Small business owners can get either loans or payroll relief from the $2 trillion coronavirus stimulus bill, but not both. Here's how to decide which is better for you.

• The US government passed a $2 trillion stimulus package to stabilize the American economy during the coronavirus crisis.
• More than $300 billion of that is earmarked for small businesses in the form of loans and payroll-tax deferment, of which businesses can only opt for one.
• The two programs are very different and each has its benefits and drawbacks.
• Business Insider spoke with two experts to make more sense of the bill and understand how small businesses can determine which program is best for them.
• Click here for more BI Prime content.

On Friday, the House of Representatives passed a $2 trillion stimulus package to stabilize the American economy during the coronavirus crisis - and more than $300 billion of that is earmarked for small businesses in the form of loans and payroll-tax deferment. President Donald Trump then signed the bill into law, making it the largest rescue package in American history.

There are several provisions that could help small businesses struggling to stay afloat and keep workers employed amid closures and social-distancing measures. However, it's important to note that businesses can receive either the loans or the payroll-tax deferment - but not both.

That leaves business owners with a difficult choice to make. The two programs are very different and each has its benefits and drawbacks. There are a lot of factors to consider, and ultimately, your decision will depend on your individual needs.

Business Insider spoke with two experts to make more sense of the bill and understand how small businesses can determine which program is best for them. Robbin Caruso is a certified public accountant and partner in the tax department of Prager Metis. Bruce Sacerdote is an economics professor at Dartmouth College, who studies stimulus bills and the long-term effects of unemployment.

"If you're cash constrained, the easiest thing to do is not pay the payroll taxes right away. But economically, getting the big loan sounds like a much better way to go, if you can qualify," Sacerdote said.

And as Caruso pointed out, business owners should consult their accountants or tax advisors before making a decision.

Here's how the two programs compare and how to evaluate which option is best for your business.

Federal stimulus loan

Federal stimulus loans will be available to businesses with 500 or fewer employees that continue to employ and pay workers through the coronavirus crisis.

The maximum loan amount would be the lesser of $10 million or a company's average total monthly payroll cost for the previous year multiplied by 2.5. If a firm wasn't in business in early 2019, the cost would be calculated based on payroll from January 1 to February 29, 2020.

Ultimately, the loans are limited to two and a half months of payroll and can't include any employees earning above $100,000. "Some people may have lots of people making over $100,000 and this won't help them out," Caruso said.

Sacerdote said the loans could be available within two to three weeks, though that's an optimistic estimate.

This provision may be most beneficial to businesses in need of a large sum of cash that can wait a few weeks to receive it. In some cases, the loans may be forgiven, but the bill does not clearly outline those limitations.

Points to consider:

• Amount will equal a company's average total monthly payroll cost for the previous year multiplied by 2.5, capped at $10 million
• Eligible businesses must have 500 or fewer employees
• Loan may be used for payroll, sick or medical leave, mortgage payments, rent, utilities, and other debt obligations
• Loans are 100% government-guaranteed
• Interest on payment-protection loans are not to exceed 4%
• Loans may be forgiven as long as companies continue to employ their workers

If this method of funding is the best for you, Caruso recommended business owners prepare all their documents such as three years of tax returns, personal financial statements, coronavirus-related expenses, and business debt schedules ahead of time.

Payroll-tax deferment

Payroll-tax deferment is open to all businesses and will be effective as soon as the bill is signed into law. Since this provision is immediate, it won't likely require any action or application process to benefit from it. It's effectively like an extension on a tax filing deadline. Businesses will still owe payroll taxes, they just won't have to file them for the rest of the calendar year. Employers would pay 50% in 2021 and the other 50% in 2022.

As reported by CNBC, the IRS will continue to collect worker's share through paycheck withholding.

This provision may be most beneficial to businesses in need of immediate cash retention, but not in need of a major cash infusion. If there's no approval process, it requires little effort from business owners. Sacerdote warned that a business could be hit with penalties if they file incorrectly. So it's important to consult your tax advisor before going with this option.

Sacerdote said the payroll-tax deferment may be effective for businesses that have difficulty applying to SBA loans, such as real estate investing companies.

Points to consider:

• Payroll-tax deferment will be open to businesses of all sizes
• Companies will not have to send payroll taxes to the IRS during the calendar year
• Workers' share of taxes will still be collected
• Employers would then pay 50% in 2021 and the other 50% in 2022

This post will be updated with additional details as they develop.

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