Last week, Congress approved additional funding for many COVID19 stimulus programs. There are many types of stimulus relief available to business owners, nonprofits, sole proprietors, and independent contractors. Below is a summary of some of the programs:
The Paycheck Protection Program
The Paycheck Protection Program provides a loan of up to 2.5 month's worth of a small business's or nonprofit's average 2019 payroll. This loan can be used for payroll costs, interest on mortgages, rent obligations, and utility payments. It can be entirely forgivable if an employer maintains its number of full-time equivalent employees and does not reduce the pay of its employees earning less than $100,000 more than 25 percent. For the loan to be forgiven, an employer must use 75 percent of the loan proceeds on payroll costs during the 8-weeks following the funding of the loan. The remaining 25 percent may be used on mortgage, rent and utility payments during the same 8-week period.
Sole proprietors and independent contractors can also apply for paycheck protection program loans. The amount these individuals can borrow is an amount equal to the net profit, as shown on their 2019 Schedule C, divided by twelve, and then multiplied by 2.5. Compensation for a sole proprietor or independent contractor is capped at $100,000, so the maximum amount someone netting more than $100,000 will be able to borrow is $20,833. The maximum amount that will be forgiven for sole proprietors and independent contractors is 8/52 of their net profit on their schedule C or $15,385 if they make more than $100,000.
Loan applications are made through lenders approved by the SBA, and all application fees are paid for by the SBA. Forgiveness is not automatic and must be applied for with your lender. Any amount not forgiven has a term of two years at 1 percent interest, and the first payment is not due until six months after the loan is made. There are no prepayment fees if you decide to pay any amount off early.
Many businesses, nonprofits, and individuals that have had trouble finding a local bank to process a PPP loan should check with fintech companies such as Kabbage, Lendio, Quickbooks to see if they qualify to apply with these companies. Many payment processors, such as Paypal and Square, are also taking PPP applications from their customers.
Businesses and individuals who want a PPP loan should not wait to apply. The PPP received an additional $310 billion in funding, but it is likely to be depleted in a matter of weeks.
The Economic Injury Disaster Loan Program and Advance
Although the EIDL program received additional funding last week, the SBA is currently not taking new applications for EIDL loans. The SBA is currently working through applications it had already received.
Small businesses, nonprofits, sole proprietors, and independent contractors who had already applied should have or should expect to see an advance of $1,000 per employee, up to $10,000, deposited to their bank account. The advance is a grant that is not repaid.
Small businesses, nonprofits, sole proprietors, and independent contractors who have not applied should check the SBA's website (www.sba.gov) regularly to see if the SBA has resumed taking applications.
Relief for Small Businesses with Existing SBA Loans
There is good news for small businesses with existing SBA loans. Companies with existing relationships with an SBA Express Lender may be able to access up to $25,000 as an SBA Express Disaster Bridge Loan while waiting for an SBA Economic Injury Disaster Loan (EIDL). The Bridge Loan will then be repaid in full or part by the proceeds of the EIDL.
For businesses with existing SBA 7(a), 504, and microloans, the SBA is paying six months of principal, interest, and fees for their loans. Businesses do not need to apply for this assistance; it is automatically provided.
Payroll Tax Credits and Deferrals
The Employee Retention Credit is a refundable tax credit of 50 percent of up to $10,000 in qualifying wages paid by an eligible employer whose business has been financially impacted by COVID-19. The credit is available to all employers regardless of size, including tax-exempt organizations.
To qualify for the credit, one of the following must be true:
The credit is 50 percent of $10,000 of "qualifying wages" for each employee. "Qualifying wages" are:
For employers with more than 100 employees on average in 2019, qualifying wages are only those wages paid to employees who did not work during the calendar quarter.An employer can immediately take the credit by reducing its required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit due. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The credit is not available for wages paid with a PPP or EIDL loan.