How the new stimulus bill impacts small businesses
If your small business has suffered throughout the COVID-19 pandemic, the most recent stimulus package may help.
Passed by Congress and signed into law by the president, the latest package helps to clarify certain points in previous legislation, while also providing new and updated benefits. To take advantage of this package, however, you need to understand what it is and how it can be used by your small business.
What is the stimulus bill?
Quite frankly, the stimulus package is a massive piece of legislation. The total document is almost 5,600 pages, making it virtually impossible for busy managers and business owners to actually read. Therefore, we’re here to help break it down for you.
There are two important parts to the new legislation. First, is updates to the Paycheck Protection Program, or “PPP,” which provides funds to help keep employees under payroll. In the right circumstances, these “loans” can be forgiven. This was a part of the first round of stimulus and will continue.
The second part is the Economic Injury Disaster Loan (EIDL) program, which may provide a grant of up to $10,000 for qualifying businesses.
What does this mean for small businesses?
Small businesses can use the proceeds from the latest stimulus bill for a variety of purposes. First of all, you may be eligible for a second PPP loan. If your business has continued to struggle throughout the past year, you may want to apply for a new (or first, if that’s the case) PPP loan, which could qualify for forgiveness if handled properly.
The new package may also help you pay less in taxes. Taxes can be messy, as any business owner knows, and breaking down the tax implications of the new law can be tricky. Before the latest version, expenses that were paid with PPP funds were not tax deductible, which meant that some companies will be slammed with large, unexpected tax bills in spring of 2021. The new legislation specifies that neither PPP nor EIDL funding will be taxed, and items that are paid for with these funds are tax deductible.
One of the most attractive benefits for small businesses is the potential for $10,000 of stimulus money through the EIDL program. Even if you were locked out from the previous round of grants, you may be eligible, but be aware that the qualifications are even more strict. To qualify, a business must have:
300 employees or fewer
be in a low-income community
have suffered an economic loss above 30%. (Of course, you also have to demonstrate that this loss was a direct result of COVID-19 and virus-related shutdowns)
If you are taking out a small loan through the PPP, you may be able to use a forgiveness process that is clearer and easier to navigate. Previously, loan forgiveness did not happen often, largely due to the complexity of the legislation. Lawmakers hoped to make the process easier by creating an updated, simplified process.
Great! So what now?
To access these benefits, you’ll apply through your local SBA lender. The best option is a local lender whom you have worked with in the past, one that knows your business and can provide advice on how to apply and how to best utilize any potential funding.
The SBA also provides an application for the Paycheck Protection Program which you can fill out, but you’ll still need to provide your lender with payroll documentation.
As with any loan, it’s best to proceed with care and caution, as there may be details that could complicate the loan’s potential for forgiveness or create barriers to loan approval. For example, if you receive funds from both the EIDL and PPP, the money cannot be used for the same purpose. If they are, the EIDL advance will be subtracted from the amount of the PPP that is forgiven.
The most recent stimulus package could help you maintain operations while employing hundreds of people through this difficult time. But you need to be informed about what it is and how it can be used. Hopefully, with this information and guidance, you can make the right choice for your future!