What programs are you eligible for under the new Stimulus? How do you apply? See below for a list of FAQs specifically tailored to small business owners and the self-employed.
For a glossary of terms related to the Stimulus Bill – see HERE.
Last updated April 28th, 2020
Relief Options FAQs
Q: I own a small business with employees. I am closed or partially closed right now due to COVID-19. What federal relief options are available to me? What can I do for my employees?
Answer: For employers wanting to continue paying employees, the Paycheck Protection Program (PPP) is recommended. PPP is an SBA loan that can be applied for through a participating bank (check with your bank first to see if they are participating). This loan is FORGIVABLE if spent on the appropriate expenditures. If not forgiven, this loan is to be repaid at a rate of 1% over 2 years. This loan is for 2.5x the amount of typical monthly payroll, and must be spent on qualifying expenditures over the 8 week forgiveness period in order to be forgiven. The primary purpose of this loan is to pay payroll and keep employees employed. To qualify for forgiveness, you cannot reduce normal headcount and you can’t reduce wages significantly during the 8 week period. Employees who were furloughed due to the virus must be re-hired. See the application for the PPP here. It needs to be submitted through a participating bank.
Further, you would also be eligible for an Economic Injury Disaster Loan from the SBA. This is a good option if you need more money to pay operating costs. This loan is applied for directly from the SBA HERE and allows for the ability to request an up to $10k advance grant. This grant is not refundable even if you don’t qualify for the loan. However, if you DO qualify for the loan, the rate is 3.75% for for profit businesses and has a 30 year term (the loan itself is not forgivable). This loan is a great option to get actual cash to use for working capital, and does not come with the same restrictions on usage and timing as the PPP loan.
For more information on these loans, see a comparison here.
For those businesses who are in a cash flow crunch and can’t wait for funding (current processing time is unknown for both of these loans), you may consider furloughing your employees and letting them file for unemployment. Unemployment benefits are significantly expanded due to the CARES Act, and many workers may be eligible for close to their full pay (extra $600 benefit last through the end of July). Furloughed employees can then be hired back when you need them. Note that claims due to Coronavirus do NOT impact your unemployment insurance rates. For some, this may be the best option. If you obtain PPP funding, you’ll need to rehire and pay at your old levels.
Additionally, your employees may qualify for paid leave via the Families First Coronavirus Response Act. This Act greatly expanded FMLA and added provisions for other paid sick leave. This is eligible to both employees affected by Coronavirus (either sick or under quarantine and can’t work), or who cannot report to work because they have to care for a child out of school. This is claimed by the employee and the employer is responsible for paying the sick leave. Employers are reimbursed 100% of the money paid for eligible sick leave by the federal government through payroll tax credits. See more on my blog here.
For those who don’t get these loans and continue to pay employees, you may also qualify for relief under the Employee Retention Credit. Essentially this is a tax credit you can take against your payroll taxes paid to help reimburse you for keeping on staff even when your business has been significantly decreased. If you don’t qualify for that credit, there is also an option to defer payroll taxes to a later date. See more on my blog here.
Q: I am self-employed or an independent contractor and my income has been greatly reduced due to Coronavirus. What are my options?
Answer: You have quite a few. First, you can apply for unemployment now due to the Pandemic Unemployment Assistance (PUA) as part of the CARES Act. Benefits have been significantly expanded. See the glossary of terms for more info. You can apply for either partial or full benefits, so even if you are still working some but your hours and income have been substantially impacted, you may still qualify for benefits. Depending on the benefits you receive (which will vary by state), if it isn’t significantly less than your previous salary, this may be the most straightforward option. Unemployment does not need to be paid back. Depending on the state, unemployment can now go up to 39 weeks under the CARES Act, and can be retroactive back to the date you were unable to work (back to max Feb 15th 2020).
You can also apply for an EIDL loan here and attempt to get an advance of up to $10k that you do NOT have to pay back (even if you don’t qualify for the loan). Note that this is a loan application however, so if you do qualify you’ll have to determine whether you want to loan. If you aren’t sure, it may not be a bad thing to take funds “just in case” as the loan rate is low and you can repay it at any time if you don’t end up needing it with no prepayment penalties (just accrued interest for the time period you held it). For more information on the EIDL loan, see the glossary of terms.
Finally, as a self-employed individual with no employees, you can apply for a PPP loan. This loan is FORGIVABLE if spent on qualifying expenses (see below). While this loan is generally a payroll loan, self-employed individuals who don’t pay themselves via payroll can also apply. Note that you will need to have good records to apply for these loans, and further records in order to be forgiven for them. This loan likely makes more sense if you have a decent profit in your business and aren’t able to replace it well enough with unemployment benefits. You would have to come off of unemployment during the 8 week forgiveness period. See below for further details on calculating your loan amount as a sole proprietor.
