As of late May, four pieces of legislation have been enacted to help the United States cope with the economic impact of COVID-19. Taken together, those acts provided relief at a cost of about $2.4 trillion, much of which has been targeted to small businesses. So far, federal measures to support those businesses have amounted to $760 billion; lending from the Federal Reserve will provide additional support. Below is a review of the elements of assistance for small businesses.
The Paycheck Protection Program (PPP) provides federally backed loans to incentivize small businesses to maintain their payroll during the crisis; those loans would be forgivable if used for certain expenses for any eight-week period between February 15 and June 30.
As of May 16, 4.3 million PPP loans had been issued, totaling $513 billion. Those loans were made to various sectors, though businesses in construction, professional services, manufacturing, and healthcare were among those that received the most funds.
Larger states have received more funding than smaller states; for example, California has received nearly $67 billion while Wyoming has received $1 billion.
This program is intended to provide relief to small businesses for payment of debt on existing non-disaster-related SBA loans, including loans specifically designed for small businesses, economic development loans, and microloans. No application is required — as part of that effort, the SBA will automatically pay six months of principal, interest, and associated fees on loans in regular servicing status as well as for new loans disbursed prior to September 27, 2020.
The Economic Injury Disaster Loans are small, lower-interest loans with options for principal and interest deferment. Small businesses that apply for such loans are also eligible for Emergency Economic Injury Grants, which are advances of up to $10,000 that do not need to be repaid. Those loans and grants can be used for operating expenses such as payroll costs, pay for sick leave, and debt-service costs.
The CARES act includes temporary provisions to boost cash flow for certain business through the tax code, though those measures are not exclusively focused on small businesses.
The CARES act includes temporary provisions to boost cash flow for certain business through the tax code, though those measures are not exclusively focused on small businesses. Certain employers are eligible for a partially refundable payroll tax credit (up to $5,000) on wages paid up to $10,000. In addition, through December 2020, most businesses are allowed to defer the payment of the employer share of Social Security taxes. However, firms that receive PPP are not eligible for the payroll tax credit or deferral. The Joint Committee on Taxation (JCT) estimates that the net cost of the employee retention credits will be $55 billion.
As part of the Tax Cuts and Jobs Act, businesses with net operating losses are able to deduct losses of up to 80 percent of their operating income. Any losses in excess of that amount could be carried forward to reduce taxable income in future years. The CARES act has increased that allowance to 100 percent of taxable income and permits businesses to carry those losses backward as well as forward. In effect, some businesses will be eligible for tax refunds for previous years. In addition, any excess losses can now be applied to the non-business income (for example, wages and investment earnings) of business owners. Finally, the act temporarily increased the amount of interest expenses that businesses may deduct. JCT estimates that the net cost of those modifications will be $174 billion.
The Federal Reserve created the Main Street Lending Program to support small- and medium-sized businesses that did not receive PPP funding. The program will support up to $600 billion in four-year loans via eligible lenders and will be run by an entity created by the Federal Reserve Bank of Boston. Businesses must have fewer than 15,000 employees or revenues of less than $5 billion in 2019 to qualify for those loans. The program will operate three facilities, each offering loans with different features, including different loan sizes and lender retention requirements. The three facilities are the Main Street New Loan Facility, the Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility.
In addition to measures enacted by the federal government, many state and local governments have authorized or are considering measures to protect small businesses. Such measures include cash infusions through loans, grants, and economic development funds, as well as cost deferrals on taxes, rent, and utilities.Learn more about the various policy measures that Congress has taken thus far to address the coronavirus.
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