News reports are saying the SBA is out of money on the first round of funding. Don’t Worry, round two is about ready to start. If you do not have employees you may have heard that you will not qualify for this loan and this is absolutely not the case! We are encouraging all our clients to apply for this loan regardless of need. If you dont like the terms you can always reject the proposal before you are locked in. Here are the three most common questions I am getting from clients:
I have self-employment income, no employees, and I file a Form 1040 with Schedule C. Am I eligible for a Payroll Protection Program (PPP) Loan?
You Qualify for the PPP Loan if:
- you were in operation on February 15, 2020;
- you are an individual with self-employment income (such as an independent contractor or a sole proprietor);
- your principal place of residence is in the United States; and
- you have filed or will file a Form 1040 Schedule C for 2019.
How do I calculate the maximum amount I can borrow with no employees and what documentation is required?
Follow these three steps to calculate the maximum loan amount:
- Find your 2019 IRS Form 1040 Schedule C line 31 net profit. (If you have not yet filed your 2019 tax return, don’t fret, fill out the Schedule C now. You need it for the loan.) If the net profit amount is over $100,000, reduce it to $100,000.
- Calculate the average monthly net profit amount (divide the amount from line 1 by 12).
- Multiply the average monthly net profit amount from line 2 by 2.5.
What amount of the loan qualifies for forgiveness?
You are going to like this. With no employees, your loan forgiveness is:
- eight weeks’ worth (8/52) of your 2019 net profit (yes, last year—from that Schedule C we used for the loan amount);
- mortgage interest paid during the covered period (eight weeks from loan receipt) on real or personal business property (the interest you deduct on Schedule C);
- rent payments during the covered period on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments); and
- utility payments under service agreements dated before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business utility payments).
For further clarification, here is an example of how to calculate:
Loan amount. Say your Schedule C shows $120,000 of net profit. Your limit is $100,000. Divide that by 12, and your monthly amount is $8,333. Multiply that by 2.5, and your loan amount is $20,833.
Loan forgiveness. Your loan forgiveness is $15,385 (8/52 of $100,000) plus qualifying interest, rent, and utilities not to exceed total loan forgiveness of more than $20,513.
In this example, up to $20,513 is free money ($15,385 is the minimum free money). Make sure you are in a position to apply for the PPP loan because the funds are either there as you read this or coming soon.
If you think you may qualify and don’t want to attempt it alone, feel free to reach out to us as we are available to help walk you through the application process.