Q: I have a new business. What am I eligible for?
Answer: To be eligible for a PPP loan, you must be in business by February 15, 2020. For an EIDL loan, you must be in business by January 30, 2020. You may also be eligible for unemployment benefits if you have an earnings history.
PPP Loan FAQs
Is PPP right for me?
Q: I have no employees. Should I take unemployment or PPP?
Answer: I suggest that if you are unemployed for eligible reasons, you apply for unemployment and try to claim back to when you “stopped working” (or slowed substantially due to Coronavirus), whether you take PPP or not. PPP covers the 8 weeks after you get it, but unemployment can cover you back to when you stopped working in most cases.
For lower-wage earners or sole proprietors without significant net profit in 2019 (or who had a loss), unemployment may be a better option for you due to the fact that you would receive at least half the average benefits in the state plus the extra $600 weekly. That means that your benefits in total will likely be in the range of $750-1,100 a week depending on your state. Compare this with the amount you could get from PPP, which would be your 2019 net profit (Schedule C, line 31 of your tax return). Take this amount, divide by 12. That is your monthly average salary. Multiply by 2.5 and that is your loan amount. You’ll be forgiven for 2 months worth of payroll, and have .5 left to pay other qualified things (business rent, utilities, etc). If you don’t have much of these other things, this extra .5 won’t be forgiven. Compare each calculation and determine which makes the most sense for you. In general, higher earners will be better with PPP, lower earners may be better with unemployment.
That said, if you are still bringing in some revenue in your business, this COULD cause you to earn too much and disqualify yourself from UI benefits. In this case, PPP may be better. In general, if in any week you make more than your weekly benefit amount (before the $600), you won’t qualify for any benefits that week.
Q: I have employees. Should I take PPP to pay them?
Answer: To get PPP fully forgiven, you need to pay out at least 75% of the loan as payroll, and you also need to bring full-time-equivalent headcount back to pre-COVID levels. If your employees are already working (even if reduced hours), taking PPP to pay them makes a ton of sense as you can essentially get government money to pay them. If your employees AREN’T working and have started to draw unemployment and you don’t plan to be fully operational in the next 4-8 weeks, it may not make as much sense. Ultimately, to get PPP forgiven you need to pay people whether they are working or not. In some cases, the money you would pay non-working employees via PPP would be LESS than what they would get on unemployment (this is especially true for lower-wage earners). Remember also, that while PPP will cover MOST costs of payroll…it doesn’t cover all of it. The employer portion of payroll taxes cannot be paid with PPP money. There is an option to defer these payments if you want, but you’ll still be responsible for the 7.65% employer portion of payroll taxes eventually. Meaning, there is a cost to you to keep employees employed even with PPP. This cost makes less sense for employees not working at all.
As a business owner, you may also be able to apply for unemployment while you are closed.
Q: If I don’t take PPP, what are my other options?
Answer: Unemployment as discussed above. Economic Injury Disaster Loans (EIDL) can be an option as well if you need money more broadly for operating costs and not necessarily payroll (though the loan portion of this needs to be paid back – however, the interest rate is low and the time frame is 30 years).
If you have some employees working but your gross receipts have dropped more than 50% from the same quarter last year, you the Employee Retention Tax Credit could be an option. This tax credit allows you to get back up to 50% of wages paid to employees in the form of a payroll tax credit.
(See more info here: https://balancecfo.com/coronavirusrelief).
Q: Can I apply for both EIDL and PPP?
Answer: Yes, you can apply for both. However, you may not be able to receive both. If you received an SBA EIDL loan from January 31, 2020
16 through April 3, 2020, you can still apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to
$10,000 on the EIDL loan will be deducted from the loan forgiveness
amount on the PPP loan.
If you’ve applied for EIDL and haven’t heard back, you can also apply for PPP. If you are approved for both loans, you may have to choose one or the other if they are for the” same purpose”. This means you likely can use EIDL for general operating costs and working capital, and PPP for payroll and rent. Note that EIDL does NOT have a time limit you need to use it over like PPP. There are not clear guidelines right now on what constitutes the same purpose. Additionally, some banks seem to be interpreting this differently and saying that any EIDL advance must be subtracted from the forgivable portion of PPP.
We are waiting for further guidance on how that will work. Right now applying for both to get the ball rolling and see what you are eligible for likely makes sense. If offered any loan money (excluding the up to $10k advance on EIDL), talk with your banker and/or accountant to discuss what makes the most sense for you. I would focus on documenting that you are using them for different things.
Q: Can I get PPP money and just use it as a 1% repayable loan and not worry about forgiveness?
