The Small Business Association Paycheck Protection Program (PPP) is a program in response to the COVID-19 pandemic. The PPP program provides 100% federally guaranteed loans to small businesses, independent contractors and sole proprietors who maintain their payroll during this emergency. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
This information is very important to our IMAGE Pros because as a sole proprietor or self-employed individual you can use these funds to continue to pay yourself during this crisis. To apply be sure to follow the steps outlined below. It’s important to apply as soon as possible if you think this program may be right for you because funds are limited.
- No collateral or personal guarantees required
- No fees
- No need to make loan payments for the first six months
- All small businesses including sole proprietors and the self-employed are eligible
- The loan has a maturity date of 2 years and an interest rate of 1%
- The loan covers expenses dating back to February 15, to June 30, 2020
- The loan can be forgiven
How much can I borrow?
The law says that your maximum loan amount is 2.5 times your average monthly “Payroll Costs” for 2019. If your business did not exist before June 30, 2019, your bank will look at your costs in January and February 2020. Payroll costs under the PPP program include:
For a sole proprietor or self-employed person: your monthly draw (take home profit), wages, commissions, income, or net earnings from self-employment, (capped at $100,000 annually).
For example, if your average monthly payroll is $7,000, you would multiply that by 2.5X, and your total loan amount would be $17,500 that you can use towards payroll, rent, and utilities for your business.
Remember: No more than 25% of your PPP loan may be used for rent or utilities; if you use more than 25% for non-payroll expenses it will affect the amount of loan forgiveness that you are eligible for after June 30, 2020.
Your “employment benefit costs” including costs for paid-vacation, parental, family, medical, or sick leave allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
State and local taxes assessed on compensation Not covered under “Payroll Costs” are:
- Payments made to independent contractors
- Payroll taxes, railroad retirement taxes and income taxes
How can I apply?
- Download and complete the form found here.
- Work with your bank or lender to submit the form.
- If you do not have a local banking relationship you can fill out an application through Boefly here. Boefly will help you find a bank.
What does the SBA PPP stand for? The Small Business Association Paycheck Protection Program.
Who is eligible? A small business with fewer than 500 employees, an individual who operates as a sole proprietor or independent contractor or an individual who is self- employed who regularly carries on any trade or business is eligible to apply. Sole proprietorships will need to submit schedules from their tax return filed (or to be filed) showing income and expenses from the sole proprietorship. Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service.
Will the PPP loan be forgiven? A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan: Payroll costs (using the same definition of payroll costs used to determine loan eligibility), Interest on the mortgage obligation incurred in the ordinary course of business, Rent on a leasing agreement, Payments on utilities (electricity, gas, water, transportation, telephone, or internet) For borrowers with tipped employees, additional wages paid to those employees. The loan forgiveness cannot exceed the principal. Also, because this program is intended to replace “Payroll,” only 25% of the forgiven amount may be business expenses not related to Payroll Costs.
How could the forgiveness be reduced? The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in “Payroll Costs” paid during the 8-week period after you receive the loan.
What can I use the PPP funds for? Payroll Costs, business related rent and lease payments, business related utilities, Interest on any other business-related debt obligations that were incurred before the covered period.
Can I use the PPP funds to pay myself? Yes. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals you can use the loan to pay yourself your typical draw or salary.
Can I use the PPP funds to pay my studio rent? Yes. The funds are available to pay yourself AND pay your rent. That’s why the amount is 2.5 times your pay. Part to you, part to overhead like rent.
When can I apply? Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020.
Is this a loan or a grant? This is a loan. The loan could be be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. This loan has a maturity of 2 years and an interest rate of 1%.
Who makes this loan? This loan is available through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. We suggest that if you have a bank you normally work with, then you apply with your local bank. If you do not have a bank, then you can apply through a company that will match you up with a bank such as Boefly.
Will I automatically get the loan? No. There will be an approval process, which will be based on your credit score and ability to repay the loan. How will anyone know how I used the money? The rules on this have not been written yet. You should anticipate that at some point in the future the SBA will ask you to show them how you used the money.
Can I still get the PPP loan if I am receiving unemployment benefits? This is a tricky question. While you should not be prohibited from getting PPP if you are also getting unemployment payments, this may negatively impact your ability to get loan forgiveness under the PPP because this forgiveness depends on your continuing your payroll during the crisis. If you are not paying yourself and, instead, are collecting unemployment, then you cannot claim those payments toward your forgiveness amount.
Will this loan hurt my credit? Any loan that you take will impact your credit and especially so if you do not pay the loan back. On the other side, this loan has generous repayment terms, a relatively low interest rate and repayment may be deferred for a year.
Do I apply as a sole proprietor or a business? If you have an EIN number (Employer Identification Number), you will use that number to apply as a small business. An EIN number is a nine-digit number assigned by the IRS. You would have received this number if you created a separate business entity for your studio. If you do not have an EIN number, you will apply as a sole proprietor and use your social security number.
If my credit isn’t good, should I still apply? Yes. The SBA has said that they will be flexible with these loans. Additionally, there are no fees to apply, so there’s no harm in applying.