The COVID-19 pandemic brought about a global recession and caused great losses for small businesses. Many SMBs had to struggle throughout the last year to survive during the crisis. The US government had no choice but to take some real actions to buoy up private business. Thanks to the introduction of a Stimulus Package, businesses were able to stay afloat during the pandemic and the national economy got a relief. According to the recent surveys, 84% of respondents expected to receive a stimulus payment. In a week the third round of the Stimulus Package should be approved. Further, you will find out which expenses the new Package will cover and who would be able to get financial support.
- The third Stimulus Package is going to be approved by the 14th of March. Till then the Senate will discuss all the measures and agree on the final budget.
- Mostly, all the measures for financial support are higher than for the previous year.
- The new Stimulus Bill will help small businesses, people with low income or unemployed, economically discriminated groups.
What is a Stimulus Package?
In simple words, a Stimulus Package is a governmental measure to support a floundering economy during a crisis. By boosting government spending, it becomes possible to lower taxes and interest rates and encourage employment growth. It considers that government intervention can correct the recession and, as a result, stimulate economic activity.
The Forms of Stimulus Package
As we already learned, a Stimulus Package is a set of incentives and tax rebates for businesses. It can take 3 forms: a monetary stimulus, a fiscal stimulus, or quantitative easing.
This form of the Stimulus Package includes cutting off interest rates. Decreasing the interest rates encourages business owners to borrow money to support the livelihood of the company and urge its development. Appropriately, there is more money in circulation and more opportunities to spend money (not save). Another great advantage is that low-interest rates make the exchange rate weaker.
Fiscal Stimulus decreases the amount of tax rates by increasing the government spending in the national economy. Businesses can save money on taxes and keep more income. So, there is more free money to spend on personnel, production, and business development. In total, it minimizes the mass unemployment rate. However, there is also a risk that SMB owners will prefer saving money instead of spending it on business. This could even worsen the economic situation.
The purpose of quantitative easing is to facilitate bank lending. The central bank buys a great number of financial assets in private banks. As a result, they get more free money to provide low-interest rates and business lending. Usually, quantitative easing is the least taken stimulus measure by the government.
New Stimulus Bill: updates 2021
Due to COVID-19, the US Senate introduced various stimulus packages for 2020 and 2021 to overcome the consequences of the pandemic. The first stimulus bill totaling approximately $2.2 trillion was signed by Donald Trump at the beginning of 2020. The measures to help the affected by the pandemic were combined into the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Throughout the year there were five rounds of the Stimulus. However, for 2021 President Joe Biden proposed a new $1.9 trillion COVID-19 plan.
A new Stimulus Package also called the “American Rescue Plan” is aimed at steering the national economy out of a COVID-19 crisis. Currently, Congress is working to complete the new stimulus bill by the middle of March 2021. However, there is still a big number of hurdles to be resolved.
Preliminarily, the new Stimulus Package will contain:
- $1,400 checks for individuals
- tax credits for children and lower-income workers
- paid sick and family medical leave for millions of workers
- grants to small businesses
- $35 billion toward access to low-interest loans available, particularly for clean-energy investments
- extension of federal unemployment benefits through August
- funds for COVID-19 vaccine distribution.
10 ways the New Stimulus Bill may impact SMBs
- Will the Payment Protection Program remain?
A new Stimulus Package will include certain amendments to the Paycheck Protection Program. Last year, the US government launched PPP loans for small businesses to cover the expenses on the payroll. It was a rather advantageous financial aid for SMBs who suffered critically due to the pandemic.
This year, nonprofits and online-only news publishers will enter the list of businesses that can rely on the PPP loan. However, there are certain restrictions. For example, only publishers who don’t have more than 500 employees per location, can get the PPP loan.
Also, the government will put an additional $7.25 billion toward the PPP that will increase the program level to $813.7 billion from $806.4 billion, compared to last year’s statistics.
- How can small businesses get credit in 2021?
The Stimulus Package for 2021 upholds the State Small Business Credit Initiative. $10 billion will be directly sent to businesses owned by minorities and people who are economically disadvantaged, as well as to tribal government programs. The global goal is to support up to $100 billion in small business financing. The whole fund process will go through the state, territorial, and tribal programs.
