Editor’s note: The EIDL program is reopened as of June 15th. You can apply today through the SBA’s online portal.
Between the Paycheck Protection Program, the EIDL Disaster Loan, and the many relief programs in between, it’s getting very complicated to navigate the COVID-19 pandemic as a business owner.
Consider this your map to COVID-19 financial relief. We’ll walk through the different programs, what you need to know about them, frequently asked questions, and we’ll link out to any important resources you should know about.
The main relief programs
There are currently three main relief programs.
Paycheck Protection Program: This is the most substantial small business program, providing eight weeks of cash flow to small businesses. If you spend your funds in the approved way, you can get this loan forgiven. Here’s a deeper overview of the PPP.
EIDL Disaster Loan: This is a small business loan (originally up to $2 million, now limited to $150k) that can be spent in any way to support your business operations—it’s more flexible than the PPP, but it can’t be forgiven. You can also request an “advance” on this loan (up to $10,000, or $1,000 per employee) that does not need to be repaid. Here’s a deeper overview of the EIDL.
Unemployment benefits: Federal unemployment benefits have now been extended to include self-employed business owners and independent contractors as part of the Pandemic Unemployment Assistance (PUA) program. Learn more about unemployment benefits during COVID-19.
The Paycheck Protection Program
Before you apply
The PPP is meant for all U.S. based small businesses, from sole proprietors to corporations.
However, there are a few disqualifiers. If any of these apply to you, your business won’t be eligible for the PPP:
- You were not in operation on or before February 15, 2020
- You turned a negative net profit in 2019
- You’re a corporation that does not run payroll (you pay yourself through owner draws)
- You employ household employees such as nannies or housekeepers (this is not considered a business)
- An owner of 20% or more is involved in the justice system (incarcerated, on probation or parole) or has been convicted of a felony within the last five years
- You, or any business owned or controlled by you or any of your owners, is delinquent or has defaulted on a loan from the SBA or any other Federal agency within the last seven years
- You or your business is bankrupt or is currently in bankruptcy proceedings
- You are an officer or key employee of the lender you are applying with, or a close relative of one. You may apply for the PPP with an unaffiliated lender
- Your business is a hedge fund or private equity firm
- You do business in an industry that is generally not eligible for SBA 7(a) loans, such as speculation or multi-sales distribution
Further reading: Do I Qualify for the PPP Loan?
You will need to be prepared to calculate the loan amount you are requesting based on your filing type and payroll expenses. LLC’s will be eligible for funding based on their net income in addition to their payroll expenses while Corporations will only be eligible based on their payroll expenses. The maximum amount you are eligible for is $10 million.
Further reading: How to Calculate Your Paycheck Protection Program Loan Amount
This will ultimately depend on your filing type. Corporations will only require payroll documentation for 2019 and IRS Forms 941 for all four quarters for their application. Sole Props and Partnerships looking to apply for their Net Income will have to provide a tax ready or filed Form 1040 or Form 1065 and Schedule K1 in addition to any payroll related documents. Independent Contractors will require 1099-MISC forms.
Further reading: Documents Required for the PPP
Yes! Only once you’ve obtained an e-tran number should you stop applying. Once you have an e-tran number, a lender has committed funds to you and all additional applications will be denied.
Further reading: Can I Apply for the PPP Twice?
After you apply
If you believe you received too much and you’re unsure if you can spend it all under the outlined terms, it’s best to reach out to your lender regarding your amount to notify them of a potential miscalculation by email so you have a record of communication. If you’re concerned about the excess, the safest thing to do is not spend the excess funds.
If you believe that your loan size is too small, unfortunately there is little you can do but look for additional relief support elsewhere. Having received a PPP offer, your next application will likely be automatically declined by the SBA.
Further reading: My PPP Loan is the Wrong Amount. What Can I Do?
Currently, only loans greater than $2 million will be audited, the rest will be assumed to be made in good faith. This is subject to change and some loans may be audited upon the forgiveness application if it is later discovered they were ineligible. Additionally, the forgiveness application has specified that you should hold onto any supporting documents for up to six years after the loan is forgiven or repaid.
Further reading: PPP Audits: What You Need to Know
Once your loan is completely spent, you can apply for forgiveness with documented proof of how you used the funds. If you used the funds on the outlined expenses, you are eligible for forgiveness for the entire loan amount.
