COVID-19 Financial Relief for Business Owners (FAQ)

Between the SBA Disaster Loans, Paycheck Protection Program, and the many relief programs in between, it's getting very complicated to navigate the COVID-19 pandemic as a business owner.

We’ve collected some of the most common questions here in one place. We’ll keep this page updated with any new questions that come up.

If you’re not familiar with all the financial relief programs available to you, here is a quick glossary to get you up to speed.

COVID-19 financial relief programs (for businesses)

And now, on to the Q&A.


Both! Applying for one won’t hurt the eligibility for the other. If your business has been affected by COVID-19, pursuing the SBA backed loans is a no-brainer. But make sure that you do not spend both loans on the same expenses. We recommend using the PPP for payroll, and the EIDL for all other working capital expenses.

Check out our guide on how to use the PPP and EIDL together.

Sole Prop/contractor/self-employed individuals are still eligible for the PPP, EIDL, PUA and other relief programs. In situations where applications ask for payroll information (such as with PPP), you will instead use your gross income or net profit as listed on your tax return.

Potentially. Lending institutions may request it as a supplemental document. A high amount of outstanding debt may infringe on your ability to be approved for funding.

If you were operational for 2019, having that year complete as well as being up to date on your books is essential for putting forward a strong application. Your finances will be reviewed to evaluate whether you were adversely affected by COVID-19 as well as base the amounts available to you on your revenues and expenses.

The CARES Act has $17bn set aside to cover payments on existing SBA loans. Existing loans will be automatically deferred and 6 months of payments will be covered for small businesses.

Generally, yes! Each business is eligible to apply for their own financial relief funding as long as they have separate business identification numbers (EIN or SSN).

No, in most cases you do not need to have a filed 2020 tax return in order to apply for financial relief in 2021. However, you should apply with complete and accurate tax information!

For the PPP, eligibility is not strictly based on profitability. Previously, if your business was not running payroll, and you filed as a sole proprietor, partnership or 1099 independent contractor you were required to report a profit on your 2019 or 2020 tax return. This requirement has since been waived as sole proprietors can now use gross income to calculate their loan amount.

For the EIDL, the SBA will be taking your profits into consideration as part of your EIDL application as they are looking to evaluate the impact of COVID-19 on your business. If your business was not profitable in 2019, it will be a harder argument to make by the numbers.

No. Both loans are intended to be used as working capital. Though the EIDL is less discrete in what you can use the funds for, they are not intended to be used for refinancing purposes. If you have an SBA loan, remember that payments for that loan will be deferred for six months as part of the CARES act!

Restaurant Revitalization Fund (RRF)

If you are in the process of applying for a PPP loan, the SBA states that you must withdraw your PPP application before applying for a RRF grant.

In addition to that, applicants that have previously received a PPP loan must deduct any amount of PPP received from the RRF grant amount.

No, the RRF will be a tax-free grant. According to the American Rescue Plan, any amount of funding received under the RRF program will not be included in the gross income for 2021 taxes. Additionally, all expenses made using the RRF funds are tax deductible.

Unlike the PPP, there is no requirement for an entity to be in operation before a particular date! If you are in the process of opening your business or if your business has recently opened, your grant amount will be based on the expenses you have incurred in the process of opening.

During the first 21 days after the official opening the SBA will be prioritizing awarding grants to eligible businesses that are owned and controlled by women, veterans, or socially and economically disadvantaged small businesses. After the first 21 days, the applications will be open to everyone until fund exhaustion.

The RRF can be spent on a broad range of expenses including payroll costs, principal or interest on any mortgage obligation, rent or lease payments, utilities, maintenance expenses including renovations to accommodate health guidelines such as outdoor seating or a drive through, supplies such as protective equipment and sanitizing products, supplier costs within the scope of normal business practice, typical operational expenses and any other expenses the SBA determines to be essential.

The only caveat is that these expenses must be incurred between February 15, 2020 to March 11, 2023.

No, as long as you spend all grant funds on eligible expenses before March 11, 2023, you are not required to give back any portion of the grant.

That being said, you must report the amount of grant that has been spent on eligible expenses on the RRF application portal no later than December 31, 2021. If you have not spent your entire grant by December 31, 2021, you may be required to submit annual reports until you have fully spent your grant.

According to the SBA, “Gross receipts generally are all revenue in whatever form received or accrued (in accordance with the entity’s accounting method, i.e., accrual or cash) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances but excluding net capital gains and losses.”

