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What are the differences between the PPP loan and ERC refund?

While the ERC and PPP both help businesses recover from the pandemic, they have a lot of differences that can be used to maximize their assistance.

Both the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) were initially created by the CARES Act to help businesses weather the economic impact of the COVID-19 pandemic.

However, that's pretty much where their similarities stop.

Because PPP loans and ERC refunds have a few key differences, you're able to qualify for both, which maximizes how much your business can get.

Difference #1: Type of funding

Even though the PPP and ERC programs provide financial relief to US businesses, they accomplish that goal in different ways.

For example, PPP funds are given as a loan that must either be paid back (with interest) or, in some cases, may be forgiven.

ERC funds, however, are not a loan. Instead, it's a refundable tax credit that you don't have to pay back. Once it's given, an ERC refund is yours to use however you want.

To put it another way, the PPP lends employers money so they can pay or rehire their employees, while the ERC rewards employers who kept employees on their payroll, despite economic difficulties like the government shutdown or a decrease in gross receipts.

Difference #2: Eligibility requirements

Another way PPP loans and ERC funds differ is in their eligibility requirements. Not only do PPP loans have more requirements, but they also have more limits based on the size of a business.

In order to qualify for a PPP loan, a business must meet ALL of the following conditions:

  • Have been operational before February 15, 2020
  • Still be operational
  • Have 500 or fewer employees (or no more than 500 per location)
  • Have applied for the PPP by May 21, 2021

In comparison, a business only needs to meet ONE of the following conditions for the ERC loan program:

  • Experienced a full or partial shutdown due to government mandates
  • Experienced supply chain issues cause by government shutdowns of vendors and/or suppliers
  • Experienced a 50% decrease of gross receipts in 2020 or 20% in 2021 when compared to the same quarter in 2019

As you can see, a business only has to meet one requirement to qualify for an ERC refund instead of several requirements for the PPP. In addition, larger businesses—above 500 employees—cannot qualify for a PPP loan.

However, when it comes to the ERC program, larger businesses can still qualify, though they do face some limitations regarding which employee wages they can claim for their refund.

Something else that should be noted for PPP and ERC loan eligibility is that you can't double-dip your benefits. Basically, you can't claim ERC funds for any employee wages being used for the minimum requirement for PPP loan forgiveness.

Difference #3: Allowed usage

The PPP loan also has more limitations for how the money can be spent, while the ERC loan program has none.

Basically, the permitted expenses for a PPP loan include:

  • Payroll costs
  • Mortgage interest
  • Rent
  • Utilities

PPP loans are not supposed to cover anything outside of these four categories.

In fact, even these allowed expenses come with stipulations. For example, initially a business was only allowed to spend 25% of their PPP loan on non-payroll costs. Eventually that was changed to 40%—a much better limit, but a limit nonetheless.

ERC loans, as we already mentioned, don't have ANY of these limits. Because it's a tax refund and not a loan, once you receive it, it's your money to spend however you want, though most businesses are choosing to reinvest it back into their own company.

Qualifying for both the PPP and ERC programs

One of the biggest benefits of having all of these differences between the PPP and ERC is that plenty of businesses are able to qualify for both because they are two separate financial offerings.

This means businesses can really maximize the financial assistance they need to recover from the difficulties of the COVID-19 pandemic.

However, it also means that businesses need to plan ahead in order to get the most out of both programs. You'll want someone who knows the rules inside and out, like our experts here at ERC Go!

Still have questions?

We've launched our knowledge base with even more answers to your questions about the ERC program.

Visit Our Knowledge Base
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*This is an estimate only based on the employee counts entered and does not represent a guarantee of the credit amount you will receive, or that you will qualify for the program.

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The ERC helps businesses recover from COVID

What is the Employee Retention Credit program?

The Employee Retention Credit is an economic stimulus program for American businesses. With no limits on funding, your business could potentially receive thousands of dollars!