Money that just could save your business

The dry cleaning industry has been one of the hardest hit industries by the pandemic. I know that personally, as we are a dry cleaner located in Central Florida and our sales were off by more than sixty percent in the second quarter of 2020.  If it wasn’t for the two loans from the Payroll Protection Program (PPP), we would have gone out of business and all of our employees would have lost their jobs.  I know that many of you are doing everything that you can to survive COVID, just like we are.

If your business needs money, I have some really good news about a program that very few people have heard of.  It is called the Employee Retention Credit (ERC).  As part of the second CARES Act, eligible businesses that received loans from the Payroll Protection Program are now able to access Employee Retention Credits.  Prior to 12/27/2020 you could not participate in both programs.  This is BIG NEWS, as the Employee Retention Credit provides a lot more potential funding for your business.  The way the Employee Retention Credit works, is that you get a percentage of your payroll back from the Internal Revenue Service in the form of a check from the United States Treasury.  In fact, if your sales were off by over fifty percent (50%) during any quarter in 2020 as compared to the same quarter in 2019, you can retroactively get back fifty percent of your gross payroll from that quarter and the following quarters in 2020 up until you reach the cap of $10,000 per employee for 2020.  To give you an example, our sales were off more than sixty percent in the 2nd quarter of 2020, as compared to the 2nd quarter of 2019, and yours probably were too.  Using the Employee Retention Credit, we were able to retroactively get back fifty percent of our payroll up to the cap for the 2nd, 3rd, and 4th quarters of 2020.

In 2021, the Employee Retention Credit gets even better, as the amount you can claim as a credit went up to seventy percent (70%) of your payroll and to qualify your quarterly sales only need to be off by over 20% as compared to the same quarter pre-COVID .  Once you have that qualifying quarter, you can keep claiming the credit until your quarterly sales return to eighty percent of pre-COVID sales.  Another great feature of the program is that you can suspend making payroll tax deposits without penalty while you are in the program, which really will help you with your cash flow.  Not having to make those weekly tax deposits is really helping us make our PPP money last longer.  You can also claim the Employee Retention Credit as an advance payment while you are in the current quarter.  We filed our first advance payment request around ten weeks ago, and we just received our first check from the program. 

There are some limitations at present on how much of a credit you can claim per employee based on their individual compensation.  The maximum amount of qualifying wages is $10,000 per employee, so the maximum credit you can claim is $5,000 per employee for 2020.  In 2021, the maximum qualifying wages remains the same at $10,000, but the maximum credit goes up to $7,000 per employee.  Please note you CANNOT claim the Employee Retention Credit on wages that were paid for with Payroll Protection Program funds. 

A very important point to mention is that the program guidelines are complicated and they continue to change as different stimulus bills are being passed.  One of the challenges we are all running into is that the forms and returns have to go through the Internal Revenue Service, which is currently overwhelmed as tax law changes are being applied retroactively.  You will get the money from the Employee Retention Credit, but it won’t happen as fast as any of us want it to.  As of now, the program is continuing through the end of 2021. 

Another source of funding that you can get quickly through the Small Business Administration (SBA) is an Economic Injury Disaster Loan (EIDL).  Unlike a Payroll Protection Program loan  which can be forgiven, the Economic Injury Disaster Loans are not forgivable and must be repaid.  They come with some pretty good terms such as 30 year amortization, a 3.75% interest rate, and no prepayment penalties.  They also fund extremely fast once you have submitted your application.  Which is probably just what everyone needs right now.  The terms of this program have recently changed as well.  Now you can borrow up to 24 months of working capital (not including payroll if you have received Payroll Protection Program loans) up to a $500,000.  If you have already received an Economic Injury Disaster Loan, you can request an increase on your original loan. 

On the SBA’s website they are telling business owners essentially “don’t contact us as we will contact you if you qualify”, which is not accurate as we have an existing EIDL, we qualify for more funding and no one has reached out to us yet.  We applied through email for an increase and we received a response from the SBA within 18 hours, which really surprised us.  If you need additional funding, I would highly suggest that you don’t wait to hear from them, but instead contact them about an increase.  Where there is no pre-payment penalty, and payments can be deferred for up to 24 months after funding, you could use this as a “bridge loan” and pay it off with the Employee Retention Credits.

If you have not already received a loan from the Payroll Protection Program, there is funding available for both a first and second draw.  The amount of money you can borrow is based on your average monthly payroll multiplied by 2.5.  The loans are forgivable as long as you spend at least sixty percent (60%) of the loan proceeds directly towards payroll over a period up to 24 weeks.  Loan amounts up $150,000 are automatically forgiven through completing a self-certification questionnaire as the borrower.  An important thing to note, is that PPP loan forgiveness has a direct effect on how much Employee Retention Credits you can claim.  As you cannot claim the credit on wages paid with PPP funds for the same period.  Many small business owners for the sake of simplicity, reported that they used 100% of the funding for payroll, whether that was true or not.  Now that has turned around to bite them in hindsight.  

Through successfully accessing all of these programs, we as business owners should all be able to financially weather the COVID storm and successfully make it to the other side.  Time is of the essence as the application deadline to apply for a Payroll Protection Program is 5/31/2021 or until the funds are exhausted.  The deadlines to apply for both Economic Injury Disaster Loans and the Employee Retention Tax Credit is 12/31/2021.  Many people are optimistic about the Payroll Protection Program being extended with another round of funding as the program has been very successful, although nothing official has been announced.