The guidance also states that gross receipts do not include any amount of PPP, SBA Economic Injury Disaster Loan (EIDL) loan, EIDL Advance, Targeted EIDL Advance, any amount of SBA Section 1112 payments and any state and local small business grants.

Economic Injury Disaster Loan (EIDL)

The EIDL program is the least restrictive of the relief programs and allows you to use the loan as working capital. This means any day-to-day expenses are a permissible use of your EIDL funds but will subsequently not be applicable for forgiveness. For more information on this, check out our Bench Blog article on how to spend your EIDL.

Yes! However, the grant is now targeted only towards helping businesses from “low-income communities” that are able to show a 30% reduction in gross revenue. If you applied for an EIDL Advance Grant on or before December 27th, 2020, and did not receive it due to lack of program funding, then the SBA will reach out to you if you qualify.

Nope! This grant is available as an immediate injection of funds into the business so you can maintain operations with no attached liability. You might even receive the grant but not be approved for a loan and those funds are still no strings attached.

Unfortunately, general applications for the EIDL advance grant are no longer open.

Unfortunately, you cannot apply for the EIDL more than once. However, you can apply for a reconsideration of your EIDL application. Check out our guide on EIDL reconsideration for more information.

You can back back your loan at any time, but interest still accrues. There are no prepayment penalties.

EIDL loans under $25,000 are considered “unsecured” and do not require any collateral. EIDL loans over $25,000 will require collateral.

The SBA secures collateral by filing a blanket UCC-1 lien on your business. A handling charge of $100 will be applied in order to file the lien with the appropriate government agencies.

For more information on this topic, check out our Bench Blog article EIDL and Collateral: Your Questions Answered

As the EDIL is a loan, it does not have any impact on your taxes as a liability. If you received the EDIL grant with your loan, it is also tax-free and does not need to be included in your taxable income when filing your taxes.

For more information on this topic, check out our guide on how the EIDL, PPP, and PUA will impact your 2020 taxes!

While there is no specific guidance on how exactly EIDL amount is calculated, we believe it is impacted by the two numbers below-

    • Gross revenues (via an income statement; February 2019 to January 2020)
    • Cost of goods sold (via an income statement; February 2019 to January 2020)

Paycheck Protection Program (PPP) - New Changes

On February 22, 2021 the Biden-Harris administration announced five key changes to the PPP. They are as follows:

    1. An exclusive 14-day PPP application period starting on February 24, 2021 for small businesses with less than 20 employees.
    2. Sole propreitors, independent contractors and self-employed individuals can now use their gross income to calculate their PPP loan amount .
    3. Business owners with defaulted student loans will now be able to apply for the PPP.
    4. Business owners with non-fraud-related felony charges will also be able to apply for the PPP.
    5. Non-citizen U.S. residents can now apply using their Individual TaxPayer Identification Number (ITIN).

For more updates, check out our Client Disaster Relief Portal.

On February 24, 2021, the SBA implemented the first change which was instituting a 14-day exclusive PPP application period for small businesses with less than 20 employees. The later four changes were implemented on March 3, 2021.

Unfortunately, a borrower whose PPP loan has already been approved by the SBA as of the effective date of this rule (March 3rd, 2021) cannot increase their PPP loan amount based on the new calculation methodology.

However, if you have submitted an application that is still under review by your lender, you may be able to cancel or withdraw that application and submit a new one using your gross income. This will be lender dependent, and comes with the risk of missing the deadline and not receiving funds at all.

No, the owners compensation cap for sole proprietors is still $20,833.00 regardless of whether you use gross income or net profit with one exception - if your NAICS code starting with 72, you can receive up to $29,167.00

Yes, the SBA has developed new borrower application forms for Schedule C filers electing to calculate their loan amount using gross income, they are as follows:

    -Borrowers applying for their first draw will use SBA Form 2483-C
    -Borrowers applying for their second draw will use SBA Form 2483-SD-C

Proprietor expenses include an owner’s business expenses and own compensation but do not include any payroll costs.

Paycheck Protection Program (PPP)

Yes, you can apply for your second PPP loan through a different lender. That being said, we recommend going for the same lender you got your first loan from as it is likely that you will have a faster, smoother process. However, feel free to apply through other lenders.

