Updated: Mar 27
There are three stages to the government’s response: the first was to take care of workers, the second was to get cash to businesses, and the third is still being finalized, but it’s a long-term solution.
Taking Care of Sick Humans
This was the government’s first priority, and as business owners and leaders, it should be our first priority too. If your business has not slowed down significantly because of the virus, and you need your people to stay busy to cover your overhead, this one is scary. You literally could have to cover two weeks’ pay while an employee deals with the effects of Coronavirus including having to stay home to care for a child since their school is closed. You may also have to deal with the rules of the Family Medical Leave Act that until the Families First Coronavirus Response Act was signed on March 18 did not apply to businesses under 50 employees. You’ll eventually be reimbursed by the government for this, but that cash will come back to you through paying less payroll taxes over the coming weeks or months. We see this creating a cash crunch for small businesses. With smaller teams, every person matters, and just a few people going on this can hamstring your ability to serve your clients.
There is an exemption for businesses with fewer than 50 employees, but no one knows exactly how that works right now or how long that will take to get. I would also warn you that if someone has a kid at home because their school is closing or has a sick relative to take care of and they heard on the news that they are supposed to get paid leave, telling them that they aren’t getting paid leave because you applied for an exemption sounds like a good way to lose an employee. Because of this, the exemption doesn’t seem like a great option to me. I suggest dealing with the cash crunch using some of the plentiful short-term financing currently available. Though it sucks to pay interest to cover this, it’s not going to be a big amount with rates as low as they are.
In the past you may have gotten by with people coming to work when they’re sick, but that’s not the case anymore. If someone thinks they have the virus, there’s a good chance they are going to be out for two weeks, and you need to be prepared to deal with that. If you have under 50 employees, you haven’t been subject to the Family Medical Leave Act in the past, but you are now through 12/31/2020, and there’s a lot of rules that now apply. The best resource I’ve found for information on this can be found here.
By the way, make sure you have this notice explaining employee rights under the new law posted somewhere your employees can see it. I suggest hanging it near your existing labor law poster.
Getting Short-term Cash to Businesses Fast
There are SBA loans available right now with 3.75% rates for up to 30 years and up to $2 million. These are designed to provide working capital, not to refinance existing loans. How much you can borrow and the exact terms are on a case-by-case basis, but I’m being told by my banker contacts that at least sometimes these have no payments for six months. The application is online at SBA.gov/disaster. The application will take some time, and we expect the system to be flooded, but I’m hearing people get money within less than a week of when they applied. Be prepared to have your 2019 tax return or your 2019 Profit and Loss and Balance Sheet statements if your return isn’t done yet. We don’t know how getting an SBA loan right now might impact benefits available through the bill that as of 3/25/20 has not been signed yet, but bankers I’ve talked with recommend getting in line for this loan if you think you will need it.
If you need money even faster, many banks are suspending principal payments and extending small working capital loans for the short-term, so talk to your banker sooner rather than later. If you don’t have a relationship with your banker, read this article.
Long-term Solution for Most Impacted Businesses
If your business is seriously affected, there is a bill that, while it hasn’t officially passed yet, has been agreed to by both parties in both houses, and the President. Details are really sparse on this multi-trillion-dollar bill, but there are a couple parts that are really promising—depending on exactly what those details turn out to be. While the Families First Coronavirus Response Act helps sick workers and the SBA loans provide short-term financing to keep businesses from going under, the long-term aid here is still being worked on. I expect this will benefit businesses like restaurants, gyms, etc. where it’s clear they were significantly and directly impacted. It’s not clear at this point if your sales were down 15% compared to last year if this will be available to you or not.
“An estimated $350 billion would be provided for small businesses to keep making payroll. Companies with 500 or fewer employees could tap up to $10 million each in forgivable small business loans to keep paychecks flowing. The program would provide 8 weeks of assistance through federally-guaranteed loans qualifying employers who maintain payroll; if they do, other costs like mortgage interest, rent, and utilities would be forgiven.” https://apnews.com/be6a343cc5a8ee6672a135a96849a4d4
Employee Retention Tax Credit
“Republicans won inclusion of an “employee retention” tax credit that’s estimated to provide $50 billion to companies who retain employees on payroll and cover 50% of workers’ paychecks. Companies would also be able to defer payment of the 6.2% Social Security payroll tax.” https://apnews.com/db4a954801ab08b492aedddfcf7132c8
We'll update this post as information comes in so check back in a couple of days for more insight on this situation and how it applies to you.