Answer: Yes you can…but be cautious here. You still have to certify when you get the money that it will be used for allowable reasons (payroll, rent, mortgage interest, utilities, and other business interest obligations). If you spend it on other things, you could be accused of fraudulent usage of funds. That said, if you don’t care about the loan being forgiven, you also don’t need to use it over the 8 week period. So for example, you could in theory “hold on” to the cash and spend it to pay payroll once you do rehire. Obviously cash is fungible and the tracking of actual dollars is not really reasonable or possible (though some banks do want you to set up a separate bank account for these funds to try and track actual dollars spent). Just make sure you can support that you used those funds for the purposes as noted above (i.e. don’t go out and buy a bunch of new equipment with it) and you’ll probably be fine.
Q: What is the current status? Are banks still taking applications?
Answer: As of April 21st, the first round of funding has been exhausted. A few banks that were backlogged and hadn’t let people know even though they did have funds allocated. However, more than likely if you haven’t heard yet, your application will not be funded from the first round. However, it’s likely that Congress will be passing additional funds very soon. For many banks, they are still continuing to process the backlog of applications so that they will be ready to submit as soon as the SBA portal opens back up. Check for communications from your bank on this topic to see what the status of your application is and if you are still in line. Some banks are taking applications now in anticipation of the next round of funding to come soon.
Q: What if I can’t find a bank to take my application? Can I apply to multiple banks?
Answer: Theoretically yes, but please be mindful of others here as well. If your application has already been submitted to the SBA and approved, a second bank trying to submit will receive an error message. In general, I expect this second round to be more efficient as many banks have worked out the kinks and even automated processes in some instances. If you have had no movement at your bank however and aren’t confident you’ll be funded, you may want to look at using another type of bank (perhaps a fintech like Paypal, Lendio, Quickbooks, Kabbage etc) to get in line there as well. Please do not submit tons of applications though – that will clog the system for all.
My loan brokers (Dustin and Shane who were on live with me a few weeks back) also have a few new bank partnerships that DON’T require existing banking relationships to apply. You can send them an inquiry at https://bakerandlewis.com/contact/. Be sure to include the name of your company, location, and approximate loan size and they can likely pair you with a bank taking applications. Tell them I sent you.
Q: I don’t have employees and don’t pay myself on payroll, am I still eligible for PPP?
Answer: If you are not a Corporation and have a profitable business – yes, you. can apply to get money to pay yourself! Scroll to the section called Sole Proprietors/LLCs, Independent Contractors PPP Guidance below to learn more.
Q: Will small loans have a chance at getting processed?
Answer: It is looking like additional provisions are being added to the new round of funding that ear-marks a certain portion of funds for true “small businesses” – so that may equalize the playing field.
Q: Can I include my owner pay in the calculation of the PPP loan?
Answer: Yes. The calculation is different depending on the type of entity you are:
|Entity Type||Calculation of Owner Payroll|
|S Corp/C Corp||Wages paid via W-2 to an owner can be included. You CANNOT include wages paid via draw (as no self-employment taxes were paid on those wages).|
|Sole Proprietor/LLC – no Employees||Calculate your “payroll” for yourself as your net profit (line 31 of Schedule C of your tax return, or net income on your P&L). Then you take this number, divide by 12, and multiply by 2.5 to get your loan amount. However, the max annual net profit is $100k – so for a solopreneur your max loan is $20,833 (calculated as $100k/12 x 2.5)|
|Sole Proprietor/LLC – with Employees||Same as above. Add employee payroll into the total as well to get your overall loan amount.|
Q: Is there anything that is expressly excluded from the definition of payroll costs?
Answer: Yes. The Act expressly excludes the following:
i. Any compensation of an employee whose principal place of residence is
outside of the United States;
ii. The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary (you can include UP TO $100k);
iii. Federal employment taxes imposed or withheld between February 15,
2020 and June 30, 2020, including the employee’s and employer’s share
of FICA (Federal Insurance Contributions Act) and Railroad Retirement
Act taxes, and income taxes required to be withheld from employees; and
iv. Qualified sick and family leave wages for which a credit is allowed under
the Families First Coronavirus Response Act.
Q: For the PPP loan, how can a self-employed person prove out payroll costs for themself to get the loan forgiven?
Answer: The total amount of owner compensation forgiveness you can get it 8/52 of your 2019 net profit. Why? Because the forgiveness period is 8 weeks. You can’t pay yourself the entire loan over that 8 weeks and get it forgiven, because the loan is for 2.5 months payroll. To do so would essentially cause you to make MORE over those 2 months than usual (creating a “windfall”). So basically you can pay yourself the 2 months’ worth of pay, and then the rest of the loan can be paid for BUSINESS utilities, rent, or other business interest obligations. If you don’t have enough of these to pay over the 8 week period, any portion you spend on those eligible expenses UNDER that amount will need to be paid back (i.e. just don’t spend that part of the money and you can give it right back to avoid much interest. Or keep it, spend it on other stuff, and then it becomes a loan at 1% interest payable over 2 years).