While it is up to you to choose the values when calculating your loan you MUST keep in mind your capacity to spend the loan on eligible expenses and forgiveness. This includes the 60/40 rule, headcount and salary requirements, and other eligible expenses.

If you need a refresher on the PPP loan forgiveness rules, check out our guide that goes over the PPP loan forgiveness.

The PPP is fairly restricted in terms of what the funds can be used for. You are required to spend 60% of your PPP on payroll and commission payments, group health care benefits/insurance premiums. The remaining 40% can be spent on rent and lease payments, mortgage interest payments, utilities,operational expenditures, property damage costs, supplied costs and worker protection expenditures. If you are looking for an easy way to track your funds and how they’re used, running all that activity through a new bank account is a good step to take.

You can show the drop in revenue one of two ways –

    • Comparing annual gross receipts between 2019 and 2020 as reported on a completed tax return.
    • Comparing gross receipts in a quarter of 2020 with that same quarter in 2019 (for example, Q1 2020 with Q1 2019).

Check out our guide on how to calculate a 25% reduction in revenue for PPP2.

If you are showing a quarterly reduction, you can use quarterly income statements or profit/loss statements to show the loss of revenue between the two quarters. If you are showing a reduction annually, you can also use tax documents and/or bank statements.

According to the SBA guidelines, any amount of forgiven first draw PPP loan or any EIDL advance is not included in the calculation of gross receipts. As PUA is considered to have been paid to an individual and reported as a different source of income, separate from the revenue, and hence it would not be included in the calculation.

You will use Q1 2020 as a comparison period, and compare it against Q2, Q3, Q4 2020 to calculate the drop in revenue.

The Paycheck Protection Program is intended to, well, protect the paychecks of American citizens. One of the conditions that must be met is that average payroll expenses are maintained through the economic downturn. Already let go of employees or changed their hours? It’s okay! So long as they are rehired or had their hours restored by December 31, 2020, the condition will be met. Note that pay can’t be reduced more than 25% if you want full forgiveness on these expenses. The PPP can not be pursued in addition to Unemployment Programs.

Yes, payroll documents will need to be provided to prove that payroll is being actively maintained. This is true unless you are a sole proprietor, independent contractor or partnership that does not regularly run payroll.

If you are a sole proprietor, your average monthly payroll will be based on your 2019 or 2020 net profits or gross income as found on your Schedule C. Divide that by 12 to get average monthly payroll costs and multiply by 2.5 to get your loan amount. Payroll expenses are capped for individuals earning over $100,000 so if you have greater than $100,000 in net profit or gross income, use $100,000 as your total income and thus $8,333.33 as the monthly average.

No, owner distributions or draws are not considered to be part of salary and wages. However, if you are a sole proprietor or partnership, or independent contractor you are able to claim your PPP loan as owner compensation replacement, and pay yourself with PPP funding directly.

For more information on this topic, check out our article on how to pay yourself with PPP funding.

Those wages and expenses would not be covered by the PPP. The PPP is looking to cover payroll, rent/lease/mortgage interest payments, and utilities that already had an agreement in place as of February 15th, 2020.

If you have already received a First Draw PPP loan, you may be eligible to receive a Second Draw PPP in some circumstances. In particular, you need to have used up the first loan before you receive the second loan. Keep in mind the First Draw PPP loan should cover approximately 8 weeks of payroll (and 24 if you are claiming Owner’s Compensation Replacement).

Unfortunately, the current guidance provided by the SBA is quite unclear with regards to this specific situation. Typically, as an S-corporation without payroll you would not be eligible for the PPP. Furthermore, although you may be able to instead apply with your 2019, sole proprietor numbers, we believe this may cause problems when it comes to your PPP forgiveness application.

With this in mind, We recommend reaching out to your prospective lender and asking them how you should apply.

PPP Loan Forgiveness

Yes, forgiveness applications are still taking place! That being said, some major banks have temporarily paused on taking new forgiveness applications as they are implementing the new PPP forgiveness forms into their portals. From what we know, there is no deadline to apply, however we recommend you apply for forgiveness within 10 months of your PPP covered period ending in order to avoid making any unnecessary interest or principal payments.

Check out this list of lenders who are currently accepting PPP forgiveness applications!

From what we know, receiving forgiveness for the first draw of a PPP loan has no impact on applying for a second draw.

The 24 week period begins at the point of the loan being disbursed.