Certain conditions must be met to maintain eligibility for forgiveness on the full amount. You must maintain headcount as evaluated by full-time equivalents and pay no less than 75% of your employee’s individual average wages.
Further reading: PPP Loan Forgiveness: The Complete Guide
The PPP loan forgiveness application will work differently for the self-employed that are not running payroll. Just as your loan amount was based on Net Income, so will your forgiveness. You are entitled to 2.5 months’ worth of your 2019 Net Income in the form of Owner Compensation Replacement. The remainder will still have to be used on other eligible expenses (rent, lease, utilities, and the interest portion of mortgage payments).
Further reading: PPP Forgiveness for the Self-Employed
The PPP loan must be spent on payroll, rent, utilities, and mortgage interest.
The entirety of your loan can be forgiven if spent within the 60/40 rule. Sixty percent of the loan amount needs to be used on payroll related expenses. This includes:
- Salary and wages
- Vacation pay
- Parental and family leave
- Employer medical or other group benefits
- Sick leave
- Employer retirement benefits
- Bonuses, commissions or hazard pay
- Group insurance benefits
- Employer share of state and local payroll taxes
The remaining 40% can be used for rent, lease, utilities, and the interest portion of mortgage payments.
Further reading:How to Spend PPP Funds (FAQ)
Once you’ve received your PPP funds, it’s best to start planning how you will spend the funds. Getting set up on a new bank account will allow you to track the balance of the loan over the 8-24 weeks of your covered period and keep your activity in one place. Also get in contact with your employees regarding hiring them back if they have been furloughed to ensure you’re meeting headcount requirements.
Further reading: After the PPP: Next Steps Once You’ve Been Approved
Eligible utilities include:
- Phone (both landline and cellular)
Transportation costs will also be eligible for forgiveness. While guidance from the SBA is limited, it is assumed that it will work the same as tax filing where you can opt for applying based on your expenses or based on a mileage adjustment.
Further reading: What are Utility Costs for the PPP?
Home office expenses are eligible for forgiveness if you have previously claimed this expenses in previous tax years. If you are new to operations in 2020, all eligible expenses must have been in place prior to February 15th, 2020.
Further reading: Home Office Deductions and the PPP
Some of your employees may not want to come back given that they are collecting unemployment through the PUA expanded benefits program. If you document the offer and formal rejection, this will not affect your eligibility for forgiveness. It’s important to note for your employees that a rejection of employment may forfeit unemployment benefits. The SBA requires you to inform your state unemployment insurance office of any rehiring rejections within 30 days.
Further reading: PPP Rules on Rehiring Employees (FAQ)
In the case that you are rejected, there are still government programs to explore including unemployment benefits. Beyond that, state, municipal, and industry specific grants are available from multiple providers.
Further reading: I Got Rejected from the PPP. What now?
Applying for forgiveness
You can apply for forgiveness when you’ve completely spent your loan. You have up to 10 months after your covered period ends to apply before repayments are required.
Depending on what expenses you are applying for forgiveness on, the following will be required when applicable:
- Bank statements showing payroll payments OR payroll reports from your provider that covers the 8-24 weeks of your covered period
- IRS Form 941 for Q2 2020 containing your covered period AND the previous period you are evaluated on (Q1 2020 or Q2 2019)
- State tax/unemployment form for Q2 2020
- Bank statement OR receipt of payments showing contributions to group benefits programs (i.e. insurance, workers compensation, pension contributions)
- A mortgage amortization schedule with receipts OR mortgage statements for February 2020 and the covered period
- The rent/lease agreement with receipts OR statements provided from the lessor for February 2020 and the covered period
- Utilities invoices from February 2020 and the covered period
If you are a corporation, you should not be declaring draws as a payroll expense when applying for the PPP or forgiveness. For LLC’s, you are entitled to a PPP loan based on your 2019 net income and eight weeks of that amount will be forgiven as Owner Compensation Replacement during the pandemic. The draws for that total amount will be declared on Line 9 of the Schedule A Worksheet of the PPP forgiveness application.
Further reading: Do Owner Draws Count as Salary for the Paycheck Protection Program?
