Self-employed individuals and small businesses account for a significant portion of our country’s economy. During a global pandemic, like the one we’re experiencing now, small businesses suffer some of the hardest hits. Last March, the CARES Act allocated funding to support the U.S. economy and workers through the Coronavirus pandemic.
The legislation included a number of proposals aimed at supporting small businesses. For those hit hard due to forced closures and a sharp downturn in foot traffic, the PPP and EIDL have served as a means to keeping doors open and employees paid. As we move forward in 2021, here’s where things stand with these loan programs.
What Does the PPP Include?
The PPP is a forgivable loan program designed to encourage small businesses from laying off employees while staying afloat. It received an initial $350 million through the CARES Act and an additional $320 billion provided through the Enhancement Act. In December 2020, the program was injected with an additional $284 billion, offering small businesses another opportunity to receive loans.1
Important aspects of the PPP include:2
- A delay in employer-side payroll taxes for Social Security until 2021 and 2022.
- 50 percent refundable payroll tax credit on worker wages to incentivize businesses, including those with fewer than 500 employees, to retain their current workforce.
- Sole proprietors and other self-employed workers may be eligible for the expanded unemployment insurance benefits the bill provides.
How Does the Paycheck Protection Program Work?
First introduced under the CARES Act, the Small Business Administration (SBA) is currently overseeing the Paycheck Protection Program. This program distributed an initial $350 billion to businesses that met certain requirements, and the loans were made available to companies with 500 or fewer employees.3 The Paycheck Protection Program had allocated all of its funds to businesses within a few weeks of its initial launch. In response, the government replenished the fund with an additional $320 billion through the Paycheck Protection Program and Health Care Enhancement Act.2
With the latest installment of funding for the PPP, businesses are able to receive loans of up to $2 million, and these loans will be administered by banks and other lenders. Additionally, the Paycheck Protection loans will carry a maximum interest rate of one percent.2
Currently, the SBA guarantees small business loans that are distributed by a network of more than 800 lenders across the country. The program creates a form of emergency loan that has the potential to be forgiven when a certain percentage (depending on when you received your PPP loan) is used to maintain payroll.4 The program expands the network beyond the SBA so that more banks, credit unions and lenders can issue the appropriate loans.
If your business uses the loan funds for the correct purposes and maintains the approved size of your full-time workforce based on when you received the loan, the principal loan will be forgiven, meaning you will only need to pay back the interest accrued.2 The primary purpose of these loans is to incentivize small businesses to refrain from laying off workers and ultimately rehire laid-off employees that have already lost jobs due to COVID-19.
What Types of Businesses Are Eligible For The Paycheck Protection Program?
In 2021, the Paycheck Protection Program offers loans for small businesses, 501(c)(3) and 501(c)(6) organizations with fewer than 300 employees as well as some 501(c)(19) veteran organizations. Food service businesses are also eligible if they employ fewer than 300 people per physical location.4
Self-employed individuals, sole proprietors and freelance or gig economy workers are also eligible to apply for financial assistance during this time. Even without a personal guarantee or collateral, businesses that are struggling can receive a loan as long as they were operational on February 15, 2020.2
Eligible borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
How Do I Get a Payroll Protection Loan?
The loan program provides loans through:2
- SBA 7(a) lenders
- Federally insured depository institutions
- Federally insured credit unions
- Participating Farm Credit System institutions
What's the latest on the EIDL?
The SBA has announced applications for the Economic Injury Disaster Loan (EIDL) grant will be available by January 17, 2021.
The EIDL grant is a form of small business relief providing up to $10,000 dollars in grants (completely free and non-repayable money) to select small businesses. The grant program was part of the initial CARES Act in 2020, but funds were exhausted within months. In December, Congress allocated additional funds for the program.
Businesses currently in a payment plan to repay the EIDL Advance no longer need to pay it. Any payments made to the bank should be reimbursed back to you.
EIDL grants will be given to small businesses located in low-income communities, who have experienced a 30% reduction in gross receipts during any 8-week period between March 2, 2020 and December 31, 2021 compared to a comparable 8-week period before March 2 or in 2019. Also, if you meet this description and previously received a EIDL grant that is less than $10,000 you can reapply to receive the difference (those reapplying for the full grant will receive approval priority over new applicants).
What: The EIDL grant is a form of small business relief providing $10,000 dollars in grants, i.e., completely free and non-repayable money, to select small businesses. The grant program was part of the initial CARES Act in 2020, but funds were exhausted within months. In December, Congress allocated additional funds for the program.
Who is Eligible:
- Business was in operation prior to January 31, 2020,
- Business has less than 300 employees,
- Business is located in a low-income community, and
- Business suffered at least a 30% reduction in gross receipts during any 8-week period between March 2, 2020 – December 31, 2021 compared to a comparable 8-week period before March 2 or in 2019.
When to Apply: Authorized through December 31, 2021, but applications close when funds run out – so if eligible, apply fast. SBA hopes to be accepting applications on or around January 17, 2021.
As a small business owner or self-employed individual, it’s always important to be aware of your options in prosperous times and those of hardship. With some assistance and the promise of keeping your workers employed, your small business can continue to thrive.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.