COVID-19 has been devastating the U.S. economy for nearly two months, and until social distancing measures can be relaxed, there's a good chance it will continue to do so. Small businesses have been hit particularly hard over the past six or seven weeks, as many don't have the financial resources to withstand long-term closures.
Thankfully, the CARES (Coronavirus Aid, Relief, and Economic Security) Act has provisions designed to specifically help small-business owners, including its Paycheck Protection Program. Under this program, eligible business owners can receive forgivable loans that equal two-and-a-half times their monthly payroll costs. As long as 75% of PPP loan proceeds are used to pay and retain (or rehire) staff, those loans become completely forgivable -- including the remaining 25% that doesn't need to be used to cover payroll.
There's just one problem with these PPP loans: There's not enough money to go around so that every small-business owner who needs one gets one. In fact, the original $350 billion allocated to these loans under the CARES Act ran out in 13 days. An additional $300 billion was subsequently made available, but the expectation is that those funds will be exhausted just as quickly as the first round.
So where does that leave you if you haven't yet managed to submit an application for a PPP loan, or if you submitted one but recently found out it's been denied? Thankfully, you're not out of options. Here are a few alternate ways you can get financial relief.
1. Payroll tax deferment
Normally, you're liable for payroll taxes every pay period. But if your business is struggling, you can defer payroll taxes for the rest of the calendar year. This doesn't mean you get out of paying them completely; rather, you push those payments off, paying 50% in 2021 and the remaining 50% in 2022.
2. The Employee Retention Credit
This fully refundable tax credit is worth 50% of qualified wages per eligible employee on your payroll, and it applies to wages paid after March 12, 2020, and before Jan. 1, 2021. The credit applies to a maximum wage of $10,000 per employee, and so the maximum credit per employee is $5,000.
3. Pandemic Emergency Unemployment Assistance
If you're unable to get funding to maintain your staff and are forced to implement layoffs, your employees should be able to apply for unemployment benefits so they have some money coming in while they either look for work or wait for you to be in a position to rehire them. But what about you? Normally, self-employed individuals aren't eligible for unemployment benefits. But as part of the CARES Act, you can now apply for unemployment benefits and receive them for up to 39 weeks (the cap is normally 26 weeks, but the CARES Act extends it).
There's no question about it: Right now is a difficult time to be a small-business owner. If you've been denied a PPP loan, don't give up hope. Instead, explore your other options for financial relief. And also, don't hesitate to apply for a loan again, especially if you're able to address the reason your initial application was denied. You may hear that it's too late to get in on the second round of PPP funding, largely because banks are still working through backlogs dating back to the initial round, but since we don't know if a third round of funding is in the works, it never hurts to try.