Funding comes in a lot of shapes and sizes. In 2020, we saw stimulus packages, which helped individuals and businesses recirculate money back into the economy. But what about other funding options for your business? Let’s take a glimpse at stimulus funding, private funding, and even crowdsource funding so if you need to use OPM (other people’s money) to fund your business, you’re already a pro.
Understanding Stimulus Funding for Small Businesses
Before we get into stimulus funding, let’s define a few key terms that you’ll need to differentiate small business assistance.
Firstly, What Defines a Small Business?
A small business meets the general requirements of the Small Business Administration by being a for-profit business, independently owned and operated, located and operating in the U.S., and not nationally dominant in its field. If you’re looking for a specific size based on income or employees, you can look into the US Census’s Table of Size Standards to see where you lie. Generally, for those who are running and growing their business, there’s a good chance that you’ll qualify as a small business.
What Is a Stimulus?
Think about the word stimulate: to activate or prompt. So a stimulus package in terms of the economy is just that: something to activate a struggling or stagnant economy. Now, let’s go back a few years to the most recent stimulus package to date: the COVID-19 stimulus package.
When jobs closed, Americans feared their next paycheck would never come. In turn, the government created a stimulus package for every American under a certain wage so they could continue circulating money through the economy, ensuring small businesses like landlords, farmers, and grocers were still able to get paid.
The word “stimulus” is primarily used to refer to money that the government is providing to businesses and individuals to help stimulate the economy because of some type of economic downturn that’s affected their business. It’s money that individuals and businesses don’t need to pay back (as long as you’re paying all your taxes and don’t owe money to the government).
What Is Crowdfunding?
Since we’re talking about funding a business, we wanted to put this term in the ring for when we discuss it later. Crowdfunding is the practice of funding a venture through small increments from a lot of different people (as opposed to a large increment from, say, the government). It’s also a way to fund a business, but it’s different from a stimulus because a) it’s not from the government, and b) it’s not a result of an economic downtown.
Potential Sources of Stimulus Funding and Eligibility
Let’s go back to our main contender: the stimulus, or a large chunk of change given to a business by the government.
The COVID-19 stimulus package for individuals applies to all single adults who make less than $75,000 a year are eligible, and all married adults filing joint tax returns who make less than $100,000 together. The bill that included stimulus for individuals also included funds towards PPP, or the Paycheck Protection Program, for businesses.
The COVID-19 assistance to small businesses includes the Small Business Tax Credit Program, the Emergency Capital Investment Program, and the Paycheck Protection Program. We’ll get into this below.
1. Paycheck Protection Program Through the CARES Act
The CARES Act, or the Coronavirus Aid, Relief, and Economic Security Act brought COVID-19 relief funds to Americans. If you were to go to the Small Business Administration (SBA) website, you’ll see that they’re no longer accepting applications for relief loans or grants, but they are still offering PPP, or Payment Protection Program loan forgiveness. The PPP program ended on May 31st, 2021, but as of this writing, those who borrowed are still eligible for loan forgiveness.
The PPP, or Paycheck Protection Program, grants small businesses up to 8 weeks’ worth of payroll costs to keep their employees working during the pandemic. The funds can go to paying employees, or to paying interest on expenses like mortgage, rent, and utilities. There have been three rounds of PPP loan funding as a result of COVID-19, all of which have their own unique qualifications. If you have under 500 employees and think you qualify, SBA offers free guidance through online resources and through speaking with a counselor.
2. Federal Government
While not technically a “stimulus,” the Department of Treasury offers ways to fund and support your business through a variety of different programs.
Small business tax credit programs are ways for small businesses to decrease taxes paid dollar-for-dollar.
The Emergency Capital Investment Program helps financial institutions support small businesses in their low- and moderate-income communities.
Government-guaranteed small business loans, like the SBA 7(a) loan loans money to small businesses with a clearly demonstrated need.
3. Private Organizations
Now, let’s move from government checks to private funding for your business. While stimulus checks help individuals in trying times, business loans can be granted at any time in your business.
Take Bank of America’s Business Advantage Credit Line Cash Secured. Businesses that are over 6 months old, put down a security deposit, and make at least $50,000 in annual revenue, can receive funds on an as-needed basis to pay back through monthly payments with interest.
Programs like NerdWallet’s Fundera can help you shop for multiple small business loan options at once through federal loans like SBA loans, term loans, business lines of credit, and invoice financing.
Remember how a crowdfunding business can help you raise money for a campaign like launching a small business or saving up money for a piece of software? Sites like GoFundMe, IndieGoGo, and Kickstarter all take a fraction of platform fees to run their own businesses, but let you keep the rest with no need to pay the money back.
Consider it a donation from friends and family members who believe in your business.
Benefits of Stimulus and Funding
If your business relies on large chunks of capital to continue moving forward, the options are there for your taking! Some benefits of utilizing funding methods for your business:
- Access to capital lets you have the money to do the things you need to grow, like hire assistance, invest in equipment, or purchase a product that will help you provide a higher-ticket service.
- Many lending and stimulus programs have tax incentives, like the recovery rebate credit, if you haven’t received the full amount.
- Funds can help scale your business faster, as long as you have a strategy and team to help you follow a well-calculated business plan.
Manage Your Funding All in One Place
No matter how you’re getting your money as a small business owner, keep it all in one place in your own business banking account. With a global business Visa card, free wire transfers, international transfers, and ACH transfers, you can manage income, expenditures, loans, and crowdfunding all within a simple doola bank account and card. Open yours today!
What kinds of jobs are exempt from paying the self-employment tax and why?
Only ordained, commissioned, or licensed church ministers, Christian Science practitioners or members of a religious order who haven’t taken a vow of poverty can be exempt from paying a self-employment tax.
How do I pay social security and medicare taxes for self-employed?
Fill out a 1040 form; you’ll be able to calculate your Social Security and Medicare taxes from there.
Is self-employment tax an addition to income tax?
Yes; self-employment tax and income tax are both separate taxes.