A Safety Net for Business Arrives

March 31, 2020
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Author: Glenn Hunter

Like cavalry troops riding to the rescue, the U.S. Congress and President Trump have delivered a $2 trillion package aimed at bucking up a national economy that has virtually been brought to its knees by COVID-19.

The Coronavirus Aid, Response and Economic Security (CARES) Act authorizes a massive amount of spending to support small, midsized and large businesses, as well as certain targeted industries, including airlines and healthcare. The healthcare system, for example, will receive roughly $150 billion from the package, including $100 billion for hospitals and community health centers that are fighting the war against the pandemic.

The aviation industry is one of the beneficiaries of the coronavirus relief fund.

The CARES Act funds for business and industry are critical because U.S. organizations of all sizes have been forced to close their doors and lay off or furlough workers due to social-distancing orders brought on by the virus. The Act also includes more than $500 billion in direct payments to individuals and couples. That’s important because consumer spending accounts for 70 percent of U.S. GDP.

Related: Small Businesses Get Another Shot at Paycheck Protection Loans

Here’s an overview for organizations wondering who gets what under the historic stimulus package – the largest in U.S. history by far.

Small Businesses: $350 Billion

Organizations with 500 or fewer employees – including businesses, nonprofits, veteran groups, sole proprietors and independent contractors – are eligible to secure emergency, federally guaranteed loans under Section 7(a) of the Small Business Act. The purpose of the Paycheck Protection Program is to help ensure that companies don’t lay off more workers than they already have. On March 26, the Department of Labor announced that initial weekly jobless claims soared to nearly 3.3 million, as a record number of Americans filed for unemployment benefits.

Related: U.S. Unemployment Claims Skyrockets

Loans provided in the Paycheck Protection Program, which will be overseen by the Small Business Administration, can be used for the likes of wages and cash-tip equivalents, healthcare costs and mortgage, rent and utility payments, and may be partially forgiven under certain circumstances. Those circumstances include maintaining the average size of the company’s workforce, based on when the loan was extended.

Organizations can obtain loans of up to 2.5 times their average monthly payroll costs – not to exceed $10 million – with no personal guarantee required and interest rates no higher than 4 percent, through June 30, 2020. The loans will be made available through a network of 1,800 approved SBA lenders starting April 3.

Midsized to Large Employers: $500 Billion

This government lending program authorized by the CARES Act targets distressed organizations (including nonprofits) with 500 to 10,000 employees that have suffered losses because of the pandemic.

The bulk of the program – $454 billion – is provided for loans and guarantees through Federal Reserve facilities. This portion, it’s hoped, will help leverage at least $4 trillion in total lending. Much of the remainder of the $500 billion earmarked for midsized to large employers is aimed at direct lending to help passenger and cargo air carriers pay their employees.

Loans provided under this program cannot be forgiven and include restrictions on executive compensation and stock buybacks, among other things. They also require organizations to maintain employment levels of at least 90 percent of their workforce until Sept. 30, 2020.

Unemployment Insurance: $250 Billion

The relief package lends a helping hand to workers and businesses.

This part of the stimulus package expands the unemployment insurance program for employees who lost their jobs due to COVID-19. It includes those like “gig” and furloughed workers and self-employed individuals, who otherwise wouldn’t be eligible for benefits.

Key provisions include federal funding to:

  • Provide an extra $600 per week, over and above state benefits, for up to four months.
  • Cover the cost of the first week of unemployment insurance, enabling states to waive the customary “waiting week” before benefits kick in.
  • Provide an extra 13 weeks of benefits once state unemployment insurance is no longer available.

Business Tax Provisions

The CARES Act includes several additional provisions affecting business taxes.

  • The Act lets employers and self-employed individuals delay paying their 6.2 percent share of the Social Security tax for their employees until 2021 and 2022.
  • It also provides a refundable payroll tax credit for 50 percent of the wages certain organizations have paid to their workers during the pandemic. Eligible employers include those whose operations had to be shut down due to the virus, or those whose revenue declined by more than 50 percent compared to the same quarter last year.

The CARES Act is the third COVID-19 bill passed by Congress, following an $8.3 billion emergency aid measure and another package paying for free coronavirus testing, among other things. Already, though, political leaders are saying more legislation may be needed to help get the economy back on track. This next wave, they contend, should zero in on the likes of increased protection for workers, more help for hospitals and more money for state and local governments – and even additional help for small businesses.

ThinkWhy will continuously monitor and report on these developments.

Stay current with us. We are here to support organizations and provide insights during the economic downturn as well as the recovery phase.