On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. What is it and what is not? What does it mean for small software development firms?
New White House Press Secretary Kayleigh McEnany addresses her remarks at a White House press briefing Friday, May 1, 2020, in the James S. Brady Press Briefing Room of the White House. (Official White House Photo by Joyce N. Boghosian). Source.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law. The swiftly enacted and bipartisan bill was introduced as a preliminary response “to the COVID-19 (i.e., coronavirus disease 2019) outbreak and its impact on the economy, public health, state, and local governments, individuals, and businesses.”
In addition to a myriad of new healthcare, emergency management, and appropriations regulations, the bill addresses emergent labor and small business issues that have arisen out of the closure of non-essential businesses in light of public health concerns. Below we will highlight a number of provisions in the bill and ongoing efforts below to keep developers and developers run businesses afloat during this difficult time.
Please keep in mind that this is an evolving situation and NOT a comprehensive list of resources. We highly recommend that you continually check back with the Small Business Administration and US Treasury’s websites for up to date guidance.
What Is The Paycheck Protection Program?
The Paycheck Protection Program (PPP) is an emergency loan program within the CARES Act designed so that small businesses may keep their workers on the payroll during the COVID-19 crisis. The program was dubbed by Small Business Committee Chairman Sen.Marco Rubio (R-FL) as a bipartisan effort to push forward “common-good capitalism.” Congress has acknowledged that in order for America to bounce back from the economic downturn imposed by the public health crisis, immediate aggressive intervention is necessary — regardless of which side of the aisle you usually stand on.
Companies in need may apply for loans under the PPP. The Small Business Administration has pledged to forgive loans under the program if all employees of the applicant company are kept on the payroll for eight weeks and the money loaned to them is used for business expenses to the extent of payroll, rent, mortgage interest, or utilities. Further details on the program and where you can apply for PPP funds can be found on the Small Business Association’s dedicated website here.
While the program will undoubtedly serve as a lifeline for many small businesses (and the expeditious nature of the bill is part of its allure), extremely large pieces of legislation such as this is bound to run into implementation snafus, especially given how fast the bill was passed. The Small Business Administration, generally responsible for handling around $25 billion in loans a year, has in a matter of weeks been tasked with getting $310 billion in COVID-related loans out the door in a matter of days as part of the PPP. Thus, to say the least, it has been a large, unprecedented lift that they had not planned for.
The popular program ran out of money to give merely 13 days after it was passed, with 20% of the nation’s 6 million small businesses receiving program funds. The program was refunded by Congress as of April 27th with an additional $310 Billion to allow more to take advantage of the program. “Technical hiccups” however have made the rollout of the business lifeline anything close to smooth. This second round has already sent 2.2 million small business loans, about $175 billion, with an average loan size of $79,000. Congress has stated that it will continue to keep tabs on the funding rollout and will reassess further funding of the program as needed. Thus, expect many more revisions to tie up loose ends and oversights in the coming months.
Is There Any Money Left?
Yes!
As of May 1st, only $175.7 billion of the authorized $659 billion has been disbursed to over 2.2 million lendees. For the data folks, you can see the most recent numbers here.
The PPP’s current authorization ($659B) is based on the amount Congress believes is needed to effectively jump-start the US economy via this program following the crisis. Upon seeing the allotted budget drained via businesses applying for funding, the government will assess if they will re-authorize, and thus, re-fund, the program. When the amount the government has authorized under the program runs out, PPP loans will either be denied (and businesses will have to apply for other forms of assistance), or the government will refund the program, as they did when it initially ran out on April 24th.
Thus, if your business is in need of a loan and qualifies, we encourage you to apply to the program regardless of how much you hear is “left.” The program is ‘first come, first served,’ however bear in mind Congress retains the ability to reauthorize the program as they see fit. To put things in perspective: in the words of President Herbert Hoover, “Blessed are the young, for they shall inherit the national debt.”
