CRITICAL UPDATE: As of Friday, April 24, the new bill authorizing $370 billion to the PPP and EIDL programs has been signed by the President and now we are waiting on the SBA to let us know when they will be processing new EIDL Advance applications. They have told banks that they will start processing new PPP applications on Monday, April 27 at 10:30am EST. Check here for the latest updates straight from the SBA.
CRITICAL UPDATE #2: This information is based on new guidance put out in the last seven days by the SBA, Treasury Department, and from certain lenders and banks. Please listen to your bank or lender! They will be the ones getting you money!
As part of the CARES Act passed on March 27, 2020, a large amount of money is allocated towards a program known as the Paycheck Protection Program (PPP). In a nutshell, this program allows for a loan of 2.5x average monthly payroll which, if you use it for a few specified purposes (payroll, rent, utilities, etc.) will be FORGIVEN! Meaning you don’t have to pay the money back. Read that again.
Ok, so what’s such a big deal? Well, this program is open to all small businesses, 501(c)(3)’s, sole proprietors, and independent contractors — that’s right, sole-proprietors, freelancers, and IC’s? You are included in this too. There is plenty of great information going around out there about the PPP, but I want to focus on the main details, and how you can get ready for what you need to be doing.
About The Paycheck Protection Program
Here are the most important basics:
- Businesses with 500 or fewer employees are eligible or meet the other guidelines, are eligible.
- Photographers, Artists, Independent Contractors, Sole Proprietors, and other Freelancers are specifically eligible.
- Loans will be offered by SBA Approved Lenders and you will APPLY TO THE BANK OR LENDER DIRECTLY! Small Businesses and Sole Proprietors can apply April 3, 2020, Independent Contractors and Self-Employed can apply April 10, 2020.
- Loans have a maximum amount of 2.5x the company’s average monthly payroll costs for the one-year period before the date of the loan.
- Sole proprietors or independent contractors and self-employed will use the sum of payments that is a wage, commission, income, net earnings from self-employment, or similar and that is not more than $100,000 in 1 year.
- Maximum interest rate of 1%; total maximum loan amount of $10 Million.
- Initial $349 billion ran out in 13 days. New allocation of $310 billion approved and signed into law on April 24, 2020. We will see how long it lasts this time around.
And the critical info:
- The purpose of the loan is to support small businesses and keep employees from being laid off by subsidizing eight weeks of payroll.
- The eight-week period starts as soon as the money hits your account.
- You have to maintain the size of your workforce (i.e. don’t let people go).
- The money has to be used for:
- Payroll Costs (have to use at least 75% on payroll)
- Business Rent or Interest on Mortgage
- Business Utilities
- Interest on certain business debt obligations
- Healthcare costs for employees
- If you use the money for these purposes and keep the size of your workforce the same, then after the eight weeks, the loan is forgiven.
- If you ONLY use the money for the things above, not only is the principal forgiven, but the interest is forgiven as well! (Be sure to double-check with your lender.) This whole thing depends on your lender. Remember, its the lender…
Wait, Does the PPP Apply to My Business?
In short, probably! The Current Application has a number of boxes at the top. These include two that were not included in programs like this before: Ind. Cont. and Self Employed.
So if you are a sole proprietor, self-employed, or an entirely IC business, you can apply for this. And you should apply for this. BUT make sure you follow the instructions of your specific lender. There are still many details to be ironed out here, and you want to make sure you check all the right boxes to get the loan forgiveness.
How Do I Make Sure the Loan is Forgiven?
Well, first, use the money only for the outlined purposes above. If you do this then both the principal and interest will be forgiven after the eight-week period. Simple.
But what if you have other things to pay? I get that, and so does Treasury, SBA, and the PPP. So you have to use at least 75% of the loan for payroll (remember the purpose is to not let people go) but the other 25% can be used for other things. WARNING: if you use any of the money for other purposes, only the amount used for the outlined purposes above will be forgiven, meaning that you will have a standard loan with a maximum interest rate of 1% for the remaining 25%.
The bank or lender is going to be the one you have to provide information related to forgiveness. Make sure you are following those rules so you can track the money, and prove that you used this for the reasons specified.
Banks and The Main Issues Right Now
So, the rollout was a mess. For sure. When the first set of applications opened, out of the major banks, only Bank of America was able to accept applications on 4/3/20. But they added an additional hurdle: you had to not only have a business checking account with them, but you also had to have a loan or line of credit to apply for the PPP. Outrage ensued, rightly so in my opinion, and that requirement has since been relaxed. But it brings up two important issues:
- Banks or lending institutions get to decide who can fill out the application. They can require you to have a business checking account, to have the account open for a certain period of time, or any other requirement they wish. They get to choose.
- Once you get to apply, the bank is the one who determines if your paperwork and evidence is enough to satisfy them. Some banks are asking only for a prepared payroll statement. Some are asking for a Schedule C. Some are asking for a completed 2019 tax return. Recent guidance suggests that sole proprietors, independent contractors, single-member LLC’s filing as sole proprietors, and other self-employed people must submit a completed 2019 Schedule C. Some banks are asking for all of that plus other stuff… the bank gets to decide what counts as proper paperwork.
Yes, that is arbitrary. Yes, that is tough. But also note there are banks and lenders out there that will not require many of those hurdles. You just have to find them. First stop, the treasury.gov List of Participating Lenders.
What Are the Next Steps?
So, I hope you agree that the PPP can be of benefit to all freelancers, small businesses, photographers, artists… in essence, all businesses that pay themselves. Here is how you prepare for the next steps:
- Go to your bank or lender and see what their process is. Most of the large and mid-size banks are asking for online applications ONLY. You can’t fill out the paper one and send it in, and you can’t go into a branch to do this in person. Many of the smaller and community banks will have you send in a filled out application from Treasury. TALK TO YOUR BANK. Don’t worry, the application is short and easy.
- If you get funding from the PPP, please drop us a line at firstname.lastname@example.org. We want to make sure we can let people know when this program actually gets going!
Main Page from the Treasury Department
List of Participating Lenders
Overview of Program
Borrower Basic Info
SBA Payroll Protection Program Page.
SBE Council CARES Act Overview
U.S. Chamber of Commerce Coronavirus Emergency Loans PDF
ASMP COVID-19 Hub Page