What Happens to Business Loans and Obligations During a Pandemic
Sustaining a thriving small business is a balancing act of loans and obligations in the best of times. With the current COVID-19 outbreak, which the government recently declared a disaster, small businesses face intensification of familiar issues: obstacles to capital access, diminished workforce capacity, supply chain deficits and more. What have the recent stimulus packages of federal aid done to support small businesses? The bottom line: Your existing debt isn’t forgiven, and there are mandates introduced to protect employees, but there are also new loans and other reliefs to help cover payments during this crisis.
Low-Interest Emergency Loans
Billions of dollars have been allocated to the Small Business Administration (SBA) to provide business owners new loans with generous interest rates. The new Paycheck Protection Loans are designed to do what their name indicates: protect employee paychecks and prevent layoffs. Interest rates for these loans are capped at 4%, and they can be forgiven up to 100% if they are applied to eligible expenses (payroll costs and mortgage interest, among others) and the business retains its workforce. Apply for these with your bank if it is an SBA-approved lender. If not, contact a local District Office for guidance.
Economic Injury Disaster Loans are also available protections for businesses experiencing loss of revenue due to the COVID-19 disaster. The interest rate for small businesses is 3.75% and 2.75% for qualifying nonprofits, with long-term repayment options. Advances of up to $10,000 are possible and, according to the SBA, should be available within three days of a successful application. Apply for these loans and advances online.
To learn more about these and other types of loans available for small businesses suffering economic strain, visit the guide updated by the SBA. The U.S. Chamber of Commerce also provides a clear breakdown of the federal aid provided by the three stimulus packages.
Debt Reduction and Deferments for Loans
If you have an existing 7(a) loan or you receive a new one before September 27, the SBA will cover the principal and interest of this loan for six months. There is also an automatic six month payment deferment for Paycheck Protection Loans and a deferment through December 31, 2020, for any existing loans received for a previous disaster. No extra action steps are required to receive these benefits if your small business is eligible.
Tax Obligations Alleviated
Under the most recent stimulus package, known as the CARES Act, small business owners can defer employer-side Social Security payroll taxes until next year or 2022. At the same time, employers have been given tax credits to cover the costs of paid sick and FMLA leave for employees affected by coronavirus, which is now mandated under the Families First Coronavirus Response (FFCR) Act. Read more about the tax credits here, and read on to learn more about the sick and family leave requirements.
Mandatory Paid Sick and Family Leave
This is the biggest new obligation for small businesses introduced by the stimulus packages, which expand a provision that already existed for federal employees. In short, there are two scenarios that entitle an individual to paid sick leave. First, employees who are symptomatic and pursuing a COVID-19 diagnosis or who have been ordered to quarantine will receive up to two weeks’ leave at their regular pay. Second, employees will receive this leave at two-thirds their regular pay if they must care for a quarantined individual or a child whose school or daycare closed due to the outbreak.
Finally, family leave must be extended up to an additional 10 weeks for employees who continue to care for children out of school. The U.S. Department of Labor provides more detail here.
Public Health Responsibilities
As a small business owner, you are a leader in the community. Set a strong example by following the CDC guidelines for employer response to the COVID-19 outbreak even though the federal government has not mandated them.
In addition to implementing non-punitive sick and FMLA leave as described above, the CDC recommends identifying potential exposures and educating employees about how they can reduce spread of infection through cleanliness practices and social distancing. Whenever possible, social distancing should also be implemented in the workplace. For this, the CDC makes several recommendations, including:
- Remote work options
- Staggered shifts
- Using drive-throughs or partitions to separate employees from customers
- Postponing non-essential meetings
To maintain healthy business operations, consider appointing a workplace coordinator to handle COVID-19 response. Their duties might include planning for increases in absenteeism or refining operations to prioritize essential functions and suppliers. To promote a healthy work environment, you can increase ventilation, introduce disinfecting routines and provide hand sanitizers in multiple locations to encourage hand hygiene.
By taking these precautions, you are not only mitigating exponential infection rates—you are reinforcing best practices to protect employee health and well-being beyond the coronavirus outbreak.