Hiring and Growth

April 16, 2021: Parents, Don’t Miss Out on This Refundable Tax Credit

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April 16, 2021

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SMB Tax Credit Series, Part 3: Child Tax Credit

In the run up to Tax Day on May 17, we’re highlighting some of the most helpful COVID-19 tax credits for small businesses each week. Parents, this one’s for you.

The Child Tax Credit (CTC) is a dollar-for-dollar refundable tax credit for every qualifying child listed on your tax returns. 

How much is the credit for? For tax year 2020, the CTC is worth $2,000 for every qualifying child.

For tax year 2021, the CTC has been increased to:

  • $3,600 per child under the age of 6, and 
  • $3,000 per child ages 6 up until the age of 18 

How long do you have to claim it? For 2020, you must claim this credit when you file your tax return, no later than May 17 (unless you file for an extension).

Read our full guide to the Child Tax Credit on our blog.

Tune back in next week for another tax credit spotlight, and see a full list of COVID-19 tax credits here.

The vital role of women business owners

Over the past several weeks, we’ve been sharing the results of a survey Gusto conducted in partnership with the National Association of Women Business Owners (NAWBO) of 1,199 women who ran businesses during the pandemic. Among the findings, one thing became clear: Women business owners not only provide for themselves, but also for their families, their workers, and their communities:

  • Among women business owners, 56% are the sole or primary source of income for their households. Among women of color, 65% are the sole or primary earner.
  • On average, women business owners who are sole or primary providers employ nearly two times as many workers as other owners (14 employees on average versus eight).
  • 39% of sole providers with young children founded their businesses to pass on to their families, compared to 18% of business owners overall.

However, these sole provider business owners have been left behind in relief programs; only 46% received first-round PPP loans compared to 72% of businesses overall. The report states: “The losses from these women-owned businesses alone have amounted to a $1 billion drop in our investment in children’s futures.”

Read the full report here.

What’s the deal with personal guarantees?

If you’ve gotten a business off the ground, you know how important it is to secure that initial funding—and you may have considered using a personal guarantee to get it. A personal guarantee is your commitment to personally repay a loan if your business can’t. During normal times, this might simply seem like part of the risk of being a business owner. But during an unprecedented pandemic, it can lead to stark realities. The Wall Street Journal reports:

Nearly 60% of small businesses with employees that took out loans used personal guarantees to secure business debt, according to a survey released by the regional Federal Reserve Banks in 2020. Forty-four percent of small firms with employees have more than $100,000 in debt and 8% owe more than $1 million, according to a separate regional Fed survey released this year.

The weight of personal guarantees has grown as the pandemic has stretched on, increasing the amount small-business owners owe and forcing many to draw down savings. Many businesses have had to close and reopen more than once, adding to their costs. A survey completed in late March by the U.S. Census Bureau found that 18% of small businesses said they would need to obtain financial assistance or additional capital in the next six months.

So how do you know when you should make a personal guarantee? Inc.’s Erik Severinghaus has some advice:

I think personally guaranteeing a loan has a certain time and place. If your only source of capital is debt capital from a bank or the SBA, it might make sense to take out a loan that you guarantee personally. This can be particularly true for brick-and-mortar businesses where you have a reasonable certainty of cash flow or profitability in the foreseeable future. I took SBA loans that required a personal guarantee to open pizza restaurants, for instance, where our future revenue was relatively predictable. Proceed with caution, but there is a time and place for this tool.

But if you’re running a growth company where you have already taken outside capital, personally guaranteeing anything should be off the table the minute you raise from investors.

No matter what you choose, it’s important to be informed about the process and its nuances. Read Gusto’s guide to personal guarantee business loans for pros, cons, what to look for, and more.

Watchlist

Making A Digital Marketing Strategy Watch Party

Join our partners at the US Black Chambers (USBC) on Tuesday, April 20, at 11am PT | 2pm ET for a pre-recorded webinar with Social Media Expert Melinda Emerson. She’ll discuss all the ways digital marketing and social media are essential for your business during difficult, fast-moving times—and how to be ready when those times are over. Register here.

Good news from the week

  • 31% of polled small business owners say they’ve “already matched or surpassed their pre-COVID revenue numbers” (Alignable)
  • San Francisco Mayor Challenges Residents To Buy From Small Businesses, Eschew Amazon or Target, For 30 Days (SFist)
  • “After months of false starts, evidence is mounting that the economy has definitively turned a corner” (New York Times)

Find the latest relief options in our Small Business Relief Finder.

Want more small business news and resources? Check out past editions in our archive.

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Updated: April 30, 2021

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