- Will SMB owners have to increase the salaries of employees?
One of the updates of the new Stimulus Bill is the introduction of higher rates of a minimum wage in the US. The idea is to establish the $15 hourly rate for minimum wage. However, this proposal caused great controversy in the Senate. The views of senators on this issue were divided into “for” and “against”.
For business owners, the increase of the minimum wage will lead to a rise in payroll expenses. Though they are not critical changes, during the crisis any extra expenses can be fatal, especially for small businesses.
Currently, the minimum-wage hike is still under consideration. Perhaps this proposal will be included in another bill with some significant amendments.
- Can business owners get a Stimulus Check this year?
The amount of a Stimulus Check for 2021 is going to be $1,400. This time it is planned to provide financial aid, primarily, to people with an income cutoff. It means that some categories of people who could get a Stimulus Check last year, will not be able to rely on getting one in 2021. For this third round of payments, the Senate suggests including adult dependents, children, and families with mixed-status citizenship. Additionally, strict limits on income up to $75,000 will be introduced, so hardly any business owner will be able to get a Stimulus Check.
- What is going on with unemployment?
For 2021, the Senate is planning to allocate an additional $400 in weekly unemployment benefits. If there is no delay in the bill approval, starting from the 14th of March the federal unemployment program will be renewed without any gaps in funding.
The government will send unemployment payments till August. However, for those who still won’t succeed to find a new job, the government will suggest a further extension of the financial support after September. Additionally, there will be some automatic payment adjustments depending on the health and economic condition of applicants.
Note, that the weekly $300 federal unemployment checks, which were in force during last year, will expire in March 2021.
- Is there any emergency support for venues?
The New Stimulus Bill implies $15 billion of funds for economic disaster loans. This money will be directed toward the Economic Injury Disaster Loan program. The program aimed to provide financial support to businesses impacted by the COVID-19 pandemic.
Additionally, $1.25 billion will be forwarded for the SBA’s program for shuttered venue operators.
For the SBA’s program for shuttered venue operators can ask:
- Live venue operators or promoters
- Theatrical producers
- Live performing arts organization operators
- Relevant museum operators, zoos, and aquariums (with certain limits)
- Motion picture theater operators
- Talent representatives
- Each business entity owned by an eligible entity that also meets the eligibility requirements.
- Should restaurant owners wait for revitalization?
The restaurant industry endured the greatest hit caused by COVID-19. The National Restaurant Association estimates industry losses in 2020 to be $240 billion. Cafes, bars, and restaurants had to close for more than six months. They lost most of their annual profits in comparison with last years. To support small restaurant businesses, House Democrats are putting forward a revitalization program totaling $5 billion. These funds will be allocated for businesses with under $500,000 in annual revenue. It is going to be a part of a new program of $25 billion at the Small Business Administration.
- Food supply: how to arrange food distribution?
In 2021, payments totaling $3.6 billion will be provided for buying and distributing food and agricultural commodities. These funds will be given out through the USDA. Additionally, the representatives of small agricultural segments, such as farmers and ranchers, will get $500 million in grants for rural health care and farm loan assistance.
- Will the US government cover expenses of vaccine-related business?
The new Stimulus Bill will include a $10 billion fund for the production of medical materials. It will be a part of strategy according to the Defense Production Act. This way the federal government ensures the possibility to apply for the help of private companies to overcome difficult times. The core idea is to increase the production of necessary stuff that will help in the fight with Covid-19 – masks, medical gloves, vaccines, tests.
- Will the economic crisis be over after the vaccination?
Every business owner hopes that the coronavirus vaccine will stop the crisis and make the economic situation recover. As soon as possible, the US government will start the delivery of the COVID-19 vaccine across the country.
So far, more than 96 million vaccines have already been distributed in the US. By the end of July, it is expected to provide enough supply to vaccinate everyone. Once the general population has been vaccinated, small businesses will get much relief. At least, the spheres of restaurant and travel business can expect an increase in service demand.
To sum up, the new Stimulus Bill is about to be approved. By the 14th of March, the Package for 2021 should come into force. In total, the government increased the money injection in small businesses to help them recover after an economically destroying year. However, the national economy still struggles under hard times.
Don’t miss our next articles to know how to stabilize and improve your company’s finances.