FIRE and Small Business,  Personal Finance

Does my business qualify for a PPP Loan?

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Last Updated on March 29, 2021 by Carolyn

Updated March 29, 2021

The answer might surprise you! Read on to find out!

If you’re a US based blog writer, digital nomad, web designer, homestead farmer or have a side hustle of some kind, there is a very good chance that you qualify!

Does my business qualify for a PPP loan?

What is a PPP Loan and who qualifies?

What is a PPP loan? A PPP (Payroll Protection Program) loan is a forgivable loan initiated by the Cares Act of 2021 with a second round of PPP loans (PPP2) approved by the Economic Aid Act of 2021. The loans are administered and disbursed by the Small Business Administration (SBA).

The purpose of the loans is to encourage and assist small business employers to retain employees and continue business operations during the Covid-19 crisis. The first round of loans (PPP1) were disbursed between March 2020 and June 2020 and now the second round of loans (PPP2) as well as another round of PPP1 loans are being disbursed.

The best thing about these loans is they are free money! Well almost. You just have to spend the funds within 24 weeks on qualifying expenses which for sole proprietors can be owners compensation as well as payroll, utilities and rent expenses as well as interest on mortgage payments. PPP2 loans have been expanded to cover costs of software, certain property damage, necessary supplier costs and covid-related protective measures. You must also maintain the same number of full-time employees, with the same amount of wages for the 24 week period.

Throughout the past year, there have been several modifications of the PPP program as well as who qualifies and who doesn’t. PPP1 initial funding was based on payroll and for sole proprietors, net income from self-employment. If a sole proprietor had no payroll and had a negative net income they did not qualify for a PPP loan.

This has now changed, with newly expanded eligibility. Sole proprietors can now apply for a PPP1 loan using gross revenue from line 7 of their 2019 or 2020 Schedule C Profit or Loss from Business to calculate the average monthly payroll expense used by the SBA to calculate the loan amount. Take gross revenue (up to $100,000) divide by 12 and multiply by 2.5 to calculate your PPP loan amount.

There are also new provisions for farmers. Under the 2020 rules, a self-employed farmer without employees was not eligible for a PPP loan if their business did not show a profit on Schedule F-Profit or Loss from Farming. New rules for 2021 use line 9 of the Schedule F to calculate the owner’s compensation (up to a maximum of $100,000), as well as lines 15, 22 and 23 if the farm has employees. This sum is then divided by 12 and multiplied by 2.5 to calculate the PPP loan amount.

Is my side-hustle eligible?

Side Hustlle

Many of us have a side-hustle business in addition to our wage-paying job. It might be a virtual business such as blogging, selling on etsy or a small farm homestead operation etc. If you can answer “yes” to the following questions you can pursue applying:

  • My business (or nonprofit) was in operation as of February 15, 2020
  • I am an independent contractor or sole proprietor, or a business/organization that has employees or independent contractors with association payroll costs.

There are a few questions that need to be answered on the application concerning bankruptcy, debarment, delinquency felony, and incarceration that could result in your loan application being denied.

What is a sole proprietor?

For those of you who might not be familiar with business terminology, a sole proprietor is the exclusive owner of an unincorporated business.

How do I apply?

It is recommended that you apply for the loan through the bank that you use for your business banking providing that they are a participating approved SBA lender. You may also apply via various online banks and fintech companies. Most banks have an online portal through which you apply.

What is the deadline to apply?

The extended deadline to apply for a PPP loan is now May, 2021.

What documentation do I need to apply?

If you are applying based on gross revenue you will need either your 2019 or 2020 Schedule C or F (whichever is applicable to your business). You can choose to apply based on either year, so examine your figures to determine which year will result in a higher loan amount.

You will also be asked to show proof that your business was in existence in February 2020. Most banks will accept a copy of a bank statement for this period as proof.

Is the application complicated?

The application is not very complicated but if you’re not very knowledgeable about business finances, it might be prudent to seek assistance from your accountant to complete the application. I’m a CPA and I assist my clients with applying for their loans and making sure they have the correct information to input into the loan application I’m also available for consultations with non-clients, for information contact me.

Does loan forgiveness mean I don’t have to pay this loan back?

That’s correct. If you use the funds for qualifying expenses within 24 weeks of the loan disbursement you can apply for loan forgiveness through your lender. The forgiven loan is non-taxable. You will need to provide support for the qualifying expenses you are claiming against the loan.

What happens if I don’t use all of the loan for qualifying expenses?

If you don’t use the loan for qualifying expenses or don’t apply for loan forgiveness, the loan becomes a loan repayable over a 2 year term. The interest rate is 1%.

Where can I find more information about these loans?

Visit the Small Business Administration website for further details. Use this link to download the Paycheck Protection Program First Draw Borrower Application Form .

So what is the catch?

Believe it or not, there is no catch. This is basically free money, you just have to apply for it, spend it on qualifying expenses and apply for loan forgiveness.

Still have questions on PPP loans?

If after reading this article you still have questions, please feel free to post a comment below or contact me via email.

If you know someone who might benefit from reading this article please feel free to share via the social media links in this post.

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