What Are Small Business Retention Loans and How Do They Work?
The COVID-19 pandemic has created various challenges for small businesses. If your business budget was affected, and you need financial help, consider getting a retention loan to cover important expenses.
Our article will tell you everything you need to know about small business retention loans so you can decide whether they are the right choice for you.
You will also learn how to draw up a convincing and error-free loan request letter, so you can apply for a loan with ease!
Due to the impact of the COVID-19 pandemic in 2020, the Corona Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. The CARES Act provides the following financing options
- Employee Retention Credit
- Small Business Loan Program
The Employee Retention Credit is a tax credit for businesses owners affected by the lockdown caused by the COVID-19 pandemic. Business owners can claim this refundable credit on qualified wages, including health insurance costs.
To get this credit, you must meet certain requirements, such as:
- Carrying on a trade or business during the year 2020
- Having liquidity to fund current operations
- Employing a substantial number of part-time workers or workers with low salaries
- Needing to lay off furlough employees
- Having operations and businesses that were affected by COVID-19
- Not claiming the work opportunity tax credit
If you are eligible for the Employee Retention Credit, you will receive a refundable payroll tax credit equal to 70% of the qualified wages that you paid during 2021. The maximum amount of qualified wages you can take into account for each employee during the period is $10,000. This means that the maximum credit for qualified wages equals $7,000 per employee, while the benefit for the full year is $28,000.
You can either borrow 2.5 times your monthly payroll expense or up to ten million.
To be eligible for the SBA program, you must:
- Not have more than 500 employees
- Be self-employed
- Operate in the accommodation or food service industry
- Have no plans to fire employees
- Employ a substantial number of employees with high salary
- Have revenues that weren’t substantially affected by COVID-19
- Claim the work opportunity tax credit
Here are some alternative financing options that might help you cover your business expenses:
- Economic Injury Disaster Loan (EIDL)—This program was created for businesses with less than 300 employees who have experienced a 30% reduction in any two months between March 2 and December 31, 2020. The amount a business can get is $10,000
- Grants for Shuttered Venue Operators—This is a $15 billion grant program for certain businesses that have experienced at least a 25% drop in revenue during 2020, such as:
- Live venue operators or promoters
- Theatrical producers
- Live performing arts organization operators
- Museum operators
- Motion picture operators
- Talent representatives
If you do not qualify for any of the above-mentioned programs, or if you would like a better solution for covering business-related expenses, consider applying for a small business loan or a startup loan.
The most popular types of loans are:
|The United States Small Business Administration (SBA) loans||The SBA offers several small business loan programs through which you can borrow up to $5 million. To qualify for SBA loans, you must have a good credit score|
|Merchant cash advances (MCAs)||MCA loans require daily repayments during the period of three to 18 months. The amount you can borrow cannot exceed $250,000|
|Microloans||If you opt for a microloan, you will be able to borrow up to $50,000 and pay an interest rate of around eight to 13%|
|Business lines of credit (LOC)||A LOC gives you access to a limited amount of money that you can spend whenever you want. The repayment terms depend on the bank, credit union, or any other lender you choose|
If you want to apply for a loan, you need to have a solid business plan and make sure you submit the necessary paperwork. On top of that, you need to file a loan request letter that should include all the necessary information about your business and convince the lender that you are a reliable borrower.
To draft this crucial document effortlessly and without wasting money on expensive lawyers, subscribe to DoNotPay! We will generate a loan request letter tailored to your needs.
Why waste money on lawyers or spend hours writing a loan request letter yourself when you can use DoNotPay! To get the letter quickly and easily, you have to:
- Locate our Business Loan Request Letter tool
- Answer our chatbot’s questions
- Upload the required paperwork
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