04/10/2020
If you are an independent contractor, today is the day you can apply for the Payroll Protection Program ("PPP"). The following is applicable primarily as it pertains to self-employed individuals (independent contractors).
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) program that provides relief funding to small businesses as well as individuals who are self-employed or are independent contractors if they also meet program size standards.
Who is eligible to apply for a PPP loan?
You’re eligible to apply for the PPP funding if:
1. You’re a small business with fewer than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization, or 501(c)(19) veterans organizations affected by coronavirus/COVID-19; and
2. You were in operation on or before Feb 15, 2020
Can I apply for a PPP loan if I am a self-employed sole proprietor or independent contractor (This is where you reported income on Schedule C, which would be attached to Form 1040?
Yes. PPP is available to self-employed sole proprietorships and independent contractors, as well as gig workers. For these individuals, annual business income up to $100,000 can be counted as payroll costs.
What will my business need to apply?
Your business will need the following to apply, as required by the SBA:
1. Calculate your Average Monthly Payroll. It's important that your average monthly payroll matches the supporting documentation you provide, which is further explained below. Amounts reported that don't match the supporting documentation will cause delays in processing.
a. Most applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee.
b. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
c. For sole proprietorships without employees, business income up to $100,000 on an annualized basis can be counted as payroll costs.
2. Economic Injury Disaster Loan (EIDL). If you have applied for or received EIDL funding between January 31, 2020 and April 3, 2020, you will need to provide your outstanding loan amount by taking the total balance and subtracting the forgivable “advance” portion, which is the $10,000.00 amount most of you likely applied for.
3. Supporting Documentation. You will need to provide documentation as part of the application so the bank can verify your eligibility, loan amount, and business information. Approval will not be granted if the bank cannot verify this information.
a. The supporting documentation for non-employers (e.g. self-employed sole proprietors and independent contractors) is as follows:
i. Sole proprietors: Form 1040, Schedule C
ii. Independent contractors: 1099-MISC
iii. Self-employment tax: Form 1040, Schedule SE
b. If you don’t have your 2019 taxes completed yet, you should upload a profit and loss statement for the year 2019, which would show your gross revenues for the year, your expenses for the year, and the net profit or loss for the year.
c. You will also need to provide the following additional verifications:
i. Verification that you were in business on Feb 15, 2020
ii. Verification of your personal information, which will include your Social Security Card, Individual Taxpayer Identification number (ITIN), and Government issued I.D
iii. Verification of your business information, which can be your business’s government issued SS-4 (EIN confirmation letter); or your most recent business tax returns confirming your business name and TIN; or
if you are a sole proprietor (including independent contractor), your business name is the same as your first and last name and your TIN will be your Social Security number. If you registered a DBA with the State of Illinois, you should enter that as well when asked.
How is my PPP loan amount calculated?
The SBA has issued specific instructions for how all PPP lenders must calculate the loan amount. The PPP loan amount = Average Monthly Payroll (excluding payroll costs over $100,000) x 2.5 + EIDL loan (net of advance). The more accurate your average monthly payroll (i.e. the closer it matches your supporting documentation), the higher chance your application has of getting approved, and faster. Here is an example applicable to self-employed persons:
1. Non Employers (e.g. sole proprietorships, independent contractors, and self-employed individuals) who make less than $100,000. (Annualized income up to $100,000 may be counted as “payroll costs”.)
a. Annual income: $60,000
b. Average monthly “payroll costs” (divide a. by 12): $5,000
c. Multiply b. by 2.5 = $12,500
d. Maximum loan amount = $12,500
2. Non Employers (e.g. sole proprietorships, independent contractors, and self-employed individuals) who make more than $100,000. (Annualized income up to $100,000 may be counted as “payroll costs”.)
a. Annual income: $120,000
b. Annual income in excess of $100,000: $20,000
c. Subtract b. from a: $100,000
d. Average monthly “payroll costs” (divide c. by 12): $8,333.33
e. Multiply d. by 2.5 = $20,833.33
f. Maximum loan amount = $20,833.33
Is a personal guarantee required for this loan?
There is NO personal guarantee requirement for a PPP loan.
What qualifies as payroll costs?
1. The SBA defines payroll costs as follows:
a. Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation
b. Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
c. Payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal
d. Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement
e. Payment of state and local taxes assessed on compensation of employees
f. For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
How can I use the PPP funds?
The purpose of the PPP is to help you retain your employees, at their current base pay, and cover other essential business costs, which includes paying you as a self-employed person and the costs noted below. You must use at least 75% of PPP funds to cover qualifying payroll costs and the remainder may be used for qualifying non-payroll costs over the eight-week period following the date of the loan. If you do not use PPP for these purposes, your PPP loan will not be forgiven and you will be required to pay back the loan.
What non-payroll costs I can use PPP funds to pay?
While you must use at least 75% of PPP funds to cover qualifying payroll costs, the remainder also be used to cover the following non-payroll costs:
1. Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
2. Mortgage interest payments (but not mortgage prepayments or principal payments)
3. Rent payments
4. Utility payments
5. Interest payments on any other debt obligations that were incurred before February 15, 2020
Can my PPP loan be forgiven?
Yes. PPP loans (the full principal amount and any accrued interest) may be forgiven, meaning they do not have to be repaid. If you do not apply for forgiveness, you will have to repay the loan.
You can obtain full forgiveness of the PPP loan if:
1. Entire loan is used towards qualifying costs (see qualifying payroll costs and qualifying non-payroll costs) within 8 weeks following the date of the loan.
2. At least 75% of the loan is used for qualifying payroll costs.
3. And you either don’t lay off employees, or if you rehire employees by June 30, 2020.
You can obtain partial forgiveness if:
1. You lay off employees, the forgiveness amount will be reduced by the percent decrease in the number of employees.
2. Your total payroll expenses for employees making less than $100,000 annually decreases by more than 25% for each employee, the loan forgiveness amount will be reduced by the same amount.
Do I have to do anything for the PPP loan to be forgiven?
Yes. You will have to provide documentation verifying the loan was used for acceptable purposes. At least 75% of your PPP loan must be used for payroll costs and the remainder must only be used for qualifying non-payroll costs. You will be required to submit this documentation no earlier than 7 weeks after receiving PPP funds.
If you lay off employees, the forgiveness amount will be reduced by the percent decrease in the number of employees. If your total payroll expenses on workers making less than $100,000 annually decreases by more than 25%, the loan forgiveness amount will be reduced by the same amount. If you have already laid off some employees, you can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020.
If you do not use the loan for these purposes you will have to pay back the loan.
What are the terms for the PPP loan amount that is NOT forgiven?
PPP loans that are not used for qualifying payroll costs and qualifying non-payroll costs will not be forgiven. PPP loans that are not forgiven will have a 1% fixed interest rate and 24-month term. Interest will start accruing the day the loan is originated. Repayment will be made with monthly payments starting after the 6-month deferral period and continue for 18 months.
When will the PPP loan be forgiven?
Recipients of PPP loans can apply for forgiveness at the end of the 8-week period following the date of the loan.
What is the deadline to apply for a PPP loan?
The current deadline to submit PPP applications is June 30, 2020. We will provide updates if this changes and encourage you to apply as soon as possible as funding is limited.