The payroll portion of your forgiveness will by default be determined by your net profit or gross income as a business in 2019. You can automatically claim 2.5 month’s worth of your net income or gross profit as “owner compensation replacement”.

For more information check out our article about owners compensation replacement & how to receive full PPP forgiveness.

Typically, if you reduce your workforce during your PPP covered period this will impact the amount of your PPP you are able to recieve forgiveness on. However, there are a number of exemptions and/ or safe harbors which my exempt you from this.

Check out our guide that goes over the safe harbor rules for PPP loan forgiveness

Borrowers with loans under $150,000 are now eligible to use the simplified forgiveness form 3508s. You will be able to use this form within your lenders application portal. That being said, borrowers who received loans over $50,000 will still not be exempt from the FTE reductions. The SBA can audit you at any time and you will need to provide proof that there were no FTE reductions.

Check out our guide on how to fill out the PPP loan application form 3508S

While there are no explicit document requirements yet for what is required when applying for forgiveness, be prepared to provide the following when applicable to your business:

    • Payroll reports for the 8-week period
    • IRS Form 941 for Q2
    • Receipts for any state payroll or unemployment filings
    • Documents verifying any retirement and health insurance contributions
    • A commercial rent/lease agreement with the monthly rent cost and date of agreement
    • Mortgage statements
    • Bills for any utilities payments (phone, internet, water, electricity, gas)

Check out our guide that goes over the documents required to apply for PPP loan forgiveness

Eligible utilities include:

    • Water
    • Gas
    • Energy
    • Phone (both landline and cellular)
    • Internet

To maintain eligibility for forgiveness on the entirety of the loan, you will have to maintain both the headcount and average monthly payroll for each employee otherwise the amount you are eligible for forgiveness on will be reduced proportionately.

Ensure that you are paying your employees the average wages as reported on your application. You can pay more than those amounts, however anything over and above the average is not eligible for forgiveness.

To maintain headcount, you will have to keep the number of employees reported on the application which should have been taken from a period of February 15th, 2019 to June 30th, 2019 or January 1st 2020 to February 29th, 2020.

If your headcount has decreased, the amount you are eligible for forgiveness on will decrease proportionately. For example, if your employee count decreased from 10 to 8, that will be a 20% decrease in headcount and thus a 20% decrease in eligibility for forgiveness.

For more detailed information, check out our article all about how to maximize PPP forgiveness.

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 Paycheck Protection Program has conditions in place such that if you only get approved for a portion of the loan amount, the remainder can be paid back with no fees or penalties. Once you’ve applied for forgiveness and receive word on how much you’ll be forgiven for, you can pay back the remaining balance at no cost.

The portion of your loan that is forgiven is completely tax free and should be recorded as Non-Taxable Gains for the purpose of your bookkeeping.

The PPP is very strict about pursuing unemployment in conjunction with it. Ensure that the covered period is over and you’ve applied for forgiveness before pursuing unemployment benefits. It’s unclear what the penalty will be for pursuing unemployment while using the PPP, but it could definitely forego your eligibility for forgiveness.

Yes, if you were eligible to claim a certain home office expense (but didn’t for whatever reason), you can still use the PPP funds to pay for it over your 24-week forgiveness period and qualify for forgiveness on that expense, provided that expense was in place prior to February 15th, 2020.

For more information check out our dedicated article on home office deductions and the PPP.

You cannot prepay expenses, but expenses incurred during the covered period to pay outstanding bills, such as back rent, is acceptable.

The full amount of the loan you receive through the Paycheck Protection Program is eligible for forgiveness so long as you can use it on the outlined expenses. The use of the loan must follow the 60/40 rule which is to say at least 60% must be spent on payroll expenses with the remaining 40% used towards rent, lease, utilities, or the interest portion of mortgage expenses.

For more detailed information, check out our article all about how to maximize PPP forgiveness.

You will not be eligible for forgiveness on the entirety of the loan if you are incapable of spending the entirety of the loan on applicable expenses. The remainder can be paid off after applying for forgiveness at 1% interest, no fees, and no penalty.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

Friends don’t let friends do their own bookkeeping. Share this article.

Join over 140,000 fellow entrepreneurs who receive expert advice for their small business finances

Get a weekly dose of educational guides and resources curated from the experts at Bench to help you confidently make the right decisions to grow your business. No spam. Unsubscribe at any time.

Decorative patterns