New COVID-19 Relief for Small Businesses and the Self-Employed

A new relief bill provides more money and expands access to forgivable loans and disaster loans.
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Written by Elizabeth Renter
Senior Economist
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Edited by Kim Lowe
Lead Assigning Editor
Fact Checked
CARES Act: Coronavirus Relief for Small Businesses and the Self-Employed

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Amid the continuing coronavirus pandemic, many small businesses continue to face extreme pressure, forced to adjust to ever-evolving shutdown rules and adopt new practices to keep customers and employees safe.

Congress approved and President Trump signed a year-end $900 billion coronavirus relief package that would provide a second individual stimulus payment. It also provides additional loans and relief for small-business owners and the self-employed, including “gig workers.”

Here is what we know about changes to relief programs for small businesses and self-employed workers.


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1. Access to loans and immediate emergency funds

To keep businesses afloat and employees paid, the legislation includes another round of first and second forgivable loans for small-business owners.

The relief bill provides $284.5 billion for the Paycheck Protection Program, which offers loans guaranteed by the Small Business Administration at an interest rate of 1%.

The new PPP authorization expands funding to more industries and businesses, while also allowing some businesses to qualify for a second PPP loan. Second loans target previous borrowers with no more than 300 employees and who can show a 25% drop in annual gross receipts or in any 2020 quarter compared with the same period in 2019. Businesses must also have used or plan to use all of their first PPP loan in order to qualify for a second loan.

Self-employed workers, independent contractors and sole proprietors are also eligible for first and second PPP loans.

The loans don't require fees, personal guarantees or collateral that small-business loans typically involve.

These loans are to be used for payroll and compensation costs, health care benefits, mortgage interest, rent, utilities, and interest incurred on other existing business debts.

The relief bill expands the allowable expenses to include operations costs such as software; supplier costs; protective equipment and workplace modifications to meet health guidelines. It also wraps in property damage from public disturbances in 2020 if these costs weren't covered by insurance.

The relief bill also allocates $20 billion for a second SBA program, the Economic Injury Disaster Loans, which are offered directly from the federal agency. This round of EIDL targets small businesses in low-income communities under the bill.

The EIDL can be transferred into a Paycheck Protection Program loan to take advantage of loan forgiveness. The relief package, however, would eliminate the provision requiring PPP borrowers to deduct the EIDL advance from the PPP loan eligible for loan forgiveness.

Eligible venue owners and promoters may also qualify for the Shuttered Venue Operators Grant, which offers $15 billion in small-business grants. Movie theater operators, talent representatives and other qualifying businesses can receive a grant of up to 45% of their gross earned revenue. The maximum amount is $10 million.

You can't qualify for this grant and receive a PPP loan on or after Dec. 27, 2020.

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2. Debt forgiveness for payroll, operational costs

Paycheck Protection Program loans are 100% forgivable provided that you use the proceeds on allowable expenses during a period of your choosing between eight and 24 weeks following origination. You won't be required to pay back the loan funds if you spend at least 60% of the loan on payroll and the remaining 40% on other covered expenses (detailed above), including mortgage interest payments, rent, utilities, software and supplier costs. This forgiveness amount won't be taxable as gross income, as forgiven debt sometimes is.

3. Employer tax credits

The "employee retention credit" was established under the CARES Act in March 2020. It originally provided a 50% payroll tax credit on wages up to $10,000 per employee for businesses that closed to comply with government orders or suffered a decrease in gross receipts of 50% or more compared to the same period in 2019.

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The specifics of the tax credit — who qualifies and for how much — were expanded as part of the December 2020 coronavirus relief bill. Starting Jan. 1, 2021, the payroll credit increased to 70% and is now available to businesses that have a 20% drop in gross receipts compared with the same quarter in 2019. Businesses that accept a Paycheck Protection Program loan can now claim the retention credit on any qualified wages not covered by their PPP loan.

The Families First Coronavirus Response Act requires some costs in the interest of public and economic health, but the tax credits offset these costs.

Employer requirements

  • Two weeks of paid leave to quarantined workers or those with COVID-19 symptoms awaiting a diagnosis, capped at 100% of their regular wages or minimum wage, whichever is higher, up to $511 per day or $5,110 over two weeks.

  • Two weeks of paid leave to those who are unable to work because they have to care for a quarantined loved one, capped at two-thirds the employee’s regular wages or two-thirds minimum wage, whichever is greater, up to $200 per day and $2,000 over the two-week period.

  • Up to 12 weeks of paid leave for employees who must care for their children whose school or child care is closed due to COVID-19. These payments are capped at two-thirds the employee's regular pay or two-thirds the minimum wage, whichever is higher, up to $200 per day or $12,000 over the 12-week period.

Small businesses may be eligible for an exemption when it comes to leave relating to child care and school closures, if providing that paid leave would put the business in jeopardy.

Because these requirements are expensive, employers and the self-employed are eligible for reimbursement of these payments and the costs to maintain employee health insurance coverage.

The relief bill extends the reimbursement, in the form of tax credits, through the end of March 2021.

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4. Deferment of existing SBA loans

The relief bill extends deferment of payments for existing business loans guaranteed by the SBA for another three months, starting in February 2021. The payments would be capped at $9,000 per borrower per month.

This means you won’t be required to make payments, and instead, the SBA will pay your lender beginning with the next payment due.

If your current loan is already on deferment, it will enter this six-month grace period after your current deferment has ended.

5. Delayed tax payments

You can delay payroll tax payments normally due through Jan. 1, 2021. Half of the delayed taxes would be due on Dec. 31, 2021, and the remaining balance by Dec. 31, 2022.

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