Are you benefitting from the PPP program, or do you believe it needs to be further funded? Tell your member of congress.
Experiencing Difficulty Applying For A PPP Loan?
If you are finding it difficult to apply for a loan at your bank under the PPP, you’re not alone. Many financial institutions are dealing with the surge of applicants on systems that were not designed to handle this capacity. Some large financial institutions are now even facing lawsuits for prioritizing big-dollar clients applications over small businesses, despite promising to process PPP loans on a “first come, first served” basis.
A variety of community banks, fintech companies, and smaller lenders have
been jumping in to assist with smoother program execution. Check out this list of lenders who are still taking applications that you may have better luck with.
Who Is Eligible For PPP Funding?
If you’re a large company (or just don’t need the funds) you’re strongly advised not to apply for the program. President Trump has gone as far as to call out institutions that are better situated to weather the storm and ask them to return the funds they received. Officials have stressed that PPP money is to be made available to smaller struggling businesses who would find short-term funding more impactful. Journalists, entrepreneurs, and policymakers have begun to scrutinize the “Taking an Unnecessary PPP Loan May Result in Criminal Consequences” section of the PPP and note its ramifications. Consult your financial advisor or attorney to be sure you qualify as criminal charges will be pressed in fraudulent cases.
Given that many of the programs for COVID-related loans and grants are based on EBITDA (aka earnings before interest, taxes, depreciation, and amortization), there is concern that many startups will not be able to benefit from programs such as the Main Street Lending Program. Members of Congress are aware of this — and many of the other programs— shortcomings and are working diligently with the US Treasury to get this resolved.
Work For Or Owner Of A Startup?
Startups may be eligible for a forgivable loan equal to 2.5x the business’s average monthly payroll. This is subject to some restrictions and caps out at $10m a month. Some startups, depending on their revenue and other factors, will not qualify at all. Venture capital firms and the startup they fund, generally speaking, have not qualified for PPP loans. Financial software Pilot has an informative breakdown of what the PPP means for startups here. The Congressional Research Service also has an FAQ document for startups available here.
Over 150 startups, many of which are in the technology sector, sent a letter to Congress this month requesting clarification of eligibility for the Paycheck Protection Program. The letter asks for clarification on the fact that small businesses with equity investors would not be excluded from the 7(a) loan program under the CARES Act. There is concern that the affiliation rules would cause “confusion and delays,” and therefore many startups would be unable to benefit from the program.
Specific Questions About The PPP?
Have questions about your small business? Check out this Small Business Committee’s FAQ here.
Questions about a business loan? Check out this FAQ from the Treasury here.
What If I’m A Freelancer Or Contractor?
The CARES Act benefits cover unemployment provisions for independent contractors and freelancers whose work has dried up due to the ongoing health crisis, however, things aren’t always cut and dry at the state level. Many state unemployment systems are overwhelmed with the recent surge in claims, with issues only further amplified by the gray area coverage status pending on how your respective state classifies these workers. We encourage you to reach out to your local unemployment office for further guidance on how to best take advantage of available funds.
What Is “Big Tech” Doing To Help?
Given that the government only has so much capacity, large companies in the tech space that can afford to help those struggling right now have also tried to jump in.
Facebook has announced a small business grants program in an effort to help small businesses that have been adversely impacted by COVID-19. The program boasts $100M in cash grants and ad credits for “up to 30,000 eligible small businesses” with between 2 and 50 employees.
Similarly, Google announced they intend to spend $800+ million to support small businesses and crisis response. This includes money to “support small- and medium-sized businesses…health organizations and governments, and health workers on the frontline of this global pandemic” in the form of ad grants, ad credits, investment funds, and direct financial assistance. Further, the company increased its internal employee gift matching policy to encourage their staff to support their community charities of choice.
If you know of any other small business programs or grants available to help struggling developers or developer run companies at this time, we would love to hear from you so that we may feature them here.
