Self-employed? COVID-19 stimulus help available now

The self-employed can now access the same low-interest loans available to businesses under the CARES Act, enacted to provide financial help during the coronavirus economic shutdown.

From gig workers and sole proprietors to potentially even partners and members in a partnership, two main programs can help with lost income and business costs.

Starting Friday, April 10, the self-employed can apply through a bank for a potentially forgivable loan under the federal Small Business Administration’s Paycheck Protection Program (PPP) – but we advise contacting your lender and starting the process now.

How the government will handle loan forgiveness isn’t precisely known yet as regulations are still pending for the newly approved programs.

Apply for a Paycheck Protection Program loan

Self-employed individuals can get a 1 percent PPP loan equal to a portion of up to $100,000 of their reported income – which works out to a loan of up to $20,833.33.

Additionally, this loan may be forgiven in part or entirely – the guidelines on loan forgiveness are not yet in place. You’ll want to talk with your CPA to determine a plan to maximize forgiveness. We advise you to be deliberate in accounting for any funds received by opening a separate bank account to track the funds.

Our advice on what to do today:

• While you can apply starting April 10, contact your lender now to see what information they require. Especially consider your own bank first. All banks already have the application process online, and you can begin filling it out immediately.
• Even if you haven’t taken a financial hit yet, we advise considering applying for the loan.  The future is still uncertain and, once the initial funding for the program runs out, we don’t know how much, if any, will be available in the future. Remember, even if you are still working with clients and customers, problems on their end could result in delayed payments to you.

On the application, you are certifying that current economic uncertainty makes your loan request necessary to support the ongoing operations of your business.

The loans, which do not require a personal guarantee or collateral, are forgivable if used for qualifying purposes which include:

• Your income.
• Payments of interest on a mortgage obligation.
• Rent.
• Utilities.

 Note: Not more than 25 percent of the forgiven amount may be for non-payroll costs.

Determining your loan amount

       Verify your income

• If you filed your 2019 taxes: Total payroll costs will equal line 31 of your 2019 Form Schedule C.
• If you haven’t filed yet: Your payroll costs will be equal to net income on internal financial statements. Especially in this case, contact your lender to determine what information they need to apply to the SBA.

Determine how much you can borrow

• Take the lesser of your self-employed income or $100,000, divide by 12, and multiply by 2.5. For example: $100,000/12 = 8,333.33 X 2.5 = $20,833.33

Any portion of the PPP loan that is not forgiven will result in a 1% loan payable within two years of the original disbursement.  You can defer the payment of principal and interest for six months; however, interest will accrue during this period.

You can repay the unforgiven portion of the loan at any time without prepayment penalties or fees.

Economic Injury Disaster Loans (EIDL)

EIDLs are also available through the Small Business Administration (SBA), and self-employed individuals may apply for a loan of up to $2 million at an interest rate of 3.75 percent with terms up to 30 years.

• Emergency $10,000 grant: Self-employed individuals who apply for an EIDL loan may request a $10,000 emergency advance.

Unlike the PPP loans, the self-employed can apply for EIDLs immediately by going directly through the SBA. More information, including an application, is available at https://covid19relief.sba.gov.

Any amount received from the EIDL grant will reduce the amount available for forgiveness under a PPP loan. If you have both EIDL and PPP loan, you will need to understand the forgiveness rules that apply when you have both.

NOTE: All the regulations governing this program are pending as well. There is some indication that the up to $10,000 emergency advance is based on $1,000/employee – meaning that a sole proprietor may be eligible for a $1,000 emergency grant.

Though all the specifics are not known, business owners have nothing to lose by applying – even the SBA advised, “When in doubt, apply.’’

Unemployment for the self-employed

Ordinarily, self-employed individuals are unable to file for unemployment; however, these benefits now apply to the self-employed under the CARES Act.

As of this writing, Pennsylvania says special instruction will be provided to self-employed individuals — and says not to file a claim through the existing system or phone number.

At a minimum, qualifying individuals will receive the additional $600 under the Federal Pandemic Unemployment Compensation program. Additionally, individuals should qualify for the state benefits that are in place for other unemployment compensation claims.

We advise you to keep checking the state’s Unemployment Compensation COVID-19 information page at www.uc.pa.gov/Pages/covid19.aspx

Looking ahead

As we’ve mentioned, there is still a lot we don’t know about how the federal government will administer these aide programs – especially when it comes to loan forgiveness.

The Boyer & Ritter team is keeping track of the latest information and guidance. We’re here to work with you and your company to ensure you get the full benefits provided by the CARES Act and any other changes made by federal or state governments during and after the coronavirus pandemic.

Benjamin R. Bostic, CPA, is a manager at Boyer & Ritter with experience providing tax and accounting services for closely-held businesses, individuals, not-for-profit organizations. Reach Ben at 717-264-7456 or bbostic@cpabr.com