You Have Low Overhead Costs
Because of the PPPs strict rules around use, the loan may not provide enough financial flexibility to businesses with high overhead costs. However, if your operation has low overhead costsbecause youre an independent contractor, for example, or your staff works virtually you may be more likely to benefit from the loans forgiveness clause.;
Say, for instance, that youre a self-employed graphic designer whose regular costs include a website subscription and Wi-Fi; you may be able to allocate 100% of your PPP funding to your salary compensation and likely get the loan completely forgiven.;
What Can I Do Right Now
If your lender isnât currently accepting PPP forgiveness applications, take this time to review your numbers to see if you meet the requirements to have your loan fully forgiven.
Some payroll providers are offering forgiveness reports that provide you with a potential forgiveness reduction number based on your payroll activity. This will show the impact of any reduced headcount or salary and wages. These reports provide you with actionable steps to take if you have not met the terms for forgiveness on the entirety of the loan due to payroll activity.
You can also start gathering the required documents for when applications open. You can find a list of documents in our simple guide on PPP loan forgiveness.
At Bench, we will help you stay on top of all of your forgivable expenses. Before applying for forgiveness, our expert team is ready to take on any question you have and help you identify the information you need to fill out your forgiveness application. Learn more about how we support businesses with PPP loans.
First Draw Loan If You Have Employees
If you are self-employed with employees, the SBA provides the following instructions.
Step 1: Compute 2019 or 2020 payroll by adding the following:
a. At your election, either the net profit amount from line 31 of your 2019 or 2020 IRS Form 1040, Schedule C, or your 2019 or 2020 gross income minus employee payroll costs, calculated as your gross income reported on IRS Form 1040, Schedule C, line 7, minus your employee payroll costs reported on lines 14, 19, and 26 of IRS Form 1040, Schedule C , up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred ;;
b. 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States, computed using 2019 or 2020 IRS Form 941 Taxable Medicare wages & tips from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; subtract any amounts paid to any individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, and any amounts paid to any employee whose principal place of residence is outside the United States; and
Step 2: Calculate the average monthly amount .
Step 3: Multiply the average monthly amount from Step 2 by 2.5.;
How to Substantiate Your Income;
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Youve Already Applied And Havent Heard Back
If you applied for the PPP loan through a bank but had no success, you may be allowed to apply with a different lender. Big banks have been inundated with PPP loan applications; as a result, many banks are prioritizing companies with larger financial needs and neglecting smaller businesses and independent contractors. Youre not allowed to receive more than one PPP loan, so as soon as a lender approves you, your applications elsewhere will be denied.;
Disclaimer: Fundbox and its affiliates do not provide financial, legal or accounting advice. This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal or accounting advisors before engaging in any transaction.
There May Be More Time To Apply For Second Draw Loans
The additional two months may also open the door for small businesses that got a first PPP loan this year to apply for a second one.
Some small businesses that recently got a first draw previously didn’t have enough time to apply for a second one, as generally eight weeks must pass between the loans so there’s time to spend the money on payroll.
This mostly impacted sole proprietors that didn’t know they qualified for assistance through the program or weren’t able to get funding in the previous round.
“They’re certainly going to be a big beneficiary of this added time on the application process,” said Patrick Ryan, president and CEO of First Bank.
Of course, there are extra qualifications for a second draw loan beyond the eight-week time period. Small businesses must have no more than 300 employees and be able to show at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020, according to the SBA.
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Can I Request More Money If I Used Net Profit
If you applied for PPP as a self-employed individual using net profit, you may discover you could get a larger loan by using gross income. The change in calculation methods is not retroactive. The IFR states that it applies to loans approved after the effective date.
However, it appears that whether you can get a larger loan amount depends on the status of your loan. Information provided by SBA to lenders states that a lender may cancel a PPP loan application and submit a new application on behalf of the borrower all the way up to the point where the loan funds have been disbursed to the borrower but a Form 1502 has not been submitted by the lender to the SBA. ;
Once the loan has been disbursed and the lender has filed Form 1502 with the SBA, there is no option to reapply for a larger amount.;
Contact your lender if you have already submitted a loan application based on Schedule C net profits and have questions about the new calculations.;
Keep in mind that if you already qualified based on the maximum owners compensation of $20,833 based on net profit on your Schedule C there is no need to do anything. .