It doesn’t appear that you’ll have to prove what you “paid yourself”. They likely are going to allow the forgiveness of 2 months’ payroll-based off of 2019 and will need to see proof for only the other eligible expenses you spent money on to forgive the rest. Additionally, this means you WON’T be penalized if you are still making income from your business and actually are paying yourself MORE during this time frame when you add PPP with your actual sales. You likely shouldn’t need to give proof of actually writing checks to yourself, however, some banks may interpret this differently, so keep records just in case.
Q: As an employer, can I include costs paid to independent contractors in my calculation for PPP? Can I pay them with PPP funds and be forgiven?
Answer: There initially was confusion here, but the Treasury recently clarified in their Interim Final Rule that payments to independent contractors cannot be included in the calculation for the PPP loan. Only employees paid via payroll can be included. Similarly, funds from PPP should be used to pay employees.
Independent contractors can apply for their own PPP loan however in order to replace their own pay due to loss of work.
So many questions here – and unfortunately only limited answers. As we await hopefully CLEAR and DETAILED guidance from the Treasury…here is what we know now.
Q: Can I pre-pay payroll? How about back-pay? Is it based on the payroll you PAID during the period or the pay-period it relates to?
Answer: This is a HUGE open question. The current wording says “costs incurred and payments made during the eight-week period”. Confusing, right? Does it mean costs have to be BOTH incurred and paid during the period? Or just one of those?? Until further guidance comes out, we don’t know. In absence of guidance, make sure that your actual PAYMENTS occur during the 8 weeks (which may even require an early payroll run to get the payment in before the end of the 8 weeks). My hope is that they will not be overly bright-line about this. In some instances, pre-payments may be ok if they say it just has to be paid during the period (but mortgage interest is one that it specifically says CAN’T be pre-paid…silent on anything else).
Q: What can the PPP loan be used for?
Answer: In order to be forgiven, the PPP must be used for the following over the 8 week period beginning when you receive the funds:
i. payroll costs, including benefits (which CAN include owner pay, even if not paid via payroll);
ii. costs related to the continuation of group health care benefits during
periods of paid sick, medical, or family leave, and insurance premiums;
iii. mortgage interest payments (but not mortgage prepayments or principal
iv. rent payments;
v. utility payments; or
vi. interest payments on any other debt obligations that were incurred before February 15, 2020
At least 75 percent of the PPP loan proceeds must be used for payroll
costs. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll and other costs in order to determine the amount of forgiveness.
Q: What constitutes payroll costs?
Answer: Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of GROSS salary, wages, commissions, or similar compensation; cash tips or the equivalent (all up to $100k annual wages per employee); leave payments; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on the compensation of employees.
NOT INCLUDED is Employer portion of payroll taxes…meaning you still have to pay the 7.65% payroll taxes…that does not come out of PPP funds. You can, however, opt to defer these taxes and pay them in 2 lump sums at the end of 2021 and 2022.
If you are an independent contractor or sole prop – see this post for how your payroll for yourself will be calculated and forgiven: https://www.facebook.com/groups/financialliteracyforwomen/permalink/648357835722462/
Q: Is forgiveness all or nothing?
Answer: No….thankfully. You can qualify for partial forgiveness. See the next question for why you should be prepared not to have your loan fully forgiven.
Q: How much do I have to spend on payroll for it to be fully forgiven?
Answer: This one is very confusing – bear with me. On the one hand, it says you can’t cut average payroll amounts by more than 25% of previous amounts (meaning employees have to make close to what they were making before). But at the same time, as above, at least 75% of the PPP loan proceeds need to be used for payroll costs. So if you DO decrease your payroll by 25%, you would hit the first criteria….but likely not the second for full forgiveness. Here is an example using actual numbers:
Let’s say average payroll is $10k for a month, so you get a loan for $25k (2.5 x 10k).
You pay everyone 75% of their former wages, thereby meeting the first test ($7,500 a month x 2 months = $15,000). HOWEVER, that means you have $10k left. You spend that $10k on rent and utilities, as allowable costs. BUT that means you spent more than 25% on non-payroll costs….which isn’t allowed. 25% of the $25,000 means the max forgiveness for non-payroll costs is $6,250. SO that additional $3,750 you spent on rent and utilities would NOT be forgivable.
Clear as mud, right? I’m seriously questioning the math skills of the Treasury at this point (scary thought). Moral of the story: Prepare for some of this NOT to be forgiven, even when putting in best efforts.
Q: What if I DON’T spend at least 75% of my PPP on payroll?
