The COVID-19 pandemic proved to be devastating to many small businesses. 163,735 U.S. small businesses closed their doors between March 1st, 2020 and August 31st, 2020. This resulted in the government setting aside some crucial relief efforts.
Whether you participated in the first round of PPP loans last year or not, there's still a good variety of relief packages available. The two most popular relief efforts are the PPP (Paycheck Protection Program) loans and the ERC (Employee Retention Credit), which will be discussed in this post.
NOTE: This information was up-to-date at the time that this post was written, but COVID relief laws are constantly being updated and changed. Please conduct your own research with reliable sources or contact us directly for updated information.
You might be wondering about your eligibility, the application processes, and the relief processes of some of these packages. We're happy to answer any questions you may have, and we've taken reliable information from Bloomberg Law to touch on important details and changes in this post.
PPP (Paycheck Protection Program) Loans
First Draw PPP Loans
The first draw PPP loans are a little simpler to apply for than second draw. You do not need to provide receipts to show your financial losses - the only process is to apply. Your business must have been in operation before February 15th, 2020 and remain open, and you must have fewer than 500 employees. PPP loans are used as an incentive for businesses to keep their employees on payroll by keeping their doors open.
NOTE: At the time that this post was written, first draw PPP loans could be submitted until June 30th, 2021 if a business had 20 or more employees. However, many banks are asking that businesses apply with them by March 31st, 2021 to allow for processing time. Dates may be subject to change.
Second Draw PPP Loans
You need to use the full amount of a first draw loan to be eligible for the second draw. The first draw must have been spent on authorized uses, and you must have been in business before February 15th, 2020 with fewer than 300 employees. You also need to be able to prove that your gross receipts have decreased by at least 25% in the same quarter of 2019 and 2020.
NOTE: At the time that this post was written, you could only apply for the second draw loan until March 31st, 2021, although many banks were asking to have the applications by March 15th, 2021. Dates may be subject to change.
Forgiving the PPP Loans
CSI Accounting & Payroll is here to help! First, we will work with you to see if you qualify for relief. You must have maintained your employee compensation levels during the loan period and spent over 60% of it on payroll.
Make sure you're keeping track of your payroll, interest, rent, and utilities. Bookkeeping is mandatory, but CSI's monthly accounting is even better! Did you know that your lender and the SBA can request and audit your financial documents? CSI Accounting & Payroll can help you stay prepared.
ERC (Employee Retention Credit)
Why haven't I heard about the ERC?
Another article by Bloomberg Law specifically discusses the ERC and how it managed to slip under the average person's radar. With all of the attention being placed on the stimulus checks, news sources didn't make much time to talk about the relief efforts for small businesses. Although too late for the lost businesses, Congress passed the Consolidated Appropriations Act of 2021 to help prevent further damage.
The Original ERC
Similar to the PPP loans, the ERC is used as an incentive for businesses to keep their employees on payroll. However, it does not need to be repaid. The CARES Act tax credit was originally not available to businesses that received a PPP loan. Bloomberg Tax calls the choice between the two, "an attempt to prevent double dipping".
The ERC was only given to businesses with fewer than 100 employees and offered up to $5,000 per employee. It also was not provided upfront, and businesses must have been able to prove a 50% reduction in income in the same quarter in 2020 as in 2019.
The New and Improved ERC
The Consolidated Appropriations Act of 2021 increased the ERC's outreach and benefits. Businesses may now accept both PPP loans and ERCs, effective back to March 12th, 2020. Bloomberg Tax says, "Business owners no longer have to crunch the numbers to decide which program has a better chance of saving their business."
The cap for each employee is now $7,000, and businesses may be able to claim the increase if they received the original $5,000. The number of eligible employees has also gone up to 500, and businesses can get a credit advance. Finally, instead of proving a 50% income reduction, they only need to prove a 20% income reduction.
NOTE: ERC dates and amounts may also be subject to change. Current relief packages may not always reflect this information.
A Word From the Experts
Bloomberg Law advises, "You need to be prepared to apply the first day a new grant or loan becomes available... This means having your finances in order throughout the year... If you are unsure of how to keep your books updated or lack the time to do so, talk to a professional who can help you take on the task."
Our advice? Listen to the tip above. We proudly offer monthly accounting to help guide financial decisions.
What's the difference between bookkeeping and monthly accounting?
To put it in simple terms, bookkeeping is the process of data entry for mandatory records, whereas monthly accounting provides monthly financial statements. These monthly statements monitor the health of your business year-round so you're always ready to make those big moves. That includes applying for a relief package!
Don't forget tax season!
With all of the changes that this pandemic has thrown at small businesses, the next couple of tax seasons are going to be a little bit different. Make sure your accountant is staying on top of these changes, just like we are at CSI Accounting & Payroll.
Instead of an annual tax accountant performing a year of work all at once, your statements are ready to go at CSI. We only serve the needs of small businesses and include tax prep and filing to knock it out of the park!
Meeting with your annual accountant once a year just doesn't cut it; we meet periodically to make sure we're on the same page. Our plan is for our clients to know what their taxes will look like many months ahead of time.
What do you do now?
Bloomberg Tax closes their article with this statement, "The pandemic isn’t over yet—and that means the same for its impact on business, but you don’t have to face it alone. It is those small businesses that commit to keeping good financial records who will be first in line for newly available relief funds."
Don't trust just anyone with your business! CSI Accounting & Payroll can guide your finances on a monthly basis to help your business stay ready for relief fund application and document auditing.
Did we convince you yet? Click the button below for a free consultation to see if we're a good fit for each other.