Stimulus Bill: Making Sense Of The Options For Small Businesses & Employers (Grants + Loans)

Please don’t rely on any information in this article. Do your own research or consult a financial planner to decide what’s best in your situation. This is complicated stuff and there’s obviously huge over-simplification in this article (and probably some errors).

[Update 6/5/20: Please read this follow-up article as there have been significant changes to the PPP loan forgiveness program making it a much more enticing option that it was when I initially wrote this article.]

Contents

1 Economic Injury Loan & Grant (EIDL)
2 Paycheck Protection Program (PPP)
3 Employee Retention Credit (ERC)
4 PPP VS. ERC VS. EIDL
5 Families First Coronavirus Relief Act (FFCRA)
6 Unemployment Expansion
7 Wrap Up

Economic Injury Loan & Grant (EIDL)

Find Application Link Here | More Information (pdf)

The Economic Injury Disaster Loans and Loan Advance (EIDL) is a program to offer loans of up to $2M to small businesses, typically those less than 500 employees, who were negatively affected by the pandemic. This includes the self-employed, gig workers, and independent contractors. The funds to be used for things like payroll and rent/mortgage. The interest rate is 3.75% in most cases. No payment is required for 12 months, though interest begins accruing immediately.

The most exciting part of the program is a strange provision promising a grant called a ‘loan advance’ of up to $10,000. According to what’s stated, all applicants will get ‘up to $10,000’ even if they are eventually denied for the loan, and this will not need to be repaid. Even if your loan request gets denied for some reason, you’ll still get the $10,000 grant which you won’t have to pay back.

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.

Ostensibly, you’ll get the $10,000 within 3 days of successful application. That’s a ridiculously small amount of time and highly unlikely, but hopefully within a few weeks you’ll get the money. Just be sure to check the checkbox that you want to be considered for the $10,000 grant.

The form (pdf) states, “Up to $10K depending on # of employees”. According to an April 6th clarification from the SBA, you’ll get $1,000 per employee. This means that a single-employee business or a sole proprietorship will get $1,000, and a business with 10 employees will max out the full $10,000 grant. This has been confirmed in more recent emails that were sent out as well.

If you are a sole-proprietor without a dedicated EIN, use your SSN as your EIN. It’s not clear if you can get multiple grants for separate businesses; if each business is registered separately (separate EINs) that might be possible.

There is limited funding for this program, and it goes on first-come basis, so worth applying sooner rather than later if your business was affected; at worst you’ll be denied.

Paycheck Protection Program (PPP)

Information on PPP

There’s another program called the Paycheck Protection Program (PPP) which offers a loan to businesses of less than 500 employees, including self-employed/gig-workers/contractors. Most interestingly, part of the loan can actually be forgiven if certain conditions are met.

The application for this program is much more complicated than the EIDL application. With this program, you can get a loan of up to $10M with an interest rate of 1%. You get forgiveness of the loan in the amount of 8 weeks worth of payroll, plus rent, utilities, and the interest on your mortgage. Note that 75% of the money needs to be used for payroll in order to get forgiveness.

There are some exclusions for things like employees who make more than $100k and some others. You do need to keep all (most?) of your employees in order to get forgiveness. Or you can rehire your old employees.

Sample scenario: you own a business with 100 employees, and your annual payroll is $1.2M ($60k per employee), you can potentially get $100,000+ loan forgiven to cover your employees salaries for the next 8 weeks.

Here’s a link to a good summary of the details on PPP.

Employee Retention Credit (ERC)

IRS Link

The Employee Retention Credit is a fully refundable tax credit for employers equal to 50% of qualified wages of their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The max you can get credited back is $5,000 which per employee, meaning if you pay your employee $10,000 you’ll get $5,000 back.

ERC can only be claimed if your gross receipts are down 50% from previous year or if your business was partially or fully shut down by the authorities, e.g. a restaurant who needs to limit themselves to takeout due to COVID-19 and losses the revenues from their sit-down.

There’s an important distinction with regards to the ERC benefit between a business with 100 or less employees versus a business with 101-500 employees: While the former can claim any employee payroll expense, even a working employee, the larger business can only claim employees who are not working.

PPP VS. ERC VS. EIDL

You can not get both PPP and ERC, you have to choose. In most cases, the PPP looks to be better than the ERC as ERC only reimburses half payroll and only up to $5,000, while PPP can get you forgiveness on the entire payroll.

The major downside of PPP is that it’s a cumbersome loan process whereas ERC should just a be a matter of claiming the credit on your tax return. Some smaller businesses with under 100 employees might be better served with the ERC. On the other hand, businesses with more than 100 employees don’t get the same value from ERC (see rules above).

Note, however: many businesses won’t qualify for ERC but will qualify for PPP. For example, if you revenues are down 40% and your sector was not shut down by authorities, you can file for PPP but not for ERC. Thus, even some smaller businesses (e.g. a business with 50 employees), might find themselves with only PPP being an option. Additionally, the PPP offers more forgiveness in absolute dollars, and might make sense even for businesses with just a few employees, or even a sole proprietorship.

The above comparison is for someone who does not actually need a loan and is just looking for a grant. If you are actually need a loan, then you’ll need PPP. Overall, PPP will be useful to far more businesses than ERC, but ERC is much easier to deal with and might be more palatable in some cases.

