SBA PPP Loans-Funding and The Self-Employed

Funds for the first round of Paycheck Protection Program (“PPP”) loans through the SBA were depleted within days. Congress is set to approve a second round of funding for the program that will also be depleted within days. In fact, many lenders aren’t accepting new applications because there are so many businesses who have been approved and are waiting for the new funding.

If you haven’t applied yet, check with your local bank where you have a business account. Many aren’t accepting new applications. If that is the case, some institutions may accept applications even though you don’t bank with them. The better alternative may be to apply through PayPal-online. You can find PPP lenders using the SBA’s finder tool.

The SBA site with information on the loans is provided here. The U.S. Chamber of Commerce Guide on Coronavirus loans is provided here. The application form is provided here.

Self-employed individuals who file a Schedule C form with their Form 1040 tax return can apply for PPP loans. The loans are intended for small businesses and self-employed individuals although large corporations and universities have been given funds. The loan amount is subject to forgiveness if the funds are used for payroll and other allowed expenditures (e.g., rent) over the eight-weeks following receipt of funds. Self-employed individuals who file a Schedule C must: a) have been operating as of February 15, 2020; b) have income as sole proprietor/independent contractor or sole LLC member; c) have their principal residence in the U.S.; and d) have filed and/or have ready their Schedule C for 2019.

The loan amount for the self-employed is based on the net profit per their 2019 form Schedule C. The loan application will require a completed Schedule C along with a bank statement or other evidence of self-employment and documentation to establish that they were operating on February 15, 2020. Self-employed Schedule C filers with employees will have to substantiate employee compensation.

Borrowers will be keenly interested in the having their loans forgiven. The rules are that at least 75% of the loan must be used for payroll costs. No more than 25% of the loan funds can be used for mortgage interest payments, rent and utilities and a few other items. The amount forgiven will be based upon the amount spent during the eight weeks following receipt of the loan on the following: 1) payroll (with limitations); 2) owner’s compensation replacement based upon 2019 net profit per Schedule C (eight weeks); 3) business mortgage interest payments; 4) rent payments; 5) utility bills. The mortgage, rent and utility obligations must have been in place on prior to February 15, 2020. It is envisioned that businesses will spend all the loan funds within eight weeks of receipt. If a self-employed sole proprietor then you an pay yourself from the PPP proceeds as that is compensation replacement.

Borrowers should know that documentation will be required to obtain the loans and for forgiveness of the loans. If you haven’t applied yet, you will have to hurry, the new funding will pass soon and it will be gone in a few days.

Gene M. Bowman, Bowman Law Firm, Attorney & CPA

Huntsville, Alabama