12 Feb CARES Act Success Plants Seeds of Hope and Love
Has your business struggled through 2020 with the COVID-19 pandemic adversely impacting revenue and availability of cash? Sadly, for most small businesses, the answer is a quick and resounding YES, followed by a roll of the eyes in pure frustration of the situation at hand. Thankfully, government has passed the new Federal Stimulus Package to get some relief and hopefully keep your biz alive and operational. I thought we could all benefit from some success stories of how the Federal Stimulus Package is breathing new opportunity into our small business community: #BeAGift
Many business owners did not grab onto the money available through EIDL loans early in pandemic, likely because they were getting their ducks in a row to take advantage of the PPP Loans instead. There was a lot of fear at that time that something would go wrong with the PPP loans and the business would not be able to get that PPP Loan forgiven. Rightfully so, at the beginning of pandemic, the rules and regulations required to qualify for forgiveness were quite specific and strict; but as time passed, the Small Business Administration released change after change that softened the restrictions on how to qualify for forgiveness. As weeks of pandemic moved into months, it became clear that we were in it for the long haul and as a result, small business owners have turned to the opportunity to take advantage of the EIDL loans. I love this loan because it is being offered at a super-low interest rate of 3.75% for small business, the re-payment term can extend for 30, yes thirty years (just like a home mortgage), there is NO pre-payment penalty, AND finally, you don’t have to make payments on your loan for the first year. This really opens up the scope of possibility on utilizing that EIDL money to move beyond basic survival mode and toward an opportunity for business growth to thrive. The most common thing I have seen is business owners who have chosen to use EIDL money to pay off high-interest, high-risk debts. I, myself did this. I had a modest business line of credit at a fluctuating interest rate that seemed to hover at around 7.4%. I was able to pay off that debt with the EIDL money, and save myself 3.65% interest per month. What a gift!
I have also seen a few small business owners who have grabbed onto the EIDL and used it toward improving inventory counts and vendor payments on their highest volume products. The EIDL fine print says that the purpose of the EIDL loan is to meet financial obligations and operating expenses that could have been met had the disaster not occurred. This extends to working capital and involves managing inventories, accounts receivable and payable, and cash. Again, what a wonderful gift to be able to use EIDL money received towards building your superpowers and extending your working capital to improve the financial strength of your business! Now that’s a confidence builder!
Employee Retention Tax Credit (ERTC):
The Federal Stimulus Package that was passed at the end of December allowed for an extension of the ERTC credit for 2020 and announced an even greater opportunity to collect tax credit for 2021. There are qualification requirements for both years, but in my own customer base, I can clearly see many more businesses who are qualifying for the credit than who are taking advantage of it. I believe this to be a result of it being a bit “complex” to apply for the credit as one must have clear visibility and reporting to verify that qualification requirements have been met. To that end, we are offering support packages to help you gain access to this tax credit.
Your business might be able to get up to a $5,000 per employee tax credit if you can meet criteria. Just this week, we worked with a client with 10 employees and have found an opportunity for $40,219 of ERTC credit for which we can apply! One thing to note on the 2020 credit is that your business would qualify if either there is a 50% reduction in revenue in any one quarter in 2020 OR it would qualify if you had to close or partially suspend operations, due to government pandemic requirements in your area. So even if you had a business that reopened later in the year and you finished up the year in a growth mode in Q3 or Q4, (example: hairstylists were closed in Illinois for a few months and there was pent up demand when they re-opened) you would likely still qualify because you were required to be closed for a short time.
2020 Employee Retention Credit:
- A refundable payroll tax credit for 50% of qualified wages of up to $10,000 per employee during 2020 ($5,000 total credit for 2020)
- May be claimed for wages paid after March 12, 2020, and before January 1, 2021 (Group health plan expenses can be considered qualified wages even when no wages are paid to an employee
- If you received PPP funds, wages applied toward forgiveness are excluded from ERTC eligible wages
- To be eligible your organization must:
- have operations fully or partially suspended because of a government order limiting commerce, travel, or group meetings between March 12 and December 31, 2020 OR
- experienced a greater than 50% reduction in quarterly receipts compared to the same quarter in 2019.
2021 Employee Retention Credit:
- Increases the ERTC rate to 70% of qualified wages of up to $10,000 per employee for a maximum credit of $7,000 per employee per quarter ($14,000 total credit for 2021)
- Organizations who were not in existence for all or part of 2019 may claim the credit
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20%
- To be eligible your organization must:
- have operations fully or partially suspended because of a government order limiting commerce, travel, or group meetings, OR
- experienced a greater than 20% reduction in quarterly receipts compared to the same quarter in 2019
Save Our Stages (shuttered venue relief) – These are direct grants for certain live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, or talent representatives (“Shuttered Venue Operators”) that were fully operational on February 29, 2020, and can satisfy the Revenue Reduction Test can apply for grants from the SBA under a $15 Billion program that is separate from the PPP.
The proceeds of a grant must be used for payroll costs and other specified eligible expenses. A Shuttered Venue Operator must, as of the date of its grant, have resumed or intend to resume its operations and the venues for such operations must meet a number of specified criteria. The amount of the grant to a Shuttered Venue Operator that was in operation on January 1, 2019 will be equal to 45% of the gross earned revenue of such operator during 2019. For a Shuttered Venue Operator that began operations after January 1, 2019, the grant amount will be equal to 6 times the average monthly gross earned revenue for each full month of operation during 2019. In any case, the maximum grant amount is $10 million. Allocation of grants will include exclusive windows for operators with a 90% or 70% revenue reduction and a set aside for operators with less than 50 staff members. A Shuttered Venue Operator that receives a grant will not be eligible to apply for a First or Second Round Loan but if you already received a First Round PPP Loan, it will not exclude you.
One very large requirement for the Save our Stages/Shuttered Venue Grant is that venues MUST have at least one space with fixed seating space/auditorium for programming. This requirement has unfortunately prohibited the program to apply to a wider range of event planners restaurants and bars that offer live entertainment. However, there is still opportunity for small museums and theaters to apply and they should definitely take advantage of the opportunity.