What are Alternatives to the Paycheck Protection Program?

Guy Hockerman, CPA, CFP® Senior Vice President, Director of Financial Advisory Services
May 13, 2020

With lawmakers reaching separate deals totaling more than $600 billion in the Paycheck Protection Program (PPP), millions of small business owners who didn’t receive loans in the first round of the program have a second opportunity to apply for rescue funds. Businesses should consider their options quickly because once the funds approved by Congress have been allocated by the SBA the program will no longer be available. Before you apply for a PPP loan, you should consider another provision of the CARES Act—the Employee Retention Credit.

Reviewing paperwork
Business owners have access to either the PPP or the Employee Retention Credit under the CARES Act—but not both. That’s why it’s critical to work with your advisors before you apply for a loan under the PPP to determine the best fit for your specific business. As many banks are prioritizing customers with existing operating accounts, you may want to contact your bank first.

The Paycheck Protection Program at its core is a loan that can be forgiven if certain requirements are met, such as using the funds to maintain staff numbers and payroll costs. Further, the borrower must certify that current economic uncertainty makes the loan request necessary to support ongoing operations. If companies that received funding under this program don’t spend a sufficient percentage of those funds on payroll or don’t maintain certain staffing levels and wages during the 8-week period after the loan is funded, the loan won’t be forgiven, and interest will accrue.

The Employee Retention Credit, on the other hand, is a refundable credit against the employer’s portion of payroll taxes. Like the PPP, the credit is designed to encourage employers who have been adversely impacted by COVID-19 to continue to keep employees on the payroll.

But unlike the Paycheck Protection Act, that was limited to businesses with less than 500 employees, the Retention Credit is available to any private or non-profit employer, regardless of size.

Eligibility is contingent on one of two criteria: first, business operations must have been suspended (fully or partially) due to governmental entity limiting commerce, travel, or group meetings due to COVID-19; or second, the business experienced a reduction in gross revenue (not net or taxable income) of at least 50% in any calendar quarter of 2020 as compared to the same calendar quarter of 2019. Businesses that qualify remain eligible each quarter until revenues exceed 80% of the same quarter in 2019. The employee retention credit is effective for wages paid after March 12, 2020, and before January 1, 2021.

One attractive feature of the Employee Retention Credit is that it’s refundable—your business can receive this payroll refund even if no taxes are due. Another benefit is that credit is available through the end of the year, as opposed to a shorter timeframe associated with the PPP.

The credit is 50% of the first $10,000 in qualifying wages per employee for the 2020 tax year. If your business has less than 100 employees, the calculation includes all employees on the payroll (regardless of whether they are currently working or not). For businesses with more than 100 employees, only employees who did not work during the calendar quarter are included in the formula.

Determining if the Employee Retention Credit is a better option than the Paycheck Protection Program will depend largely on how long your business expects to experience loss in revenue (and how that impacts staffing), the number of employees you have, and the level of employee qualified wages.

If you didn’t receive funding under the initial PPP and the Employee Retention Credit wasn’t explored, grab a calculator and your advisors to see which is a better option for weathering the storm.

Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of May 1, 2020. This summary is intended to provide general information only, may be of value to the reader and audience, and is reflective of the opinions of Commerce Trust.

This material is not a recommendation of any particular security or investment strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. Commerce does not provide tax advice or legal advice to customers, and while we may provide information or express general opinions from time to time, such information or opinions are not offered as professional tax or legal advice. Consult a tax specialist regarding tax implications related to any product and specific financial situation. Diversification does not guarantee a profit or protect against all risk.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed, and is subject to change rapidly as additional information regarding global conditions may change.

Commerce Trust is a division of Commerce Bank.


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guy hockerman
Guy H. Hockerman, CPA, CFP® Senior Vice President, Financial Planning Manager Commerce Trust
Guy is a financial planner manager for Commerce Trust. He is a member of the financial advisory services team – a dedicated financial planning practice within Commerce Trust that provides objective financial advice to clients. Following a thorough assessment of a client’s unique situation and thoughts regarding wealth, Guy develops holistic and coordinated plans to help clients meet their short-term and long-term goals as well as take full advantage of various planning, tax, and investment strategies along the way. With more than 20 years of financial planning experience, he is responsible for providing quality advice to clients and prospects of Commerce Trust. Holding both Certified Public Accountant and CERTIFIED FINANCIAL PLANNER™ designations, Guy’s extensive experience in financial planning includes working for banking and accounting institutions as a financial planner and tax advisor. His expertise includes planning for financial independence, executive compensation, estate preservation, philanthropy, and business succession. Guy received his bachelor of administration in business and economics from Wheaton College. Additionally, he is a member of several organizations, including the Financial Planning Association and the American Institute of Certified Public Accountants. Guy speaks and writes regularly on financial issues and has served as a faculty member for ABA National Graduate Trust School.