You’ve probably heard about the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law by the President at the end of March. Many people have questions about what the new law means for them and how it can benefit their auto recon businesses specifically. Read on to learn what the CARES Act could mean for you and how you can take full advantage.
What is the CARES Act?
The CARES Act is the largest economic relief bill in U.S. history. This economic relief package will allocate $2.2 trillion to individuals and businesses in the United States affected by illness and any financial hardship stemming from COVID-19. There are three main components to the act: the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL), and the Small Business Debt Relief Program. We’ve broken down the details of each of these pieces below.
One of the most talked about parts of the act is the new Paycheck Protection Program (PPP). The PPP was created to help small businesses keep their employees employed and on the payroll during the coronavirus pandemic.
The PPP is backed by the U.S. Small Business Administration (SBA) to provide capital to cover the cost of retaining employees. SBA offers loan forgiveness if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. There are no SBA fees and there is no personal guarantee or collateral required.
Who can benefit from the PPP?
All small businesses impacted by COVID-19 between February 15 and June 30, 2020, and with less than 500 employees, are eligible for the PPP—even if they can obtain credit elsewhere. This includes self-employed individuals, sole proprietorships, and independent contractors.
Employees are counted by the SBA as any individuals employed on a full-time, part-time, or other basis. You can learn more about the headcount regulations here.
When will the PPP be available?
It’s available now through June 30, 2020. And it’s recommended that you apply as soon as possible because there is a cap on funding.
How much can I apply for?
As part of the PPP, you can apply for up to two-and-half times your average monthly payroll costs from the year prior to the loan. Payroll costs include the total amount of any compensation to employees (including healthcare benefits and paid time off). Or, if you work alone, it can include your income up to $100,000 in one year prorated for the covered period. It’s capped at $10 million.
How much do I have to pay back?
Generally, you will not have to pay back any amount that you can prove was paid out in the eight weeks after you took out the loan to cover the “Expected Forgiveness Amount”, that includes payroll, mortgage interest, rent, and utilities. However, due to high subscription for this loan, at least 75% of the forgiven amount must have been used for payroll.
Any amount used for other obligations or paid outside the covered period (between February 15 and June 30 2020) are not forgivable. But you’ll have at least six months of deferral. And this loan is fully guaranteed by the SBA with an interest rate of 1%.
How can I apply for the PPP?
Lenders across the country are participating and will guide you through the paperwork. You just need to find one in your area. And all loans will have the same terms regardless of lender or borrower. The SBA has a helpful search option on its website where you can locate a lender near you and start the application process now.
From there, you will be asked to provide documentation and information on your employee headcount, average monthly payroll costs, and other permitted loan costs for the past year. You can see the details of the information that will be requested by your lender by downloading a copy of the PPP borrower application form.
While the PPP is primarily intended to cover payroll for eight weeks, the EIDL is intended to help cover operational costs for up to six months. The maximum loan amount for an economic injury disaster loan is $2 million. Unlike the PPP, this loan does have to be paid back.
If you need a quick injection of cash, you can ask for an emergency grant advance of up to $10,000. According to the SBA, these payments can be issued in as little as three days. The loan advance will be forgiven if it is spent on paid leave, maintaining payroll, mortgage, or lease payments.
Who can benefit from the EIDL?
Like the PPP, any business with 500 employees or less can apply for this loan. This includes self-employed individuals, sole proprietorships, and independent contractors.
When will the EIDL be available?
You can apply for an EIDL online here now and it will be available until December 16, 2020 in most states.
How much can I apply for?
You can apply for a maximum loan of $2 million. However, the loan amount is based on your “actual economic injury” as determined by the SBA, minus any recoveries such as insurance proceeds.
Successful applicants can also get a forgivable advance of up to $10,000 within three days of applying for an EIDL. To access the advance, you first apply for an EIDL online here and then request the advance. The advance does not need to be paid back if it is spent on paid leave, maintaining payroll, mortgage, or lease payments.
How much do I have to pay back?
With the exception of the forgivable advance, you will have to pay back the full loan. The interest rate for EIDLs due to COVID-19 is 3.75%.
How can I apply for the EIDL?
The EIDL loan application can be completed online and is simpler than the PPP application. However, you may still want the guidance of a tax, banking, or legal professional.
A third program within the CARES Act is the Small Business Debt Relief Program. If you are worried about keeping up the payments of your current or potential SBA loan, the Small Business Debt Relief Program could help. It provides immediate relief to small businesses with non-disaster SBA loans. The SBA will cover all loan payments on these loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
Where can I get help?
If you still have questions about the CARES Act or are in need of support, you can find free assistance in your area via your local SBA District Office. There are a number of resource partners to help guide you through these uncertain times. Your local Small Business Development Center (SBDC), Women’s Business Center (WBC), and SCORE mentorship chapter have all received additional funding from the government to provide guidance and counselling related to COVID-19. Click here to find help near you.
Guidance surrounding the CARES Act may change, so for the most accurate and up-to-date information, always go to the SBA website.
For more information on how to protect your auto recon business during this time, visit our COVID-19 Resources Page. Please let us know if there’s anything we can do to support you and your business.