As far as EIDL goes, it can technically get both EIDL and PPP, so long as it’s used for different expenses. The PPP loan has a better interest rate, but has more restrictions on its use. If your business really needs a lot of cash now, you might take out both loans and use PPP to fund things like payroll and the EIDL loan to fund other things like debt or mortgage payments.

Note, however: the $10,000 grant/advance part of the EIDL will reduce your PPP forgiveness. So if you’re aren’t in need of the loan – if you’re only after the grant/forgiveness angle – there’s really no reason to apply for EIDL at all, if you plan on anyway filing for PPP.

Thus, a smaller business who only stands to get some thousand dollars forgiveness from PPP, might opt instead to get ERC and the $10,000 of forgiveness from EIDL instead of going through the PPP loan process. A larger business who will get tens of thousands forgiven from PPP should just go that route and ignore EIDL and ERC.

Families First Coronavirus Relief Act (FFCRA)

Direct Link | Q&A

The Families First Coronavirus Relief Act (FFCRA) was actually signed into law a week prior to the huge CARES Act stimulus bill. This program requires employers to pay employees full-pay for 2 weeks if they had to take off due to having COVID-19 or taking care of someone who had the virus. It also requires them to pay employees full pay employees for 12 weeks who need to stay home to care for a child who is home due to their school/daycare being closed for COVID-19 reasons.

There are limits and restrictions to all of this – see a nice Q&A here.

Employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. Qualifying wages are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.

Employers with under 50 employees might be able to get out of paying their employees under FFCRA, but since they get the money back, I imagine most employers will do it if they can.

Unemployment Expansion

It’s important to point out that the CARES Act expanded unemployment benefits to a huge extent, so you might also consider letting your employees go on unemployment, and just hire them back when business picks up again.

The bill also allows furloughed employees on unemployment. That way, you don’t have to ‘fire’ your employee. Your employee will retain their health insurance and benefits, all-the-while getting paid unemployment from the government. (You might even be able to bonus them at some point later in the year when you hire them back, to make up for whatever they lost – if they lost – by going on unemployment.)

Just keep in mind your business’ unemployment insurance rate might go up if you fire your employees, so that’s a factor to take into consideration.

Wrap Up

The EIDL, PPP, ERC, and FFCRA are all for businesses which were negatively affected by COVID-19. In many cases, doing one program makes you ineligible from doing another.

My eyeball test tells me the following guidance will be true most of the time:

Sole-proprietorship/gig worker/partnership with no employees/workers and your have no work now – apply for unemployment.
Sole-proprietorship/gig worker/partnership with no employees/workers and you are still working at reduced income – try for the EIDL grant + you might be able to file for unemployment for the partial income loss. If that doesn’t work, you might want to get PPP loan forgiveness, or you should be able to get an ERC credit (if eligible).
Single-member corporation with yourself as the only worker and you have no work now – furlough/fire yourself and get unemployment + try for the EIDL grant (and loan, if needed).
Single-member corporation with yourself as the only worker and you do have work now – try for the EIDL grant from the business side + you might be able to get unemployment for partial loss of wages from the employee side if your W-2 salary went down. If that doesn’t work, you might want to get a PPP loan forgiveness, or you should be able to get an ERC credit (if eligible).
Business with no W-2 employees and all workers are on 1099 but the business owner does not feel right making them lose pay – don’t pay them and tell them to get unemployment. (If they are losing on unemployment, it might be possible to bonus them the difference at a later date after you take them back.) You can technically get PPP as well, but probably not worth it.
Business with a few employees who are still working and who the business does not need a loan – try for the EIDL grant + get reimbursement for sick employees from FFCRA. It might also make sense to go for ERC, if eligible, or for PPP for the forgiveness program.
Business with a few employees who are still working and the business does need a loan – either apply for the grant/loan from EIDL; for larger loans get PPP. In any case, be sure to get reimbursement for sick employees from FFCRA.
Business with a few employees who doesn’t need their employees working right now – furlough them (or fire them) and let them get unemployment + apply for EIDL grant + get a loan from EIDL if needed.
Large business with many employees…
- if you need a loan – get PPP + get reimbursement for sick employees from FFCRA.
- if you don’t need a loan…
  - if you have less than 100 employees – get ERC or PPP (see comparison above) + get reimbursement for sick employees from FFCRA.
  - if you have more than 100 employees…
    - if they are all still working – get PPP + get reimbursement for sick employees from FFCRA.
    - if they are not working – get ERC or PPP (see comparison above) + get reimbursement for sick employees from FFCRA.

There are many, many different parts of the huge stimulus bill, and we’re all still processing it (most of the gurus have not yet figured it all out yet), especially the business aspects of it.

Having many friends whose businesses were hugely impacted by the pandemic, I was looking into the various programs, and couldn’t find anyone to lay out all the options clearly, so I started writing down my research and this article popped out. I’ll try updating as things get clearer or if any errors are pointed out.

Please don’t rely on any information in this article. Do your own research or consult your financial planner to decide what’s best.This is complicated stuff and there’s obviously huge over-simplification in this article (and probably some errors). If you have a large business or there’s a lot of money at stake it’s probably worth your hiring an advisor.

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