The U.S. government has launched small business relief and stimulus packages. What are the best options for small businesses?
Small business owners can choose between the Paycheck Protection Program (PPP) and the combination of tax credits and payroll tax deferral. These are mutually exclusive which means a small business owner has to choose only one.
The PPP is available to businesses with 500 employees or less. The loan can be forgiven or converted into a grant if the borrower maintains its payroll for at least eight weeks. The maximum loan amount is either $10 million or 2.5 times the monthly payroll whichever is lower.
The employee retention tax credit (ERTC) is available to businesses that experienced at least 50% reduction in tax receipts or those whose operations have been suspended by the government. The credit is 50% of wages paid which means that a small business owner can receive a maximum credit of up to $5,000 per employee. An employer can also defer payment of payroll taxes due in 2020 but must pay half of the deferred amount by the end of 2021 and the other half by the end of 2022.
Another factor that should be considered by small businesses is the waiting time. The ERTC and tax deferral has an immediate effect. On the other hand, PPP requires applying for a loan and waiting for approval.