To briefly recap, there are two ways to receive SBA money – Payroll Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). As is standard with all things bureaucratic, it’s a bit more complicated than that. There is also an Employee Retention Credit that was issued under the CARES Act as well. The PPP and the Employee Retention Credit are mutually exclusive, so it is worth looking at both to see which makes the most sense for your situation.
For PPP, they are calculating the loan availability based on your average monthly payroll for 2019 x 2.5. There has been no information released on how they are going to do this for LLCs/sole proprietors/independent contractors. I would suspect it has to do with your Schedule C, but there is no confirmation on that yet.
For the loan to be forgiven, 75% of the funds need to be used for payroll within any 8 week period (the House says that it will be able to be used for any 8 week period between 2/15/2020-6/30/2020; however the SBA has not repeated that anywhere that I have seen), and the other 25% can be used on health care benefits, payments of interest on any mortgage obligation, rent, utilities, interest on other secured debt obligations. Again, there has been no information on how that is going to be tracked for LLCs/sole proprietors/independent contractors.
Any amount of the loan that isn’t forgiven will be due per the terms. There are no prepay penalties, so you could also use the money you received to pay down the loan immediately. The SBA is hoping to have more information to banks today about how this would need to be administered, and we should have more specifics after that. In the meantime, you can check out the preliminary application form the SBA has released to get a sense of what they are going to be asking for.
- Applications for companies with employees will start being accepted on April 3rd.
- Applications for all self employed and independent contractors will start being processed on April 10th.
The Employee Retention Credit is not available if you receive PPP. With this program, you receive credit for 50% of wages paid up to $10,000 ($5,000 credit). The PPP is definitely a better option financially, although it will be good to know about the Employee Retention Credit, especially if the PPP runs out of money. They specifically say this will be available to sole proprietors/independent contractors as well. You would apply the credits to your 1040 for your 2020 taxes. You can reduce your quarterly tax payments accordingly.
The EIDL is an SBA loan that is available to disaster areas. Because President Trump has declared a national emergency, this is available in all states. You can receive an EIDL loan and participate in the PPP. This loan is available for amounts up to $2 million with a 3.75% interest for businesses and 2.75% for non-profits. The terms will be up to 30 years and are determined case-by-case based upon the borrower’s ability to pay. At the end of the EIDL application, there is a question that asks if you would like to apply for an advance of up to $10,000 that will be distributed within 3 days of application and not have to be repaid. This advance would be rolled into your PPP money if you applied for that program as well.