PPP funds remain for self-employed business owners

The government is helping self-employed businesses during this difficult financial time and the funds are automatic.

The second round of the Payroll Protection Program (PPP) began on April 27.  It has awarded almost 2.4 million loans worth more than $181 billion as of the close of business May 5.

The U.S.  Small Business Association (SBA) can run out of funds quickly so don’t procrastinate.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, is responsible for infusing billions of dollars of capital into small businesses nationwide and saving jobs.

The COVID -19 Payroll Protection Program (PPP) is also available if you are self-employed with no employees.  For this program, you (as a self-employed business owner) count as an employee.

The PPP treats the business owner as the one and only employee and treats your profit as your payroll.

You are eligible for the PPP loan if you were in operation on February 15, 2020 and you have filed or will file a Form 1040 Schedule C for 2019.

First, calculate the average monthly net profit amount by dividing your profit on the Schedule C by 12.  Then multiply the average monthly net profit by 2.5 to calculate the amount that you can borrow.

Funds from the loan can be forgiven.  Forgiveness of the loan includes:

  • Eight weeks’ worth (8/52) of your 2019 profit, which means over 15% of the loan is automatically forgiven.
  • Mortgage interest paid during the covered period (eight weeks from loan receipt) on real or personal business property (the interest you will deduct on your Schedule C).
  • Rent payments during the covered period on the lease agreement in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments).
  • Utility payments under service agreements dated before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business utility payments).

The paperwork is easy to complete.  You will need:

  • Your 2019 1040 Schedule C.
  • Proof that you were self-employed during 2019, such as a 2019 Form 1099-MISC, invoice, bank statement or other record.
  • Proof that you were operating as a Schedule C business on or around February 15, 2020 such as an invoice, bank statement.
  • Completed application with an SBA lender.

You submit your forgiveness request to the lender that is servicing the loan.  The lender must make a decision on the forgiveness within 60 days.

The interest rate on the amount not forgiven is 1%. 

All payments are deferred for six months, but interest will continue to accrue over this period.

The loan is due in two years, but it can be paid off early.  There are no prepayment penalties.

Collateral is not required and there is no personal guarantee requirement.

David Zubler is a tax accountant in East Tennessee, the author of four books, and a philanthropist.  All of his proceeds from the books go to a charitable foundation he created for underprivileged children.  He is also the founder of Your Tax Care which provides tax education. David can be reached for questions and consultation at yourtaxcare.com.