Making Sense of the CARES Act
The 2 trillion dollar stimulus package Congress passed late last month includes nearly $350 billion in help for small businesses. Lawmakers say the goal is to get the money into the hands of business owners as quickly as possible, and competition for the funds could be fierce.
Meghan Blair-Volero, president of Fogged In Bookkeeping on Nantucket, helps her clients navigate new rules and programs like this one. WCAI’s Kathryn Eident talked with her to get a better understanding of what small business owners need to know about the loan programs.
Eident Could you explain briefly what each of those loans is?
Blair-Volero The paycheck protection loan is a loan intended for small business. Under the definition of the SBA, under five hundred employees. Although there are exceptions to that and it's intended to allow cash flow for small business and it uses a calculation of a payroll average from your prior four quarters or the prior fiscal year of twenty nineteen. And it takes an average of that, finds a monthly average and then you're allowed to borrow up to two and a half times whatever that monthly average is. So that will vary business to business.
You are then required are to either maintain your payroll at an average or bring them back if you have already laid folks off in order to obtain forgiveness of that loan. And what the Treasury is now saying is they may forgive up to 25 percent of the loan for other costs like mortgage interest, utilities, and things like that. So the federal government can't give grants to For-Profit Businesses. But this is a way to do something like a grant.
Eident I see it's a little bit of a work around.
Blair-Volero It is. Unfortunately, right now there there's a lot being left to interpretation. And so, depending on the bank that you bank with, they may be interpreting that differently. So, the struggle that we've seen for small business owners is there's not one set of instructions like most bills that come out. There are some things that need to be worked out and shifted and this isn't going to work itself out through the courts over time, people need this money now. So, the burden has really been put on lenders to interpret this. And while the Treasury continues to come out with further clarifications every couple of days and then there's unusual circumstance that just wasn't planned for that the SBA lenders are having to sort of figure out on the fly.
Eident There are some weeds to navigate through in this process; it's not easy.
Blair-Volero It isn't. But a good banker is your best asset in this moment. We advocate that clients generally look for resources within their community when it comes to banking relationships. Not everybody, because of the size and scope of their business, can bank with a local bank. But, we're seeing local banks and smaller credit unions really come through because they have more personal relationships. They know their customers. They seem to act fast. And first, where we're actually seeing bigger banks have trouble navigating this and getting applications into the hands of our clients.
Eident So, you're saying the best way to do this is to talk with your preferred lender and have them help you navigate this?
Blair-Volero Exactly. I think it's a combination of working with the financial professionals who currently work with an accountant, a bookkeeper, your CPA. Those folks can help you pull together a lot of the information. But first, you really need to know what your particular bank is looking for. So, you're probably not going to go online, google what this application means to you and then go back to your CPA, your bookkeeper, your accountant or even yourself and put those together. It's usually conversation with the bank first: What are they looking for? What is their application standard? Some of the banks even have like these handy spreadsheets that you just plug in the numbers and put together what you need and then you supply supporting documentation.
I would hate to see a small business owner that I'm sure is like, homeschooling their children and trying to make masks, and just stay sane in this crazy time waste a bunch of time filling out an application in a way that isn't going to be relevant to their lender.
Eident We've been hearing from people like Congressman Bill Keating, who are saying that we have to remember this is across the country and it's a big pot of money. But there are a lot of businesses, so, you know, competition is fierce.
Blair-Volero It is. And I think it's the people that have their ducks in a row early, people that had a handle on their finances, can pull a payroll report, and can get a clean, complete application to their banker first are really going to benefit in this. And, I don't want to like sort of cause a run on the banks, but this is not the kind of thing I would hang around and wait till they start the process.
Eident Are there other programs as part of the CARES Act that can help small businesses with other expense?
Blair-Volero Outside of the CARES Act; and we had the first wave of the families first provisions that came through and that helps with tax forgiveness, if you're doing paid family medical leave, which can be really a big cost to employers. And there's ways to get those funds even advance of the end of quarter tax credit, which can be really helpful.
The other loan program is available also to small business, but they are not being administered by the SBA.
Eident You mean the EDIL, the economic injury disaster loan.
Blair-Volero Yeah. You are going to apply for those directly through the SBA website. And those are going to be handled at the federal level. They are allowing for, what is like a quick loan up to $10,000.
So, you're not guaranteed $10,000 off the bat. But, the rough calculation we've been told that they are using is approximately $1,000 per employee. And, the way that those loans were intended to work is they would be a fast infusion of cash to help businesses get by. That would be direct deposited into your bank account within 72 hours.
We know a lot of clients--we have applied for it to see how it would work, and our local chamber here in Nantucket has also applied for it--none of us have seen those funds into our account yet, so not quite as quick as was intended, but also a wider use case of how the funds can be used.
You're also allowed to defer that loan for up to a year. There is interest on those loans. 3.75% for for-profit businesses, 2.75% percent for non-profits. But, the term on those loans can be for up to 30 years.
In both cases, for these SBA loans--Paycheck Protection and EIDL--we're not being asked for personal guarantees on the loan, which I think, in these very uncertain times, can be comforting to a small business owner.
Eident So, best advice from your perspective, if a small business owner is looking to get involved is to just basically talk to their lender or their bookkeeper?
Blair-Volero Yeah. Get in touch with your lender relatively quickly. Please be patient with your lenders. They're being a little bit overrun. Be somewhat patient, but advocate for yourself.
Eident Megan, thanks so much for taking a few minutes to explain some of the details of what businesses can apply for under this new CARES Act.
Blair-Volero Great. We're happy to help.
Eident That's Megan Blair-Valero, president of Fogged In Bookkeeping on Nantucket.