Most of the information you will require pertains to payroll and calculating the reduction based on your wages and headcount in that 8-24 week PPP period. We have provided a full breakdown of this application and the calculations to aid you with filling it out efficiently and accurately.
Further reading: How to Fill Out Your PPP Forgiveness Application Form
Since full time has been defined as 40 hours for the forgiveness application, you will calculate your employee’s average weekly hours over the covered period and then divide by 40 to find their FTE. An FTE has a maximum value of 1 and should be rounded to the nearest tenth. For example, if an employee averages 21 hours a week in the covered period, their FTE value will be 0.525 which will be rounded down to 0.5.
Further reading: How to Calculate FTE for the PPP
The Economic Injury Disaster Loan (EIDL)
Before you apply
The EIDL application has reopened for all businesses, until funds run out.
After you apply
Unlike the PPP, the EIDL is more open-ended in how you can use the funds. If you’ve received a PPP loan, do not use the EIDL for the same expenses that you use the PPP for. Otherwise, the EIDL can be used as operating capital to cover the day to day expenses you incur as a business.
You will have to report your EIDL loan and grant amount on your PPP application. The loan itself will be refinanced through the PPP and the grant will reduce your eligibility for forgiveness. If you receive your EIDL after applying for the PPP, the two loans can be used separately so long as they are not being used for the same expenses.
Further reading: EIDL vs Paycheck Protection Program: the Breakdown
You won’t need to worry about forgiveness with the EIDL grant. The grant is an injection of funds to your business with no need to pay it back or apply for forgiveness. This can be used to immediately cover whatever operational costs you see fit.
Further reading: What is the $10,000 SBA EIDL Grant?
Pandemic Unemployment Assistance (PUA)
The biggest changes to unemployment benefits is the additional $600 a week to the maximum amount an individual is eligible for. Beyond that, unemployment benefits have been expanded to include contractors, gig workers, and the self-employed.
Further reading: Unemployment Benefits and the CARES Act
No, these two programs are intended to be pursued separately. In the case that you receive one after the other, you should reach out to your State Department of Labor immediately to notify them of the situation and declare the PPP as income.
As a part of the CARES Act, unemployment benefits have been expanded to include self-employed individuals who may not have otherwise been eligible in the past. Look into your State Department of Labor to find how they will be calculating your unemployment amount based on your business operations.
Further reading: PPP Loans vs Unemployment Benefits: How to Choose
You are not allowed to be taking advantage of both programs at the same time. In the case that you were collecting unemployment benefits before receiving the PPP, reach out to your state labor department as soon as possible to report the PPP as income. They will adjust your benefits accordingly and after applying for forgiveness, you will be able to get back onto unemployment.
Further reading: How the PPP, EIDL, and PUA Work Together
In not every case will your employees have to give up the entirety of their unemployment benefits. Some programs are currently allowing employees with cut hours to continue to collect unemployment benefits for their lost pay. Look into your state program to see if they are currently offering this.
In addition to the PPP and EIDL, the Express Bridge Loan is being offered by the SBA. The terms are much more in line with traditional loan terms. Borrowers are eligible for up to $25,000 at an interest rate of 6.5% over the prime rate (currently 4.25%). Unlike other SBA relief funds, there will be fees attached.
Further reading: The Express Bridge Loan Pilot Program (A Simple Guide)
Yes, IRS Form 941 for Q2 2020 will be edited to reflect new payment deadlines. As of now, you can defer up to 50% of your bill to December 31st, 2021 with the remainder being due by December 31st, 2022.
Further reading: How to Defer Social Security Tax (COVID-19)
Although nothing is guaranteed, there is a new bill called the HEROES Act that is looking to provide supplementary relief funding. There is currently no timetable on when this will be passed as they are not prioritizing the bill until the Paycheck Protection Program is exhausted.
Further reading: What’s in the HEROES Act?
If you did not receive a PPP and are looking to receive some relief on your payroll costs, you are eligible for Employee Retention Credits to lower your tax bill. You are eligible for up to $5,000 in tax credits per employee if your business has either suspended operations fully or partially due to a COVID-19 related shut down order or show a 50% or greeted decline in gross receipts from the same quarter in 2019.
Further reading: Employee Retention Credits: A Simple Guide (COVID-19)