How To Seek Forgiveness For Your Ppp Loan
Even if you checked all the eligibility boxes for PPP loan forgiveness, you still have to apply for forgiveness separately. The good news: Itâs not as painful as it sounds. The American Institute of CPAs recently launched an online tool to expedite the process, from calculating and double-checking your eligibility to filling out the application to making sure you have all the other necessary forms to submit your final request. You can also apply for forgiveness through the SBAâs site.
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How To Opt For The 8 Vs 24 Week Period
The good news is, you donât have to decide immediately whether to take eight or 24 weeks to spend the funds and calculate loan forgiveness. If your business isnât harmed by waiting, you can see where you stand after 24 weeks and determine which period is most beneficial. When you fill out your PPP Forgiveness Application, just select eight or 24 week by entering the appropriate dates in the Covered Period or Alternative Payroll Covered Period section.
Currently, the law doesnât include a deadline for small business owners to submit a forgiveness application to their lenders. However, if you havenât applied for forgiveness within 10 months of the end of your covered period, youâll have to start making payments. That essentially gives you a 10-month deadline to apply for forgiveness.
So if eight weeks just wonât work for you, the Flexibility Act now allows some flexibility for achieving 100% forgiveness. However, if you can qualify for forgiveness within eight weeks, you might be better off submitting your forgiveness application right away. By giving yourself an additional 16 weeks, you run the risk of focusing too much on PPP management rather than running your business effectively. You may just want to apply for forgiveness after eight weeks and be done with it.
What Happens If You Miss The Application Deadline
If you don’t apply for loan forgiveness within 10 months after the last day of your covered period, youâll be required to start making payments to your PPP lender at 1 percent interest, which started accruing when the loan was made. But you can still apply for forgiveness even after youâve started repaying the loan any time up to the maturity date of the loan, which is two years for loans dated before June 5, 2020, and five years for loans issued after that date. In addition, the lender and borrower can agree to extend two-year loan terms to the newer five-year terms.
Throughout this process, youâll want to stay in regular contact with your bank lender, who can update you on your loan status and alert you to any relevant updates. For example, the SBA announced on July 9 its decision to eliminate a previously required loan necessity review for PPP loans of $2 million or greater. The agency said it intends to release an FAQ with more details soon.
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First Round Ppp Borrowers: File For Loan Forgiveness Before Its Too Late
Business owners that took out a first-round Paycheck Protection Program loan that had a 24-week covered period should consider applying for loan forgiveness and soon. If not, the loan may become permanent and you will be held responsible for loan payments and interest. Heres what you need to know about applying for loan forgiveness so you can avoid these unnecessary costs.
If a PPP loan borrower doesnt apply for forgiveness with the U.S. Small Business Administration within 10 months of the end of the covered timeframe in which they had to spend the loan proceeds, the loan will automatically change into a standard loan at 1% interest. The program launched in April 2020 with some of the first borrowers having an eight-week covered period, then the popular 24-week covered period was introduced. Borrowers operating under the eight-week option had a loan forgiveness application deadline this past July, while those who selected the popular 24-week option still have until September to apply and prevent the loan from converting.
Doeren Mayhews PPP advisors highly recommend those with the 24-week covered period to apply for loan forgiveness as soon as possible; it would be unfortunate for a small business to miss out on an opportunity to have their loan forgiven just because they were unaware of their deadline. If your business is ready to file for loan forgiveness and needs assistance with its application, contact our PPP advisors today.
The Bottom Line On Applying For Ppp When Self
If you qualify for PPP,; by all means be sure to apply. This loan may be fully forgiven and may provide essential funding to your business.
That said, it will be a lot easier to apply for PPP if your bookkeeping is up to date and you have kept good records of the income and expenses of your business. If you have operated your business with cash payments that you did not report to the IRS, co-mingled personal and business funds, or if you have maximized expenses to the point where your business only shows a loss, you are likely not going to be able to qualify for the PPP loan your business may have been entitled to otherwise. Your accounting professional can prove invaluable in this process so make sure you enlist their help in determining which COVID relief programs are best for your business.
This article was originally written on April 14, 2020 and updated on March 30, 2021.
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Update: Too Little Too Late Sba Updates Guidance On Ppp Safe Harbor The Day Before May 14 Deadline
**UPDATE 5/14/20:Since publication of this post, the SBA has now updated the PPP Safe Harbor deadline to May 18. This post has been updated to include this additional information.
