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CARES Act Designed to Inject Working Capital into Small Businesses

NOTE: This post was updated on April 6th to include newly available information about the CARES Act.

The CARES Act – Coronavirus Aid, Relief, and Economic Security Act – was signed into law on March 27th, providing stimulus to individuals, businesses, and not-for-profits in response to the economic distress caused by the Coronavirus. Applications for this program opened on Friday, April 3rd. 

What does that mean for your business
Along with dollars for individual taxpayers, the Act includes a provision for something called the Paycheck Protection Program (PPP) designed to provide working capital to small businesses when it’s really needed. While the information is evolving quickly, the basic details are understood today and enough to begin consideration for application.

UPDATE: Further information is now available within the SBA Program Overview document and FAQ Fact Sheet.   

What are the details of the Act?
Essentially, through the CARES Act/PPP, organizations – businesses and not-for-profits – with fewer than 500 employees are eligible for a business loan to cover business expenses, up to the lesser value of 2.5 times your average monthly payroll, rent, utilities, and loan interest or $10MM. The terms of the loan will be attractive at 10 years with an interest rate of 4%.  

Further, and most importantly for businesses, based on your spending rate for the eight weeks following the distribution of the loan dollars, some or all of the loan may be forgiven. 

Who should participate in this program? 
This program will be managed by banks, and the application will be completed with a banking partner. The value for your organization depends greatly on your organization’s current cash position and projected financial needs 

What will be needed to apply?
UPDATE: the SBA has released the Application for the Paycheck Protection Program in advance of Friday, the 3rd’s application date, found here.

Interpretation of the application is ongoing; however, we believe that you should begin gathering, at a minimum, the following information:

  • Year-end 2019 financial statements
  • Detailed payroll reports, by employee, for 2019 and Q1 of 2020
  • Form 941 for 2019 and 2020
  • Expense details for benefit programs like health insurance, 401(k), etc
  • A brief statement explaining why the current economic uncertainty makes this loan necessary to support the ongoing operations of the company

 What is the timing for receipt of funds?
This is not an immediate cash inflow but is designed to be expedient. The CARES Act/PPP could bring relief to millions of organizations and employees across the US. When the application went live on Friday, April 3rd, demand will be great, and no one knows how long processing will take. Your receipt of funds will depend on the application processing time and release of funds from your bank. Being an early applicant will likely positively impact the timing of your funds receipt. 

The KSMC Financial Services and Systems team can help you think through your cash position, determine if this is a beneficial course of action for your organization, and assist you with preparing for application. For assistance, contact Steve Combs, Manager, at 317-294-6407 or scombs@ksmconsulting.com  to begin working through this option today