Additional Funding Available for the Payroll Protection Program (PPP)
Independent Contractors and Sole Proprietors Can Now Apply
Additional PPP Funding Now Available
The CARES Act Payroll Protection Program, or PPP, was replenished on Friday, April 24, when the latest Coronavirus aid bill added $310 billion to the loan’s coffers. Now that Congress has supplemented the first round of funding, those who haven’t yet applied for PPP funds should do so soon, in order to get in line for the loans.
The PPP is also now available to non-corporate entities, and because the applications were mostly designed for corporate entities, independent contractors and sole proprietors should do some advance planning before completing the application. Since the loan is based on payroll needs, and these entities account for their income differently than corporations, it’s important to talk with your accountant and get your documentation in order before you apply for the PPP.
Who qualifies for PPP, and how do I know what my legal entity is?
While the original PPP was open to C-Corps and S-Corps, the fund is now open to those registered as other business structures, as well as independent contractors and the self-employed. The IRS defines these business structures, as does the SBA, and you should check your own legal documents to ensure you list the proper designation on your PPP application. This designation should match your tax return, as should your business description and Employer Identification Number (EIN), if you have one.
What else does the PPP loan application ask for?
This varies from lender to lender, but the most important piece of information you’ll need is your monthly “payroll cost”. In this simple example, if you file with a Schedule C, you can calculate that amount using your net profit/loss number (from line 31), divide by 12 to get a monthly cost and multiple by 2.5 to determine your total loan amount.
Some lenders, like PayPal, offer a calculator to help you figure out that payroll cost. But because the terminology can be confusing for non-corporate entities – especially those without employees – you still need to ensure you’re using the correct number. Check with your accountant or other advisor before submitting, and make sure you have the right documentation to support your number.
Here’s a good rundown of what’s required on a typical application, from New York’s Empire State Development (ESD). And the PayPal calculator also has a list of possible support documentation. It’s important to have this information ready to go when you apply, because many lenders ask you to upload the information and sign all one final step – and it saves a bit of time to have these files ready before you start the PPP application.
How much can I apply for?
Here’s a scenario. Let’s say in 2019 your income from line 31 of your Schedule C is $50,000. You don’t have employees, so you simply divide that by 12, which gives you $4,166.66. Multiply this number by 2.5, and you get $10,416.66. This is your PPP loan amount.
Note that there are many variations on this number; if you have employees, made retirement contributions, and/or paid for health insurance, the calculations won’t be quite this simple. That’s why it’s critical to speak with your accountant before finalizing the numbers.
Get started now, to secure your place in line.
While the PPP application can be a bit daunting, a little up-front effort gathering documents and consulting with your accountant can prepare you to complete the application. It’s worth getting started soon, so you can get in line for the next round of funding.
Pentacle remains dedicated to continuing to provide a high level of support to artists during these extraordinary circumstances. Alongside many other key and respected organizations in the field, we have begun accumulating and curating resources for artists and organizations experiencing income loss and other troubles as a result of the COVID-19 crisis.
Find help on how to account for PPP expenses through Financial Urgent Care
nextSteps | 04.30.20
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