In response to the COVID-19 outbreak that has shuttered businesses and kept consumers indoors, President Trump recently signed into law an extensive $2 trillion emergency economic relief package that includes direct cash payments and unemployment benefits for those across the United States. But how does this affect American businesses looking to keep their lights on and staff paid?
Small Business Association Activates Business Economic Relief Plan
This is where the U.S. Small Business Administration stepped in to offer designated states and territories low-interest disaster loans for working capital to small businesses that have been significantly hurt as a result of COVID-19.
As part of the Coronavirus Preparedness and Response Supplemental Appropriations Act, small businesses can take advantage of these business economic relief efforts to help them through the economic fallout from the virus outbreak.
What Small Businesses Need to Know
Once enacted into law, the loan size will be determined by taking the average total monthly payments by the small business applicant for payroll costs incurred during the 12-month period prior to the date on which the loan is paid out, and then multiplying that number by 2.5. The maximum loan size will not exceed more than $10 million.
To add to the relief efforts, the federal government is not requiring the loans be supported by collateral or guarantees of any kind.
Proceeds of the loan must be used for the small business owner’s ongoing payroll, such as paid sick, medical or family leave, health benefits, mortgage interest payments, rent, and interest on other debts. Loans will also be forgivable under certain circumstances and the cancellation of the debt will be left out of taxable income. The amount forgiven will be cut down by the number of employees that were laid off during the covered period.
Small businesses looking to receive loan help for economic relief will need to gather business formation documents, payroll data and tax receipts from Jan. 1, 2019 and after, in order to calculate maximum loan amounts. All loan agreements and personal property leases, such as equipment and automobiles, need to be gathered as well.
Additional Notes on Economic Relief to Consider
It’s important to note that not all available options will allow the type of payroll expense and debt forgiveness cancellation. There are a number of considerations connected to the CARES Act, such as there is $367 billion in lending authority for SBA 7 loans and delegated underwriting authority will be made to streamline processing.
Additionally, applicants with seasonal employees are eligible to apply and receive benefits as payroll expenses would be based on the average total monthly payments for payroll from March 1, 2019-June 30, 2019.
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