I got my PPP sole proprietor funding last week. How did I do it? I’m not a CPA or a lawyer, and I don’t give accounting or legal advice. This is just my experience, researching, asking my business advisors and the organizations that really represent and work with Latinas in Business Inc.
For sole proprietors and micro-businesses -also known as solo-preneurs-, the SBA subsidies and loans have been a frustrating experience. Although we were allowed to apply for both the EIDL and the PPP (Paycheck Protection Program) loans, these programs have been designed with large employers in mind.
I reached out to some of our Latinas in Business members and many have given up on applying because they didn’t understand the guidelines, they were wrongly informed by other organizations -and they stayed with that opinion, which is never advisable- or they just didn’t want to “get another loan.”
For whatever reason you did not do it and now you have regrets, you are still on time to apply for the PPP sole proprietor funding until June 30 -check with your local banks, some are still taking applications!
If there are enough people applying for this or other programs still available, Congress might consider a third round of subsidies for small business, yes, like us.
Keep in mind how to apply for PPP sole proprietor funding (in case of a 3rd round)
- If you have an established relationship with your banker -which you always should because they are the ones who take care of your business and the money you earn with so much hard work-, call your banker and ask them if they are still taking applications. If they are not, here’s a list of SBA approved lenders you can go to.
A shout out to Branch Manager at Investors Bank Jacqueline Sansone, who patiently guided me through the process!
- Make sure you comply with one of these conditions:
- You are an independent contractor -you work for some company or companies as a consultant, freelancer or service provider and receive a 1099 at the end of the year.
- You are a small-business owner or sole proprietor -you work on your own, and do not receive a 1099 from anyone but your own annual sales (products or services) but you pay self-employment taxes.
- You might be a combination of both -1099 and sales.
- You can work under an LLC (Limited Liability Company) as a legal structure and still be considered under these categories.
A shout out to my LegalShield lawyers for their advice on how to determine my eligibility. LegalShield is one of our affiliate marketing programs* and you can apply here to learn more, and start making some residual income right now!
- You DO file your taxes as a sole proprietor business and fill out a Form 1040 Schedule C. This is an important step to prove you really are self-employed, no matter in what category you apply on your tax return (sole proprietor, contractor/1099, or LLC if your single-member LLC is taxed as a sole proprietorship). If you are a corporation or S-corporation, and pay yourself a salary, you file a different set of forms.
No matter what SBA said about taking your 2018 tax return as a guidance, you REALLY need your 2019 tax return for your calculation, so file immediately! If you need help filing your taxes we recommend Turbo Tax.
A shout out to TurboTax for making the Self-Employed Tax Filing FREE and Intuit.com QuickBooks for Self-employed for only $1 a month!
- What you can include in your calculation:
- You take your income on 2019 Schedule C Income Line 31 – Net profit or (loss). Obviously you need net profit to prove you made money out of your business.
- Take that number and divide it by 12 -that would be your monthly net profit.
- Now multiply this new amount by 2.5.
Example: If your annual net profit was $30,000, your monthly net profit would be $2500, your PPP loan would be $6250. Easy peasy!
- Once you fill out your application with your bank, they will require certain documents -such as your 2019 Tax Return Schedule C and a couple of bank statements from your business account- that you would have to attach to prove the amount you are requesting. Remember this could be tax-free income and can be entirely forgiven if you spend the money according to the guidelines under the CARES Act.
You can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender.
What you can pay with your PPP sole proprietor funding to be forgiven
According to SBA guidelines, “The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).”
So, let’s go one by one:
- Payroll: So at least 75% of your PPP must be used for payroll. If you don’t pay yourself a salary and you make payments straight out of your business account for your business expenses, make sure to:
- Keep track of personal expenses -if any- versus business expenses;
- Keep track of expenses that are not PPP forgivable -supplies, office expenses, car expenses, contractors and vendors, account payables, inventory supplies, etc.
- Another way would be to pay yourself at least 75% of that amount by check or transfer to a personal account but this is not an SBA guideline! These are just ways I found out from chat rooms and financial experts’ advice.
