PPP Forgivable Loan Info for the Self-Employed

Late in the day on 4/14/2020, the SBA released guidelines for self-employed people who want to participate in the PPP forgivable loan program. Here are the main things to know.

Your 2019 Schedule C is key to both your maximum borrowing and how much will be forgivable.

The maximum borrowing is 2.5 multiplied by your 2019 base monthly amount. To figure the base monthly amount, start with your 2019 Schedule C (line 31) (max of $100k), add total compensation (W2 wages) and benefits paid to other employees in 2019, and then divide that total by 12.

In order to have forgiveness, you get 8 weeks of compensation for yourself (8/52 multiplied by your 2019 Schedule C line 31, but not more than $100k). Whether your 2020 Schedule C income is up or down compared to 2019 is not a factor in the forgiveness criteria. To earn forgiveness in an amount greater than 8 weeks compensation for yourself, you need to pay W2 wages and benefits to employees, rent, utilities and business interest expense during the 8-week period after you receive the loan.

If you truly have no other expenses to meet the forgiveness criteria, you might want to limit the amount you borrow to 2 times your 2019 base monthly amount. This will make sure you won’t have a repayment obligation. If you do apply for the maximum loan amount, any portion that must be repaid has a 1% annual interest rate and a two-year repayment term.

One of the big problems for self-employed people is the banking relationship. Many banks are only allowing existing customers who have a business deposit account AND an established borrowing relationship with them to apply for a PPP loan. For many self-employed people that is an issue. So it will take more work to find a lender who will be willing to work with you.

From what we’ve seen, having a good relationship with your banker helps a lot – and working with smaller banks often has been more successful in many cases.

So for those of you who have not yet completed your Schedule C for 2019, you will not be able to move forward with the PPP loan application until your 2019 Schedule C is completed.

Also for WA State unemployment, self-employed individuals do NOW qualify for unemployment benefits. Their system is not yet ready to process claims from self-employed individuals, but it has been announced that the functionality will be ready this upcoming weekend. In order to get accepted, you have to apply and be denied under the regular (old) rules and then appeal for the new PUA (Pandemic Unemployment Assistance). We are hearing the suggestion that you should apply for unemployment under the old rules first (as quickly as you can) and definitely before you appeal for the new PUA benefit.

The rules covering the PPP loan program borrowing amount as well as the forgiveness criteria are now fairly clear. We are here to help and email is still the best way to reach us.