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The coronavirus has effectively shut down the American economy. As the federal government advises social distancing and governors across the country implement stay-at-home orders to mitigate the virus, Americans are not going out to spend money.
In this environment, many businesses are struggling to survive, forced to lay off workers. Indeed, the economy shed 701,000 jobs in March, and the unemployment rate rose from 3.5 percent the prior month to 4.4 percent, according to the latest jobs report. The situation is going to get worse in the coming weeks before it gets better.
President Trump signed the CARES Act into law to provide economic relief to individuals and businesses facing hardships, even economic ruin, because of this pandemic. The massive stimulus package, with a price tag of $2.2 trillion, is necessary to address an unprecedented situation.
There is always confusion when such a law is passed. People can learn about what the package does generally by reading or watching the news. But figuring out how specifically to acquire relief for your business is trickier and may seem like a daunting task when faced with well over 1,000 pages of legislation. Where do you even begin?
This week, I cut through the confusion on my podcast “Newt’s World” with my guest, Elaine Parker, president of the Job Creators Network Foundation. We make sense of the loans that businesses can receive under the CARES Act.
We also try to lay out as simply and clearly as possible for small and mid-sized business owners — and for anyone looking for information on how to apply and what is included — how they can use the new law to get the relief for which they are eligible.
The CARES Act provides $349 billion in aid to entrepreneurs through its Paycheck Protection Program, or PPP. Specifically, this program provides forgivable loans to any business with 500 employees or less. Gig workers, independent contractors, sole proprietors, and restaurant or hotel companies with 500 employees or less can all receive these loans.
Under the PPP, small businesses are eligible to borrow 250 percent of their average monthly payroll expenses, up to a total of $10 million. (Compensation over an annual salary of $100,000 is excluded.) These loans can be used for an array of expenses, with the goal of helping businesses retain their employees. To that end, businesses that lay off employees will see their debt forgiveness reduced by the percentage they decreased their staff.
Importantly, these loans are available from any local or national bank that is approved to make Small Business Administration loans or is insured by the Federal Deposit Insurance Corporation. Business owners do not even need to contact any government agency to apply
I go into much more detail about the PPP in my podcast for anyone with specific questions. My discussion on the PPP is one episode of a three-part series on the economic fallout of the coronavirus pandemic and how the United States should respond.
Next week, I will evaluate the CARES Act, discuss how to restart the economy, and go through what we can learn from history and the Asian countries still dealing with the coronavirus. My two guests will be James Grant, author of “The Forgotten Depression 1921: The Crash that Cured Itself,” and Dr. Arthur Laffer, president of Laffer Associates and long-time economic adviser to presidential administrations.
I hope you will listen to this week’s episode as we try to navigate this unprecedented situation together.