, there is no need to apply. Outstanding fees will also be paid in full.
- SBA Express Bridge Loans: If circumstances are dire, a startup can apply for up to $25,000 in rapid assistance. This startup loan system is designed as a stopgap for those seeking an EIDL. Upon approval, repayment will be recouped from the amount that an EIDL would provide. However, an EIDL application is not necessary to qualify for this type of startup financing, particularly if there is an emergency shortage of cash on hand.
- Local Government Resources: The CARES Act also delivered funding to state and city governments, which is intended for ensuring safe operations without incurring additional costs. Check your regional representatives to see what kind of help is available in your area. You may be able to find masks and other equipment by connecting with local officials.
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