Answer: This will reduce the amount of non-payroll costs that can be forgiven as well. Per the Treasury Interim Final Rule – “Not more than 25 percent of the loan FORGIVENESS amount may be attributable to nonpayroll costs.”What this appears to mean is that the amount of non-payroll costs you can get forgiven is a direct function of the amount of payroll costs you payout.
Here’s an example for you: You get a $100k total PPP loan, which means to get full forgiveness, you’d have to spend AT LEAST 75% on payroll costs. (Meaning you could spend 75k on payroll and have 25k you could spend on rent, utilities, etc).Some of your staff doesn’t come back. You end up only paying out $50k in payroll costs over the 8 weeks.
In this example, you no longer have a full $25k to spend on rent and utilities that will be forgiven. Instead, here is how you would determine your forgivable amount available for non-payroll costs: Take your total payroll costs that will be forgivable (the $50k let’s say), divide by 75% ($66,666 which represents the total max that can be forgiven of your loan). Take this amount and multiply by 25% to get the max you can spend on non-payroll costs that will be forgiven ($16,666 in this example).
Q: Can I increase my employees’ pay to meet the thresholds?
Answer: Likely, yes – within reason at least. Though remember, you still need to get your headcount back up to pre-COVID levels. Still lots of questions on how the headcount calculation will work – but overall it DOES appear that you can increase pay to employees. That said…if you are a Corp and have yourself on payroll…exercise caution here. Small increases might be ok, but I wouldn’t go doubling your paycheck and expecting. to be forgiven for it.
Q: If I am a sole proprietor and don’t pay myself via payroll…do I have to PROVE what I pay myself?
Answer: Based on the Treasury’s most recent guidance for calculating loans for sole props…it is looking like you won’t have to actually provide anything to prove forgiveness (i.e. checks written to yourself, etc). That was silliness anyway. It is looking like they will forgive 2 months’ worth of payroll for you (based off your 2019 Schedule C net profit). That leaves you an extra .5 of a month left to spend on other qualifying expenses. But remember, if you work from home, you can’t use it for that rent or utilities. So you may. not have enough expenses to get the rest of your loan forgiven. Keep that in mind. More on this below in the Sole Proprietors/LLCs, Independent Contractors – Guidance FAQ’s section below.
Q: How is headcount calculated? Can I replace employees or does it have to be the same ones?
Answer: Your baseline headcount is calculated as “full-time equivalents” during the period from Jan 1, 2020, to Feb 29, 2020. This means that if you have a part-time employee who works 15-20 hours a week, they would be equivalent to about .5 of a full-time employee. They will compare your average monthly FTE headcount from Jan 1, 2020 – Feb 29, 2020, and compare that to your headcount during your 8 week forgiveness period.
You can absolutely replace employees, it does NOT have to be the same people. In fact, you could replace 2 part-time employees with 1 full-time employee and still have the same FTE count. In theory. -you could hire your spouse or kids to be employees…though I’m expecting they may look into those types of situations more…so tread lightly.
Lots of questions though as the CARES Act also says you won’t be penalized if you bring back laid-off employees by June 30th. But it seems that it would be hard to reach the requirement of paying out 75% of past payroll if you don’t bring people back quickly.
Q: Do I have to pay people even if they aren’t working? Can I delay the 8 week period and use it when I’m expecting to need my employees back to work?
Answer: The 8 week period starts as soon as you get the loan. You cannot DELAY it. You can save the money for later…but you won’t be forgiven for it. To get forgiven for the loan, you would need to pay your employees relatively normal wages…even if they aren’t working at all.
Q: Can I get PPP AND unemployment?
Answer: If you are using PPP to pay yourself – not during the 8 week forgiveness period, no. Similarly, your employees should not be getting paid by you with PPP money and still filing unemployment. The entire purpose of PPP is to “save jobs” and get people OFF of unemployment. That said, right now there is nothing that precludes you from filing to get your unemployment back to when you stopped working, then not certify for the 8 weeks you have PPP, and then starting to certify again if you are still out of weeks after the 8 week period is up. If they change this, I’ll update you.
Sole Proprietors/LLCs, Independent Contractors PPP Guidance
- As we’ve already talked about in here, for those without employees, you would calculate your annual amount of “payroll” for yourself as your net profit (line 31 of Schedule C of your tax return, or net income on your P&L). Then you take this number, divide by 12, and multiply by 2.5 to get your loan amount. However, the max annual net profit is $100k – so for a solopreneur your max loan is $20,833 (calculated as $100k/12 x 2.5)
- They finally clarified what we’ve been waiting for – if you are a sole proprietor WITH employees, you CAN include your net profit in your loan calculation! I know several people had issues with the banks telling you you could only use payroll in this instance, but the Treasury has made the RIGHT call which is to allow sole props to take a portion of their own “payroll” into account (as described above) in calculating the loan. (NOTE: This does NOT apply to S Corps as they are supposed to pay wages via payroll).