Just hours before the first extended May 14 deadline for businesses to return unnecessary Paycheck Protection Program loans without penalties, the SBA has published new guidance on how it will review borrowers required good-faith certifications.
As we discussed here, on April 28, the SBA published an interim rule on the PPP, which included a Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request. When applying for a PPP loan, businesses are required to certify that the urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. However, the relatively vague certification was widely misunderstood and misinterpreted. To that end, the SBA originally gave PPP loan recipients until May 7 to return their loans, no questions asked, if they had made the certification incorrectly.
By May 5, there was still significant confusion about how loan money was to be returned. Thus, the SBA;, announcing its intention to extend the PPP Safe Harbor period to May 14 and promising additional guidance on how it will review the certification prior to May 14, 2020.
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Why Are Forgiveness Applications Not Widely Available Right Now
When the second stimulus bill rolled out on December 27, 2020, big changes were made to the Paycheck Protection Program. This included:
- A simplified PPP forgiveness application form for loan amounts of $150,000 or less.
- New forgivable expenses such as operational expenses, supplier costs, and property damages related to 2020 riots or public disturbances.
- A second draw PPP loan for businesses needing additional funding.
Both the SBA and lenders need time to update their forgiveness application process to account for these changes.
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Advantages Of Using A 24
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More of the loan can be spent on payroll costs. Under the old rules, you had to spend 75% of the loan on payroll costs. Under the new rules, thatâs been reduced to just 60%. Under the prior rules, many had trouble rehiring employees. By giving employers more time to spend their funds on wages, payroll taxes, and benefits, more businesses should be able to have their loans forgiven. Now, many businesses will be able to achieve full forgiveness just using payroll costs alone.
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More time to plan. By taking advantage of the extended forgiveness period, business owners have more time to talk to their advisors and strategize ways to achieve maximum loan forgiveness.
Did You Get A Ppp Loan For Your Business Request Loan Forgiveness Before Its Too Late
The Paycheck Protection Program has been a lifeline for many business owners and small businesses who experienced a loss of revenue due to the COVID-19 pandemic. Over the past year, the program was expanded several times to allow more participants to take part in it and receive fundingthe government even made the loans forgivable.
This was, and still is, great news for cash-strapped business owners. However, there were always at least two key caveats for those taking PPP loans: 1) the funds had to be used for qualified expenses and 2) as a recipient it is your responsibility to ask your lender for forgiveness within 10 months after the end of your covered period .
This 10-month window is closing rapidly for some business owners, especially if you received first-round funding. Most banks are now accepting applications for PPP loan;forgiveness so be sure to contact your lender. Otherwise, you will have to start repaying your PPP Loan. You can find full details on loan forgiveness requirements on the Federal Register website.
The following is a quick summary of what are considered Eligible Expenses for PPP Loan Requirements:
The first PPP round loans included eligible expenses like utilities, rent, payroll, employer-sponsored health insurance, and other;expenses, which are also covered in this second round.
In addition, the;second round of PPP funding includes four categories of additional covered expenses:
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First Draw Ppp Loan If You Have No Employees
If you are self-employed and have no employees, the SBA provides the following instructions in the March 3, 2021 for new PPP loan borrowers:
If you have no employees, use the following methodology to calculate your maximum loan amount:
Step 1: From your 2019 or 2020 IRS Form 1040, Schedule C, you may elect to use either your line 31 net profit amount or your line 7 gross income amount. If this amount is over $100,000, reduce it to $100,000. If both your net profit and gross income are zero or less, you are not eligible for a PPP loan.
Step 2: Calculate the average monthly net profit or gross income amount .
Step 3: Multiply the average monthly net profit or gross income amount from Step 2 by 2.5. This amount cannot exceed $20,833.
This is the amount most self employed borrowers with no employees will use to qualify for a first-time PPP loan.
How to Substantiate Your Income
You must provide the 2019 or 2020 Form 1040 Schedule C with your PPP loan application to substantiate the amount for which you applied. You must also include a 2019 or 2020 IRS Form 1099-MISC detailing non-employee compensation received , invoice, bank statement, or book of record that establishes you are self-employed. If using 2020 to calculate loan amount, this is required regardless of whether you have filed a 2020 tax return with the IRS. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
