As we continue to experience the effects of the COVID-19 pandemic, many businesses are struggling to stay afloat amid a stagnant economy. Some small businesses are pivoting their models, while others have had to furlough or lay off workers to improve their cash reserves. Unfortunately, some businesses have already shuttered their doors
During this week’s COVID-19 Business Strategy open forum, we invited investment advisor Matt Yerkes and CPA Michelle Scholbe to share their tips on finance and accounting in the face of this global health crisis.
Here’s a brief overview of what our financial experts had to share about how to protect your small business during COVID-19.
Paycheck Protection Program
The Paycheck Protection Program (PPP) provides loans to businesses so that they can guarantee eight weeks of payroll-related costs.
The best part is that for many businesses, they may not have to repay the loan if they meet certain requirements:
- 75% of the loan must be spent on payroll and payroll-related expenses.
- The remaining 25% is spent on utilities, rent, loans
- The money is used within 8 weeks
If you don’t use your money per the requirements, it will instead be treated as a low-interest loan with a 1% interest rate for 24 months and a 6-month deferral.
Applying to PPP requires you to work with an approved Small Business Association lender. You may already have a relationship with one through your other small business financing. While there is an application form, each bank has its own process.
The application for PPP relief opened April 3 and some businesses have already had their applications accepted and even funded. Loans are available through June 30, 2020. Learn more from the Small Business Administration.
Economic Injury Disaster Loan
Another part of the relief package for small businesses impacted by COVID-19, the Economic Injury Disaster Loan provides owners with up to $10,000. The funds are available to businesses experiencing a temporary loss of revenue and do not have to be repaid.
The application takes only 10 minutes to complete. Simply enter information about your business, such as your operating expenses. If you’re approved, funds are dispersed immediately.
If you qualify for both PPP and EIDL, the funds will be rolled together and dispersed at once. As noted above, the loan will be forgiven if it meets the parameters regarding payroll spending.
Grant programs are a great resource designed to help your business, but they can seem intimidating because they’re fast-moving. You can learn more about the Economic Injury Disaster Loan through the Small Business Administration.
Tax implications for your business
The CARES Act wasn’t designed to address the tax code, but there are plenty of tax implications that can benefit small businesses. The tax filing date has been extended to July 15 for everyone. First-quarter business estimates are also due July 15. The deadline for the second quarter may also be extended, but the IRS has not yet announced an extension.
Additionally, you will have more tax deductions available. Employers whose businesses were disrupted by the virus are can qualify for a 50% refundable payroll tax credit on wages paid up to $10,000 during the crisis. The CARES Act also expands the Net Operating Loss (NOL) limit from 80% to 100% so businesses can completely offset their losses during this time.
Personal wealth management
If you own your own small business, the health of your business and your ability to survive is strongly related to your personal finance. Even if you aren’t a business owner, you’re likely worried about the current economy means for your job and your investments
When considering what to do financially during a pandemic, estate planning is the best place to start. Yeah, it’s morbid! But it’s also smart. Now is a good time to talk to your financial advisor about what will happen to your assets.
Depending on how close you are to retirement, you may want to consider adding more money to your retirement account. If retirement isn’t in the near future, now is a good time to buy low, boosting your savings when the economy eventually recovers.
Speaking of retirement, you can now access your savings if needed during this time. If you have been negatively impacted financially by COVID-19 (e.g. contracting the virus or having to care for a spouse or dependent) and can document your situation, you can access up to 100% or $100,000 of your plan balance. The 10% penalty fee is waived, but you do have to still have to pay income tax. Still, you should consider a personal loan so that your savings stay invested in your retirement.
The current climate is one of chaos and confusion, especially for small business owners. All changing by the hour! By the time this is published, we could have new information.
That’s why Acceilty is hosting the weekly COVID-19 Business Strategy Open Forum. We want to create a space where we can learn together. Join us on Thursdays as we discuss the small business topics that matter most to you.