- Even if you work from home, you can’t use this to pay home rent or utilities (but in theory, you can pay yourself and then pay these expenses – see below).
- The total amount of owner compensation forgiveness you can get it 8/52 of your 2019 net profit. Why? Because the forgiveness period is 8 weeks. You can’t pay yourself the entire loan over that 8 weeks and get it forgiven, because the loan is for 2.5 months payroll. To do so would essentially cause you to make MORE over those 2 months than usual (creating a “windfall”). So basically you can pay yourself the 2 months’ worth of pay, and then the rest of the loan can be paid for BUSINESS utilities, rent, or other business interest obligations. If you don’t have enough of these to pay over the 8 week period, any portion you spend on those eligible expenses UNDER that amount will need to be paid back (i.e. just don’t spend that part of the money and you can give it right back to avoid much interest. Or keep it, spend it on other stuff, and then it becomes a loan at 1% interest payable over 2 years).
- It doesn’t appear that you’ll have to prove what you “paid yourself”….at least not from what I’m seeing. I think they are just going to automatically allow the forgiveness of 2 months’ payroll-based off of 2019 and will need to see proof for only the other eligible expenses. This makes sense to me as the idea of proving that you paid yourself is ridiculous for a million reasons. Additionally, this means you WON’T be penalized if you are still making income from your business and actually are paying yourself MORE during this time frame when you add PPP with your actual sales. Glad to see this, as it could have gotten WAY overcomplicated otherwise.
EXAMPLE: You are a solopreneur with no employees. Your net profit on Schedule C of your tax return was $120k. Your loan is limited to $100k of net profit and therefore is $20,833 ($100k/12 x 2.5)The forgivable part of the loan that is considered owner’s pay is calculated as 8/52 of 2019 net profit. So $100k x (8/52) = $15,385. This amount will be forgiven as the amount “paid to yourself” (likely regardless of how it is spent in actuality). The REST of the loan is $5,488, which can be used on BUSINESS rent, utilities, and interest (NOT personal portion of home rent/mortgage/utilities if home-based). Any amount not spent on qualified expenses over that 8 weeks will need to be paid back at 1% interest over 2 years (no prepayment penalties though).
Q: I got an EIDL advance ($1k per employee), what is this, and do I need to pay it back?
Answer: That money is a GRANT and you do NOT need to pay it back.
Q: What is the next step of the EIDL process once I’ve received the grant?
Answer: If you had done the EIDL long-form application (available before 3/29) as well as the short-form, they are working through those loan offers. It seems people are getting offers about 3-4 weeks from the application date. If you are approved, you will receive an email with instructions to login to a portal and see your loan offer. For those who did NOT do the long-form application and only applied 3/29 or after using the short-form…we don’t yet know what the process will be for obtaining an actual loan offer. More than likely there will be some additional information requests. However, no one who just did the short-form has gotten a loan offer yet, so we just don’t know how it will work. I’ll keep you updated.
Q: If I get a loan, what are the terms?
Answer: For-profits have a 3.75% interest rate, non-profits have a rate of 2.75%. The loan term is up to 30 years. You can defer payments for 1 year but interest WILL accrue during that time period. You can pay it off early with no prepayment penalties.
Q: How is the loan I’m eligible for calculated?
Answer: Typically (pre-COVID-19) these loans were calculated as 6 months worth of operating costs. Right now, it seems like they are still making offers to cover a reasonable amount of operating costs. There have been some reports that these loans may eventually be limited to $15k per applicant, but thus far that has not been the case. This may be the case however for those who just did the short-form application. Further, Congress will likely be adding additional funds to this program soon, which may change what funds are available.
Q: What can I use my EIDL grant or loan money for?
Answer: Grants can be used by small businesses for a number of purposes. These include providing paid sick leave, payroll, meeting production costs, paying rent, or mortgages on business spaces and anything else to help with the continuity of the business. In general, necessary business operating costs. This loan should NOT be used for business expansion. Note that there is NOT a time limit on when you need to use these funds (like there is with PPP).
Q: Will I have to prove what I used my EIDL money on?
Answer: Unlike PPP, there is not a backend “forgiveness” process that you need to go through to get the grant forgiven. The advance grant is automatically forgiven. The loan itself is NOT forgiven. You need to use the funds for allowable purposes, not doing so could be considered fraudulent use of funds. Even though there is no formal forgiveness process, you still want to keep good records of what you do with the funds in case your loan is audited. It’s unclear at this point whether that will be common or not.
Q: Can I take the advance grant and NOT accept a loan if offered?
