As businesses across the United States struggle to stay afloat during the pandemic, two main relief programs have been implemented by the government: The CARES Act and the Paycheck Protection Program (PPP). Both initiatives aim to provide financial assistance to struggling businesses, but what exactly are the differences between the two?
When it comes to the CARES Act, it’s important to note that it’s not solely geared towards businesses. Rather, it’s a comprehensive economic relief plan that provides assistance to individuals, families, and businesses. Under the CARES Act, businesses with less than 500 employees could qualify for forgivable loans to cover payroll and other essential expenses. On the other hand, the PPP was created solely for small businesses with the intention of keeping their employees on the payroll for at least eight weeks.
So, what’s the bottom line? While both initiatives aim to provide financial relief to struggling businesses, the main difference between the CARES Act and PPP is their target audience. The PPP specifically targets small businesses, while the CARES Act is a much more broad-ranging program that provides assistance to both individuals and businesses across the country.
CARES Act Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2.2 trillion economic stimulus package that was signed into law on March 27, 2020, to provide immediate assistance to individuals, businesses, and state and local governments during the COVID-19 pandemic crisis. The act aims to help the American economy recover and provide support for workers, families, and small businesses affected by the pandemic. The CARES Act provides many provisions, including:
- Stimulus Payments: The CARES Act provided a one-time direct payment of up to $1,200 to eligible individuals, $2,400 for eligible married couples filing jointly, and $500 per eligible child.
- Unemployment Benefits: The CARES Act provides expanded unemployment benefits for workers who have lost their jobs or have had their work hours reduced as a result of the pandemic. This includes a $600 weekly federal supplement to state unemployment insurance for up to four months, as well as extended benefits up to 39 weeks.
- Paycheck Protection Program (PPP): The CARES Act allocates $350 billion in funding for the PPP, to provide forgivable loans to small businesses and nonprofit organizations with fewer than 500 employees, to help cover payroll costs, rent, and utility bills. This program aims to help small businesses keep their employees on payroll during the pandemic.
PPP vs. CARES Act
It’s important to note that the PPP is a part of the CARES Act. The PPP is a loan program set up by the CARES Act to help small businesses cover payroll and other expenses during the pandemic. While the PPP is a prominent feature of the CARES Act, it’s not the only one, and the two terms are not interchangeable. The CARES Act has many other provisions beyond the PPP to provide assistance to individuals, businesses, and state and local governments during these challenging times.
CARES Act Loans and Grants
The CARES Act also provides funding for various loans and grants, including:
- Economic Injury Disaster Loans (EIDL): The CARES Act expands EIDLs to small businesses and agricultural businesses that have been impacted by the COVID-19 pandemic. These loans provide working capital of up to $2 million for eligible businesses, with the first payment deferred for a year.
- Employee Retention Credit: The CARES Act provides a refundable payroll tax credit for eligible employers who continue to pay their employees during the pandemic. This credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee.
- Airline Industry Relief: The CARES Act provides $25 billion in grants for passenger airlines to keep employees on the payroll, as well as loans to cargo airlines and contractors.
Overall, the CARES Act is a multi-faceted stimulus package designed to provide aid to individuals, businesses, and state and local governments affected by the COVID-19 pandemic. It includes a variety of programs and provisions to help support the economy during these challenging times.
PPP Overview
The Paycheck Protection Program (PPP) is a loan program introduced by the U.S. Small Business Administration (SBA) in response to the COVID-19 pandemic. The goal of the program is to provide small businesses with loans to retain their employees and cover certain operating expenses during the pandemic. PPP loans are 100% federally guaranteed and the loan amount can be forgiven if certain criteria are met.
- The PPP loans are intended for businesses with fewer than 500 employees, including self-employed individuals, independent contractors, and nonprofits.
- The maximum loan amount is the lesser of $10 million or 2.5 times the average monthly payroll costs for the previous year.
- The interest rate for PPP loans is 1% and the repayment term is 2 years with no prepayment penalty or fees, although the maturity date may be extended up to 5 years if the loan was made on or after June 5, 2020.
The PPP loan application process is facilitated by SBA-approved lenders, such as banks and credit unions. The application requires documentation of payroll costs, tax filings, and other financial information. Once approved, borrowers have 8 to 24 weeks to use the funds for eligible expenses, such as payroll, rent, mortgage interest, and utilities.
