Paycheck Protection Program (PPP) Loans For Contractors & Freelancers: What The Self-Employed Should Know
On April 10th, 2020, the second phase of the CARES (Coronavirus Aid Relief and Economic Security) Act went into effect, and independent contractors and the self-employed can apply for their share of the Paycheck Protection Program (PPP) loans available to businesses impacted by the coronavirus pandemic. April 3rd marked the opening day for small businesses to apply for PPP loans, and an influx of applications has complicated the rollout — it is clear the need for these loans is great.
If you find yourself wondering how you are going to make it through this pandemic, you are not alone. Our Merchant Maverick coronavirus hub has continuously updated information for small businesses trying to weather this pandemic. Start with this post and then move on to Small Business Loans & Guides For Businesses Affected By The Coronavirus.
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How Paycheck Protection Loans Can Help Independent Contractors & The Self-Employed
The premise of the Paycheck Protection Program is simple: The SBA is backing loans to lenders who need payroll assistance due to the economic hardships from the coronavirus. While S/C-corporations, tribal businesses, and businesses with up to 500 employees were able to apply for loans on April 3rd, now sole proprietors, independent contractors, and self-employed individuals can apply. The terms for the loans are the same: The PPP loans are designed to cover payroll costs, including benefits; for individual salaries up to $100,000; rent; utilities from buildings rented before February 15th, 2020; and interest on mortgage obligations.
For contractors and the self-employed, the PPP loans can be used to give yourself a salary (wages, commissions, tips). Qualified borrowers can apply for 2.5 times their average payroll cost for 12 months. This amount is capped at $100,000 on an annualized basis for each employee.
One of the best parts of these PPP loans is that they are forgivable if you use the loan on operational costs (payroll first) during the 24 weeks following the loan disbursement. (Assuming you follow the loan forgiveness stipulations outlined in the Paycheck Protection Flexibility Act, which includes a mandate that 60% of the loan must be used for payroll alone.) The PPP loans have a 1% interest rate, a loan term of up to five years with no prepayment penalty, and a six-month payment deferral. (Side note: If your business hasn’t been operational for a full year, the government provides alternative ways to measure average payroll.)
What Self-Employed People Are Qualified For A PPP Loan?
PPP loans are designed to reach as many small business owners as possible, and that includes the self-employed. While the terms are broad, the first qualification is that you must demonstrate a need based on the current COVID-19 world. Be sure to specify that you are seeking aid related to the COVID-19/coronavirus disaster.
If you collect 1099s or operate in the gig economy, you are included in the April 10th loan rollout. Also included are people who have 1065s or 1120s with no employees.
What You’ll Need To Apply
As an independent contractor or freelancer, you will need to gather the necessary paperwork to get your loan moving. First and foremost? Finish your 2019 tax returns. The loan requires your returns for processing and calculating your loan amount. If you have completed your 2019 taxes, then you will want to check out the loan application and gather up the rest of your documents. In the eyes of the IRS, you will be treated as a sole proprietor. You will need your Schedule C on line 31 based on your 1099s from your 2019 tax return. This number is your net profit and can be used to determine salary. You may also add up your 1099s together from the past year and divide it by 12 to receive a rough monthly estimate.
Loans open soon, so your best use of time is making sure you have verified income and updated bookkeeping. Those should include:
- 2019 tax returns
- Federal Tax Identification Number
- Payroll tax filings
- 1099s-MISC records
- Income and expenses, bank records
Where To Apply For A PPP Loan
At the moment, there are over 1,800 banks and lenders preapproved with the SBA to help meet the need and respond to the rush of applications. And yes, there has been a rush, and Round 2 will be no different. So get all your information ready. Experts say it’s best to go through an FDIC-insured bank (other lenders might be brokering for a fee — best to go right to the source). As most banks are operating remotely, many are telling borrowers not to contact branches directly but to work with their online application. It’s always best to check with your local community bank, but not all small banks are equipped to work fast on SBA loans. As a next resource, check out the SBA Preferred Lending Partners.
Some larger banks have communicated that they have already reached their loan max. In that case, working with a matchmaker could be the way to go.
Here are four lending vendors offering Paycheck Protection loans:
Fundera works together with small businesses to match them with their best loan options, and Merchant Maverick deems it one of the best loan matchmaking vendors out there. The experts at Fundera have an easy application process for PPP loans. After providing average monthly payroll and number of employees, Fundera will contact you with loan options. If the thought of applying for a PPP loan is overwhelming, consider working with Fundera.
Lendio is also a loan matchmaker and will work on your behalf to aggregate loan options. Links to apply for PPP loans are available on Lendio’s site. Lendio makes it easy to apply and compare options, and it advertises funding within 24 hours. Due to the terms of the CARES Act, there are no fees for the borrower.
Credibly has funded small businesses with over $1 billion and is equipped and ready to assist with PPP loan applications. From the front page of Credibly’s website, borrowers can find a link to the application. Customer service is efficient and can walk first-time borrowers through the process with efficiency.
BlueVine is an online lending service dedicated to helping small business owners conquer their borrowing struggles. BlueVine is assisting with PPP loans and working diligently with businesses to submit paperwork to the SBA and secure funds. With a big pivot, Blue Vine is making PPP loans a priority and is a valuable option. Lending information is available on the front page of BlueVine’s website.
Be Prepared & Apply As Early As Possible
There’s a time when slow and steady wins the race. There’s also a time when you need to light a fire and work as fast as you can. When it comes to applying for these Paycheck Protection loans, what we’ve learned from the April 3rd phase is that working quickly with a matchmaker might be the fastest way to get your application seen and processed. The stimulus for the PPP loans is capped at $350 billion. That staggering amount will not go as far as we wish it would, but we know the money is needed for small businesses and the self-employed all over the nation, and the loan forgiveness options are generous.
Looking for more resources as we navigate this pandemic? Our coronavirus hub is packed full of useful information for businesses. Have any questions for us? Leave them in the comments, and we’ll help direct you to the right place to find your answer.