Answer: Currently unclear. You never HAVE to accept the loan, but it’s unclear what this means for your advance. My assumption is that no, you will NOT have to give this back…but that hasn’t been specifically stated. If anyone has done this, please let me know. Remember though, this is “cheap money” and we don’t know how long this will last. If you think you may need this money in order to weather this storm, I would take it and put it into a separate account and not use it. If you don’t need it, pay it back with a slight amount of accrued interest and no prepayment penalties.
Q: I got my EIDL advance or loan offer and ALSO have received (or am planning to receive) the PPP loan. Can I take both?
Answer: Yes, but the CARES Act states you can’t use them for the “same purpose”. If you are planning to use PPP for payroll and rent, let’s say, I would use EIDL to pay other operating costs. Unfortunately, there is not enough clarity yet as to what constitutes the “same purpose”, but remember that EIDL funds do Not need to be used during a specific time frame. All that said, if you receive an EIDL ADVANCE and a PPP LOAN, it appears likely you will be required to SUBTRACT the advance from the amount of PPP that can be forgiven (i.e. you can’t get the same free money twice). If this is your situation and you want to avoid the amount turning into a loan, I recommend that you NOT spend your EIDL advance if you receive PPP as well, and paying it back after your 8 weeks. As guidance on this is vague, I recommend also asking your banker for their opinion and/or calling the SBA.
Q: I got the EIDL Advance but also am filing for unemployment. Do I have to claim this on my unemployment?
Answer: No clear guidelines here either, but assuming you DON’T use this money to pay yourself and instead use it in your business to pay operating costs – my assumption is that this would NOT impact unemployment. Check your state’s FAQs, however, or call your unemployment office to be sure.
Q: Do they pull credit for the EIDL advance?
Answer: Yes. It seems in most cases people are getting advances with 1-2 days of seeing the SBA pull their credit. Unfortunately, I’m also hearing some people are being denied for the GRANTS due to credit, which is not in line with the CARES Act. I’ve written my Senators on this topic specifically. Hopefully, they remedy this.
Q: I have lost a portion of my income, can I still apply for Unemployment even with some income coming in?
Answer: You may be eligible for partial unemployment. Check your state’s unemployment website.
Q: I am self-employed and was turned down for unemployment, or I’m unable to find information about how to apply as a self-employed person on my state’s unemployment website.
Answer: Many states have not yet updated their websites and application processes at the time of this article (April 15th) to account for self-employed people who are newly eligible through the CARES Act. Keep checking back to your state’s website for instructions. You can attempt to call, but wait times are long given the unprecedented level of claims. Note that unemployment can be retroactive back to the date of separation, so you won’t lose out on that income even if it takes some time to be approved.
Q: What is PUA? FPUC? PEUC?
Answer: PUA, FPUC, and PEUC are all provisions of the CARES Act passed on March 27th, 2020 to expand unemployment due to the Coronavirus Pandemic.
Pandemic Unemployment Assistance (PUA): Extends benefits to self-employed, freelancers, and independent contractors as well as those without sufficient earnings history.
Federal Pandemic Unemployment Compensation (FPUC): Provides a federal benefit of $600 a week. This applies to everyone who receives benefits (whether under regular UI or PUA). The extra $600 is en force through the end of July 2020.
Pandemic Emergency Unemployment Compensation (PEUC): Extends benefits for an extra 13 weeks after regular unemployment compensation benefits are exhausted, up to a maximum of 39 weeks. (Regular state benefits vary from 12 weeks to 30 weeks).
Q: How do I apply for PUA?
Answer: The program is administered by you state. The process for applying differs by state. Many states are still working on putting a system in place for people to apply for PUA. Check your state’s unemployment website for details. Almost all state’s have a section dedicated to Covid-related unemployment/PUA. Many state’s also have useful FAQs on their unemployment website to help answer your questions. In many cases, you must first apply for normal UI and get denied before you can apply for PUA…but check with your specific state’s website for details.
Q: How much will I receive if I qualify for PUA?
Answer: Based on the CARES Act, if you are fully unemployed (no income) you will receive a MINIMUM of half the state’s weekly average benefit PLUS the extra $600 FPUC. State average weekly benefits vary wildly. You may qualify for more based on your past earnings, however, many states are awarding the minimum until they are able to update applications for actual earnings…which may take a while.
Q: How do I get the extra $600 FPUC?
Answer: It will be automatic. In some cases it will be part of the same deposit, in other cases, it will be a separate deposit. Not all states are yet deploying the extra $600, but they will (and it will be back-dated in most cases back to the week of March 29th and forward – after the CARES Act passed).
Q: Are unemployment benefits taxable?
Answer: Yes. They are taxable as income for income tax purposes. However, they are exempt from payroll taxes. Most states will allow you to withhold a portion of your benefits for taxes. I recommend doing this to ensure you don’t have a significant tax bill at the end of the year.