The forgiveness provision of PPP loans is one of the most attractive features of the program. Borrowers may be eligible for full or partial forgiveness of the loan if they meet certain criteria, such as maintaining their employee headcount and wages. At least 60% of the loan must be used for payroll costs in order to qualify for forgiveness.
| PPP Loan Forgiveness Criteria | PPP Loan Forgiveness Amount |
|---|---|
| At least 60% of the loan spent on payroll costs | Up to 100% of the loan |
| Employee headcount maintained or restored | Forgivable portion reduced proportionately for any reduction in headcount or wages |
| Loan funds used for eligible expenses | Forgivable portion reduced proportionately for any unauthorized expenses |
Overall, the PPP is a valuable resource for small businesses affected by the pandemic. The program has been extended multiple times and the SBA continues to simplify and clarify the loan forgiveness process as more borrowers complete their covered periods.
Eligibility requirements for CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, to provide economic assistance to businesses, individuals, and families affected by the COVID-19 pandemic. The Act includes different payment protection programs available to businesses in the United States, including the Paycheck Protection Program (PPP) and other forms of financial assistance.
The eligibility requirements for the CARES Act are based on the size of the business, the industry sector, and the number of employees. The eligibility requirements for the main programs under the CARES Act are:
- The Paycheck Protection Program (PPP) – Small businesses, sole proprietors, independent contractors, and nonprofit organizations with 500 or fewer employees are eligible for the PPP. Businesses that have more than 500 employees in certain sectors can be eligible for the program if they meet other criteria. Additionally, businesses that have previously received a PPP loan may be eligible for a second loan if they meet certain requirements.
- Economic Injury Disaster Loans (EIDL) – Small businesses, agricultural businesses, and nonprofit organizations with 500 or fewer employees are eligible for EIDL.
- Employee Retention Credit – Employers, including nonprofit organizations, that have been impacted by COVID-19 and retain employees on their payroll can claim the Employee Retention Credit.
- Other Assistance Programs – The CARES Act also includes specific programs for different sectors, such as the airline industry and healthcare providers.
The size of the business
The size of the business is one of the most important factors in determining eligibility for the CARES Act programs. Small businesses with 500 or fewer employees are eligible for the PPP and EIDL programs. The size of the business is determined by the average number of employees for each pay period over the previous 12 months, and it includes full-time, part-time, and seasonal employees. Businesses with more than 500 employees may be eligible for the Paycheck Protection Program if they meet certain criteria.
The industry sector
The CARES Act provides specific assistance for businesses in particular sectors, such as the airline industry and healthcare providers. These businesses may have different eligibility requirements and may be able to access additional assistance through these programs.
The number of employees
The number of employees is also a critical factor in determining eligibility for the CARES Act programs. Small businesses with 500 or fewer employees are eligible for the PPP and EIDL programs. For PPP loans, businesses can use their average monthly payroll costs to determine the loan amount. Additionally, businesses that have more than 500 employees in certain sectors can be eligible for the program if they meet other criteria.
| Program | Eligibility Requirements |
|---|---|
| Paycheck Protection Program (PPP) | – Small businesses, sole proprietors, independent contractors, and nonprofit organizations with 500 or fewer employees |
| Economic Injury Disaster Loans (EIDL) | – Small businesses, agricultural businesses, and nonprofit organizations with 500 or fewer employees |
| Employee Retention Credit | – Employers, including nonprofit organizations, that have been impacted by COVID-19 and retain employees on their payroll |
| Other Assistance Programs | – Specific programs for different sectors, such as the airline industry and healthcare providers |
In summary, eligibility requirements for the CARES Act are based on the size of the business, the industry sector, and the number of employees. It’s important that businesses understand the requirements for each program under the CARES Act to determine their eligibility and the amount of financial assistance they can receive to help them weather the economic impact of the COVID-19 pandemic.
Eligibility requirements for PPP
The Paycheck Protection Program (PPP) is a loan program established by the CARES Act and administered by the Small Business Administration (SBA). It is designed to provide relief to small businesses that were impacted by the COVID-19 pandemic. The PPP offers forgivable loans to small businesses that use the funds to cover payroll costs, rent, mortgage interest, and utilities. However, not all small businesses are eligible for this program. Here’s what you need to know about the eligibility requirements for PPP loans:
- Small business status: To be eligible for a PPP loan, your company must be a small business or a nonprofit organization with fewer than 500 employees. Certain businesses in the hospitality and food services industries may qualify with more than 500 employees if they meet the SBA’s size standards.
- Operational status: Your business must have been operational before February 15, 2020, and must have had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC.
- Adversely affected by COVID-19: Your business must have been adversely impacted by the COVID-19 pandemic. This could include a reduction in revenue, a reduction in staff, or closures related to government-mandated shutdowns.