ALERT! There are no specific guidelines yet on self-employed or sole proprietors that do not take a salary on how the “forgiveness” must be proven, so keep that in mind and keep your records neat!
DO NOT TAKE THESE IDEAS AS LEGAL OR ACCOUNTING ADVICE, ALWAYS TALK TO YOUR BUSINESS ADVISORS BECAUSE EACH SITUATION IS DIFFERENT!
The rest of the PPP or 25% can be used as follows:
- Interest on mortgages: These are interest on mortgage obligations and loans for your business -for instance, you own your chiropractic practice building and you are paying a mortgage on it so your business property is collateral. You cannot include the interest of your house mortgage loan, at least so far, for your home-based business. These expenses qualify as long as these loans were incurred before February 15, 2020.
- Rent: Again there are no specific rules for self-employed solo-preneurs but let’s suppose you rent a store building, a workspace or you work in a commercial kitchen, you could pay those expenses with PPP funds from the moment you receive the money in your account over an 8 weeks period. Please document everything carefully! There are no guidelines yet on how to calculate home-based businesses in case you rent and work from home. More to come!
- Utilities: The same way, you can pay utilities for an 8-week period since you collect the funding. What is included in “utilities” we partially know, as the SBA guidelines describe phone, internet, gas, water, electricity, etc. What would be included in “etc.” is still a mystery but we believe cell phone bills might also be included. Keep your records straight!
Am I getting “forgiveness” fo my PPP Loan?
Remember this is A LOAN. Your bank might consider forgiveness if you comply with the SBA Guidelines -and then SBA will repay the loan to your bank. However, they are the ones looking into the nitty gritty details to prove to the SBA that you had followed all the rules and your bank is ultimately responsible for how they see forgiveness or how they want you to prove forgiveness.
Your will have to request forgiveness at the end of the 8-week period for your banking institution to consider it. To maximize your forgiveness, it is mostly necessary that you keep excellent track of all expense information and have it available at the end of your 8-week period.
In case you do not receive forgiveness, loan payments will be deferred for six months, which means you don’t have to pay it back for the next 6 months, and then you will be making payments at 1% per year rate for 18 months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
More guidance on both qualified expenses and forgiveness should be announced by SBA soon. In the meantime, this outline allows you to begin to spend on qualified expenses and properly track all your expenses.
PPP and Unemployment Insurance (UI) benefits
ALERT! According to The Federal Register, which is The Daily Journal of the United States Government, you cannot “double dip” receiving PPP and Unemployment Insurance benefits or Pandemic Unemployment Assistance (PUA), which comes from your state government.
In addition, you should be aware that participation in the PPP may affect your eligibility for state-administered unemployment compensation or unemployment assistance programs, including the programs authorized by Title II, Subtitle A of the CARES Act, or CARES Act Employee Retention Credits.
If you are not sure which program is better for you, think carefully which one will be more helpful for your business and your situation. If you are still doing business -food delivery, catering, essential services, etc.- it is advisable that you use a break with the PPP and get that help.
But if you think your business will be closed for a long time, UI or PUA might be the way to go for you. Again, seek advice from an CPA, tax advisor, or a lawyer to make your own decisions.
You might be interested: Additional Paycheck Protection Program Loan (PPP) calculation for small business
Additional financial assistance resources
According to Business.NJ.gov, here’s a list of other federal financial assistance resources for self-employed and home-based businesses:
- Financial Assistance is available from the U.S. Small Business Administration, via Economic Injury Disaster Loans (EIDL) or the new Paycheck Protection Program (PPP). Technical assistance is also available to help businesses apply for these federal programs.
- You can apply for financing from a private bank.
- If you are eligible for unemployment, you may benefit from Enhanced Pandemic Emergency Unemployment Compensation.
- You may receive an Economic Impact/Stimulus Payment from the IRS.
*Disclaimer: Latinas in Business Inc. receives residual income from affiliate marketing programs we select carefully because they benefit our members and provide us with funding to continue our mission.