Q: I applied for UI on my state’s website and was denied for benefits or received a quote of $0 for benefits. Does that mean I won’t receive anything?
Answer: No. In many cases, this is the first step to applying for PUA. Watch for details from your state on whether there is a second application to be completed specifically for PUA (it may not yet be available).
Q: My sales have declined significantly, but I still have some revenue coming in. Will I be eligible for PUA?
Answer: Maybe. States have different processes, but most require you to claim any income you receive when you certify your benefits (usually weekly or bi-weekly). If you make too much in a particular week, it may make you ineligible for benefits for that week. In some states, your UI benefits are reduced dollar-for-dollar by the other income you receive, and if you make more than your weekly benefits (before the extra $600), you may not qualify for any benefits that week (including the extra $600). So it is wise to know what your limits are and make sure the extra few hundred dollars in income you earn doesn’t cause you to lose all benefits for the week.
Q: I’m a business owner. What counts as “income” that I have to claim against my UI benefits weekly?
Answer: This one is unclear and appears to vary by state. Some states say “Gross earnings,” which generally means revenue minus your direct cost of goods sold (likely most applicable in a product business). In some cases, you may be able to also adjust for other operating costs like rent, utilities, and similar overhead costs. Check your state’s FAQ for details. For sole proprietors/ICs who are not on payroll, it does NOT go by the amount you actually pay yourself. You can’t simply “keep the money in your business” and not claim it for UI. If you make too much in one week it simply means you aren’t eligible for that week, but it does not invalidate future or prior weeks.
Q: My business shut down or significantly declined a while ago. Can I request a back-pay for Unemployment?
Answer: Yes! In most states, you can claim back to when you were out of work, all the way back to when the disaster “occurred”. This might be all the way back to late Jan/early Feb for some businesses. You should claim back to when you stopped working or your work was significantly impacted due to Covid.
Q: If I get the PPP loan, can I claim PUA?
Answer: For the weeks leading up to getting your PPP loan money, you can claim unemployment benefits under PUA. For this reason, I recommend even those who get PPP to put in a back-claim for PUA. You would have to stop receiving benefits when your 8 week forgiveness period starts, as it is presumed you will use PPP to pay yourself. There is still some gray area (i.e. what if you don’t use PPP to pay yourself, what if you pay the whole thing back, etc), but in general, the purpose of PPP is to get people OFF of unemployment. Therefore I would exercise caution in trying to collect either partial or full unemployment and receiving PPP funds. Right now there is nothing that says you can’t go back on PUA AFTER your 8-week forgiveness period, however.
Q: Does EIDL (the loan or advance) impact PUA?
Answer: No clear guidance exists here, but as long as you don’t use the money to pay yourself- it likely will not impact your PUA claim. But we are waiting for more details.
Q: I am mainly self-employed, but held a W-2 job within the past 18 months. Will that cause me to not qualify for PUA?
Answer: Possibly, as you may be eligible for regular UI. Right now many states require you to determine eligibility through regular UI first and be denied before applying for PUA. In some cases, prior W-2 jobs will show up. in the system and may make you eligible for benefits through regular UI (though they may not be as much as you would get through PUA, if your W-2 income was less than your self-employment income). This seems to be a loophole that is causing some self-employed people not to be able to apply for PUA. However, whether you qualify under regular UI or PUA, you will still receive the extra $600 FPUC.
Q: What documents do I need to apply for PUA?
Answer: This will vary by state, but some type of proof of wages will be required. Many states are asking for tax return information. Some states will take 2018 information and allow you to provide 2019 later. Some states may require 2019 when you apply. If you are waiting on your state to allow PUA applicants, this could be a good time to get your 2019 taxes doe and ready.
Q: If my business had a net loss last year, can I still qualify for PUA?
Answer: Yes, likely so. You can apply even if your business was. not profitable. If approved, you would receive half the weekly average unemployment benefits for your state, plus the extra $600 a week.
Q: My state is starting to open back up. Does that mean I won’t be eligible for PUA anymore?
Answer: No. If it doesn’t make business sense for you to open back up in the current environment, you are not required to do so. You can continue to claim PUA.
Overall – when in doubt – check your state’s unemployment website for updates. Many of them have been updating regularly with FAQs and tutorials that walk you through the application process. You can also call your state’s unemployment office (get your espresso ready beforehand…it could be a while). Or use this group for resources to see what others have experienced.
More questions? Check out my blog that is being updated continuously HERE.
Make sure to join my Facebook Group Financial Literacy for Women Business Owners (currently also open to men, if they are brave enough!) to participate in the discussion and find more answers to your questions.
For more information on Jamie Trull and Balance CFO, see my website here.