In addition to these general eligibility requirements, there are also specific requirements related to the use of the funds you receive from a PPP loan. To maximize the forgiveness of your loan, you must use at least 60% of the funds for payroll costs and the remainder for other eligible expenses such as rent, mortgage interest, and utilities. You must also maintain your current workforce levels and compensation levels during the covered period or risk a reduction in forgiveness.
| Eligible Borrowers | Eligible Lenders |
|---|---|
| Small businesses that meet SBA size standards | Existing SBA 7(a) lenders |
| 501(c)(3) nonprofit organizations | Federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions |
| 501(c)(19) veterans organizations | Approved non-bank lenders you can find at www.sba.gov |
| Small business concerns that meet the SBA’s size standards and have more than one physical location |
Overall, the PPP is meant to help small businesses and nonprofits weather the impacts of the COVID-19 pandemic. If you meet the eligibility requirements, it can be a valuable source of financing for your business. Consider contacting a lender who participates in the PPP program to discuss your options and start your application.
Funding Options under CARES Act
The Coronavirus Aid, Relief and Economy Security (CARES) Act is a federal stimulus package enacted to assist individuals and businesses during the COVID-19 pandemic. Among the provisions of CARES Act, there are several funding options for businesses affected by the pandemic, specifically the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL).
- PPP: This program provides forgivable loans for small businesses to cover payroll expenses for employees during the pandemic. The loan amount can be up to 2.5 times the average monthly payroll costs and can be used for other approved expenses such as rent or utilities. To be eligible for PPP, a business must have fewer than 500 employees.
- EIDL: This program provides loans up to $2 million to small businesses suffering economic injury as a result of the pandemic. The loans carry an interest rate of 3.75% for small businesses and 2.75% for non-profits, with repayment terms up to 30 years.
Additionally, there are other funding options under the CARES Act:
- Employee Retention Credit: This tax credit is available to businesses that continue to pay their employees during the pandemic. The credit is worth up to 50% of wages paid, up to $10,000 per employee.
- SBA Debt Relief: The Small Business Administration (SBA) is providing debt relief for businesses with SBA loans, including 7(a), 504, and microloans. SBA will cover all payments for these loans including principal, interest, and fees for six months.
- Other Loans and Grants: The CARES Act includes funding for other loans and grants that businesses can apply for through state and local governments or other organizations.
For businesses considering applying for funding under CARES Act, it is important to research and understand the eligibility requirements and guidelines for each program to ensure they are applying for the best suited program for their specific needs.
| Program | Loan Amount | Forgivable | Interest Rate | Eligibility |
|---|---|---|---|---|
| PPP | Up to 2.5x average monthly payroll | Yes, if used for approved expenses | 1% | Businesses with fewer than 500 employees |
| EIDL | Up to $2 million | No | 3.75% for small businesses, 2.75% for non-profits | Small businesses suffering economic injury as a result of the pandemic |
Understanding the different funding options under CARES Act can provide relief to small businesses during the pandemic. By taking advantage of these programs, businesses can help to secure their financial futures and keep their employees on payroll.
Funding Options under PPP
As businesses and individuals continue to suffer financial losses due to the COVID-19 pandemic, government efforts to provide economic relief have taken center stage. The Paycheck Protection Program (PPP), a lending program under the US Small Business Administration (SBA), is one of the primary options available to small businesses affected by the pandemic. However, many people are still confused about the difference between the PPP and the Coronavirus Aid, Relief, and Economic Security (CARES) Act that also includes funding for small businesses. In this article, we will explore the difference between the two and take a closer look at funding options under PPP.
- The PPP is a loan program that provides small businesses with funds to cover payroll, mortgage interest, rent, and utilities. The loans are forgivable, which means they don’t have to be repaid if certain conditions are met. These conditions include using at least 60% of the loan amount for payroll costs and maintaining the same number of employees and compensation levels before and after the covered period.
- PPP loans have a maximum maturity of five years and an interest rate of 1%. Loan payments are deferred for the first six months, and there is no collateral or personal guarantee required. The maximum loan amount is 2.5 times the borrower’s average monthly payroll costs, up to a maximum of $10 million.
- PPP loans can be applied for through banks and other financial institutions that participate in the program. The loans are available on a first-come, first-served basis until December 31, 2020, or until the funds are exhausted, whichever comes first.
While PPP loans are a great source of funding for small businesses, they are not the only option available under the CARES Act. Small businesses can also apply for Economic Injury Disaster Loans (EIDLs), which provide up to $2 million in loans to businesses that have suffered substantial economic injury as a result of the pandemic. EIDLs have a maximum interest rate of 4% and repayment terms of up to 30 years. There is also a $10,000 grant that can be accessed as part of the EIDL application process, which does not have to be repaid.
