The Paycheck Protection Program (PPP) was a lifeline for businesses across the U.S. as the pandemic took hold and paralyzed the economy. The program ended on August 8, 2020, unfortunately, so it’s no longer an option for businesses seeking financial support. Congress has failed to reach an agreement for new funding, so it looks like we’ll have to wait until late January 2021 to see what kind of aid package the new administration can negotiate. In the meantime, business owners must look elsewhere. Here are a few options.
Economic Injury Disaster Loans
Although the PPP is on hold for the moment, Economic Injury Disaster Loans (EIDLs) are a suitable alternative that provide relief to small businesses and not-for-profit organizations, including sole proprietors and independent contractors. The purpose of the EIDL is to “meet financial obligations and operating expenses that could have been met had the disaster not occurred.”
The maximum loan amount is $150,000, while collateral is necessary only for loans over $25,000. Eligible expenses include rent and utilities, payroll, accounts payable, and regular business costs. EIDLs have a number of benefits:
- Low interest rates: Businesses pay a fixed interest rate of 3.75%, while non-profits pay only 2.75%.
- Favorable repayment terms: The loan is spread out over 30 years, which means that monthly repayments should be relatively low. Furthermore, there are no prepayment penalties or fees.
- Easy to qualify: Self-employed workers and people with inconsistent income can have trouble securing loans from traditional lenders. Qualifying for the EIDL is much easier due to its more generous eligibility criteria.
Applying is simple: just go to the online portal and start your application. The U.S. Small Business Administration has other programs that are worth a look, such as Express Bridge Loans and Debt Relief. As we head into 2021 and a new administration, be sure to keep your ear to the ground for any new pandemic debt relief and programs for small businesses.
Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit provided for under the CARES Act. The credit is applied against certain employment taxes “equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and January 1, 2021."
There are two eligibility criteria: businesses must demonstrate (1) the full or partial suspension shutdown in operations due to COVID 19 or (2) a 50% or greater decline in gross receipts during a calendar quarter compared to the same quarter in 2019. Note that if you qualified for and received PPP, you aren’t eligible for this tax credit.
When it comes to government support, small businesses can look beyond the federal government to the state and municipal levels. It’s worth checking with the local offices of mayors and governors as well as state economic-development agencies to see what financial assistance is available.
The U.S. Chamber of Commerce has put together a list of financial assistance programs, resources and guidance across all government levels to help businesses get through the pandemic. Check it out here.
If you are unable to obtain government assistance or have already exhausted such resources, you can always turn to banks, merchant processors, and other private lenders for capital.
Business credit cards: Credit cards shouldn’t be your first choice, given their high interest rates. Likewise, you might need access a higher credit limit to help cover your costs. That said, some credit card companies offer 0% interest for the first year—and even longer, in some cases—so they’re definitely worth a look.
Business lines of credit: Business lines of credit are preferable to credit cards because the interest rates are much lower. These products can either be secured or non-secured, with the latter generally having higher interest rates. One of the main benefits of lines of credit is that you only pay interest on the money you withdraw. Here are six options to get you through these challenging times.
Bank loans: Loans provide less flexibility than lines of credit because you pay interest on the full loan and not just the amount of money drawn. Loans can be a good option for covering specific expenses, for example, purchasing inventory, refinancing existing, higher interest debt, or looking after payroll. If you’re in the market for a loan, here is a good place to start.
Crowdfunding: Many businesses overlook crowdfunding, but it’s an interesting option. GoFundMe launched the Small Business Relief Initiative to help businesses that have been affected by the pandemic. How does it work? The program provides $500 matching grants to qualifying businesses that raise at least $500 on GoFundMe. If you’re feeling charitable, you can also donate to the program.
If you were unable to secure PPP funding, don’t worry—there are other financing avenues out there. And as we move into 2021, Congress will likely roll out new aid packages to help businesses weather the rest of the pandemic. In the meantime, check with your state and local governments to see what assistance they are offering. Although you might not want to take on more debt, private financing via a credit card or line of credit might just help you bridge the gap to brighter days.