What Startups Need to Know About the American Rescue Plan
On 11th March, 2021, President Biden signed the American Rescue Plan Act (ARP) to provide much-needed economic relief to the country due to the COVID-19 pandemic. Much of the bill focuses on the revitalisation of businesses as a whole, as the health crisis had many negative impacts on the economy and typical operations.
Startups and small businesses were hit hard by the fallout of the pandemic, and some had to shut their doors. In addition, minority-owned companies and very small operations were disproportionately affected by the economic downturn.
Here’s how you can use ARP to your advantage and stay competitive in your industry.
Highlights of the American Rescue Plan
The ARP includes $350bn in state and local funding. The plan extended several existing programs and added small-business grants to help keep them afloat.
Here are three highlights of the ARP that could potentially help small businesses:
- $25bn program specifically designed to assist restaurants
- $15bn to improve the Economic Injury Disaster Loan Program
- $15bn to state and local governments, allocated to small and local businesses
It's critical to note that some money available may trickle down to aid small businesses. The available cash comes from the $350bn stimulus package to support states, schools and cities.
Here are some of the other provisions in the bill that could impact small businesses or startups:
- Paycheck Protection Program (PPP): An additional $7.25bn in funding to the PPP that also includes non-profit eligibility
- Economic Injury Disaster Loan Program: An additional $15bn in funding for cash advance payments for small businesses
- State Small Business Credit Initiative: A $10bn program that bolsters business creation and rectifies entrepreneurship inequalities
Effects on Small Businesses and Startups
There were deep revenue losses due to the pandemic, so startups and small businesses are only just beginning their recovery journey. The highlights listed above are some examples of the positive effects the bill has. More programmes are available to companies, one being the Community Navigator Program (CNP).
Because there are so many programs available to small businesses and startups, the objective of the CNP is to provide more resources and tools to assist companies with finding the federal programs they're eligible for. About $175m was allocated to the Small Business Administration (SBA) to develop this program.
One of the priorities of the CNP is to improve education and community outreach. The focus is on marginalised entrepreneurs and disadvantaged populations, such as women and veterans who own small businesses or startups.
Past relief measures also failed to adequately address the impact the pandemic had on struggling bars and restaurants. The food service industry was one of the hardest-hit sectors. The smaller the bar or restaurant, the harsher the impact, despite the use of food delivery apps to boost sales.
Many of the programs listed, especially the expansion of existing ones, will assist small businesses as they recover from the effects of the pandemic.
Employee Retention Credit Provision
The APR extended eligibility for the Employee Retention Credit (ERC). It’s vital to understand eligibility requirements so you're better informed about this provision.
What Is the ERC?
The Employee Retention Credit is a tax credit small businesses and startups can claim if they started after Feb. 15, 2020. The credit is taken against the employer's Social Security payments that are made to the federal government.
As an employer, you pay 6.2% of employee wages directly to their Social Security. Rather than make these payments, you can hold on to that cash and keep it in your pocket to use for whatever reason. It may help recoup some of the losses you've experienced throughout the pandemic, or maybe your business needs a facelift. There are plenty of ways to use this extra cash to invest in your company.
Who Qualifies for the ERC?
To meet eligibility requirements, your business had to operate during 2020 and meet one of two criteria:
- Your business operations were partially or wholly suspended during any quarter in 2020 as a result of government mandates due to COVID-19.
- You experienced a significant decline in gross receipts in any quarter in 2020.
The IRS has plenty of information regarding the ERC and more details regarding the provision under the ARP.
Now that you're aware of the highlights of the ARP, you're better prepared to participate in these programs and help your business stay afloat in the latter half of 2021.
A Bright Future for Startups and Small Businesses
2020 was undoubtedly a challenging year for businesses of all sizes, especially small ones and startups just beginning their journey. These companies need to be aware of the bill's implications to reap its benefits and gain financial support where possible.