It’s important to note that businesses cannot receive both a PPP loan and an EIDL for the same expense. However, a PPP loan can be used to refinance an EIDL loan made between January 31, 2020, and April 3, 2020. Additionally, businesses may also be eligible for state and local loan programs and other forms of relief, such as tax breaks, extensions, and deferrals.
| Funding Option | Maximum Loan Amount | Interest Rate | Repayment Terms |
|---|---|---|---|
| PPP loans | Up to $10 million | 1% | Maximum maturity of five years; six months of deferred payments |
| EIDLs | Up to $2 million | 4% | Up to 30 years |
Overall, funding options under PPP are an excellent source of relief for small businesses affected by the pandemic. However, businesses should explore all their options carefully to ensure that they are choosing the right funding source to meet their specific needs. To apply for a PPP or EIDL loan, businesses should contact a participating financial institution or visit the SBA website for more information.
Loan Forgiveness under CARES Act and PPP
The CARES Act and the PPP were both created to help businesses survive during the COVID-19 pandemic. While they have similarities, there are also differences that businesses need to understand. One of the most significant differences between these two programs is loan forgiveness.
- Loan Forgiveness under CARES Act: If you received a loan under the CARES Act, you may be eligible for loan forgiveness. The forgiveness amount is equal to the amount you spent on eligible expenses during the first 24 weeks after receiving the loan. Eligible expenses include payroll, rent, utilities, and mortgage interest. It’s important to note that at least 60% of the loan must be used for payroll expenses in order to qualify for forgiveness. The forgiveness amount may also be reduced if you reduce your workforce or employee salaries.
- Loan Forgiveness under PPP: Similarly, if you received a PPP loan, you may be eligible for loan forgiveness. The forgiveness amount is equal to the amount you spent on eligible expenses during the first 24 weeks after receiving the loan. Eligible expenses include payroll, rent, utilities, and mortgage interest. However, unlike the CARES Act, there is no requirement that a specific percentage of the loan must be used for payroll expenses. Instead, 60% of the loan must be used for payroll expenses in order to qualify for full forgiveness. The forgiveness amount may also be reduced if you reduce your workforce or employee salaries.
In order to apply for loan forgiveness, you will need to provide documentation showing how you spent the loan funds. Your lender will then review your application and determine the amount of loan forgiveness you are eligible for.
It’s important to carefully review the requirements for loan forgiveness under both the CARES Act and PPP to determine which program is the best fit for your business. In some cases, it may be beneficial to apply for both programs in order to maximize your financial relief.
| CARES Act | PPP | |
|---|---|---|
| Eligible expenses | Payroll, rent, utilities, mortgage interest | Payroll, rent, utilities, mortgage interest |
| Minimum percentage for payroll expenses | 60% | None |
| Forgiveness amount reduction | If you reduce your workforce or employee salaries | If you reduce your workforce or employee salaries |
Overall, both the CARES Act and PPP provide much-needed financial support for businesses impacted by the pandemic. Understanding the differences between these programs, especially when it comes to loan forgiveness, is essential in making the best decision for your business.
What is the difference between CARES Act and PPP?
Q: What is the CARES Act?
A: The CARES Act is a $2.2 trillion economic relief package passed by the US government in response to the COVID-19 pandemic. It includes various forms of financial assistance for businesses, individuals, and healthcare providers.
Q: What is PPP?
A: PPP stands for Paycheck Protection Program. It is a loan program administered by the Small Business Administration (SBA) to help small businesses keep their workforce employed during the pandemic.
Q: Is PPP part of the CARES Act?
A: Yes, PPP is one of the programs created under the CARES Act to provide relief to small businesses affected by COVID-19.
Q: What is the difference between the CARES Act and PPP?
A: The CARES Act is a broad economic relief package that includes many programs, while PPP is a specific loan program for small businesses. PPP is designed to help businesses keep their employees on payroll, while the CARES Act provides a range of support, including direct payments to individuals, enhanced unemployment benefits, and aid for healthcare providers.
Q: Can a small business apply for both CARES Act and PPP?
A: Yes, a small business can apply for both CARES Act and PPP, as long as they meet the eligibility criteria for each program.
Closing Thoughts
Thanks for reading about the difference between CARES Act and PPP. It’s important to understand the different forms of economic relief available to businesses and individuals during these challenging times. If you have any further questions or need assistance, please visit the Small Business Administration website or speak with a financial advisor. We hope to see you again soon!