Top Impacts of the American Rescue Plan for Small Businesses

The American Rescue Plan, passed in March 2021, includes several provisions and extensions that target small business owners

Key takeaways:

• The American Rescue Plan included the following:
  • More PPP funds allocated
  • Other small business loan programs continued
  • New grants targeting specific businesses, including restaurants and venues
  • Tax credits extended to support employers

The Biden Administration’s American Rescue Plan Act of 2021 was effective as of March 2021 and aims to support Americans through the pandemic and subsequent economic upheaval. Under this plan, relief came in the form of additional stimulus checks, tax provisions like the child tax credit and earned income tax credit, and several aspects that focus on bolstering small businesses.

While this plan builds upon previous relief packages from 2020, there are important new provisions and extensions. Here is a look at some aspects of the American Rescue Plan that are relevant for small business owners.

More PPP funds

Paycheck Protection Program (PPP) loans have helped many businesses stay afloat over the last year-plus. These loans, first created in 2020 to respond to the pandemic, cover payroll costs to prevent layoffs and allow employers to bring back workers they had to furlough. 

Loans were available for up to 2.5 times a business’s monthly payroll expenses, with a max of $10 million for first-draw loans and $2 million for second-draw loans. If an organization follows all guidelines on how these funds must be used, they’re entirely forgivable. 

The American Rescue Plan added $7.25 billion to the PPP and specified more qualifying groups, including local digital news companies and agricultural organizations. While this round of the program ended on May 31, 2021, current borrowers are still eligible for loan forgiveness. You can apply to have your PPP loan forgiven once all funds have been used according to the terms, any time until the loan maturity date hits. 

If you received a PPP loan, make sure you apply for forgiveness within 10 months after the last day of your covered period.

Other small business loans

Another loan program allocated new funds in the American Rescue Plan was the Economic Injury Disaster Loan Program, which is still taking applications. Eligible small businesses, nonprofits, and agricultural businesses with 500 or fewer employees can apply, and the maximum loan amount is $500,000. Other terms are:

• 3.75% fixed interest rate for businesses
• 2.75% fixed for nonprofits
• 30-year terms
• No penalty or fee for pre-payment

Organizations can use the loans for working capital and normal operating expenses. The American Rescue Plan dedicated an additional $15 billion to the program. These funds are intended to help businesses that didn’t get a loan in the full amount they previously requested.

Grants for small businesses

There are a few small business grants to also keep on the radar. One is the Restaurant Revitalization Fund established in the American Rescue Plan. This fund provides financial support to restaurants and similar businesses to stay in operation. Support can equal pandemic-related revenue losses—up to $10 million per business and $5 million per location. As long as the funds are used for the applicable expenses by March 11, 2023, recipients don’t have to repay anything.

In addition to restaurants, organizations like bars, breweries, wineries, inns, caterers, and bakeries may be eligible for this grant. The fund prioritizes businesses owned by women, veterans, and socially and economically disadvantaged individuals. 

Another grant program to know is the Shuttered Venue Operators Grant Program. Eligible businesses include theaters, museums, and concert venues, and they must have suffered at least a 25% revenue decline in 2020 compared to the same quarters in 2019. This program was created in 2020 but allocated more funding under the American Rescue Plan.

Tax provisions for small businesses

Now, let’s walk through some of the most significant tax provisions that impact small business owners. Here are key tax credit programs that the American Rescue Plan extended:

• Employee Retention Credit: This credit is available through December 2021. Businesses can offset their payroll tax liability by up to $7,000 per employee per quarter with this credit, and the maximum benefit is $28,000 per employee for 2021 for businesses with a decline in revenue or temporary closure because of the pandemic. A 20% decline in gross receipts during one quarter makes a company eligible.
• Paid Leave Credits: Paid sick and family leave credits for small and midsize businesses have been extended through September 2021 so organizations can offer paid leave to workers who have an illness, need to quarantine, or must care for someone. The tax credit for paid sick leave equals the wages paid up to two weeks, limited to $511 per day and $5,110 in aggregate. The limit for paid family leave is $12,000 for up to 12 weeks.

Additionally, the American Rescue Plan allows businesses to exclude Economic Injury and Disaster Loan grants from gross income, and the exclusion won’t result in a deduction denial, tax attributes reduction, or basis increase denial. The restaurant revitalization grants mentioned above are treated similarly.

Consult tax experts with any questions

The tax rules often change, especially as the government still attempts to provide relief to those suffering during the pandemic. When you’re not sure how new laws may impact you or your business, talk to an expert. You never want to leave money on the table that could help you stay afloat.

The Provident CPA & Business Advisors team is on top of the changing tax laws, and we can help you plan for tax time and set up a responsive business plan. Contact us today to get started.