Deliberate Freelancer #63: How I Got a PPP Loan as a Sole Proprietor
CORRECTION: At the 10:18 minute mark, I misspoke and said you should take $56,000 and multiply it by 12. That should say DIVIDE by 12. My math is correct in the episode; I just misspoke. Sorry about that!
In today’s episode I outline my experience with the U.S. Paycheck Protection Program—known as the PPP loan program—and encourage you to consider applying for a loan if you have been hurt financially by the pandemic.
DISCLAIMER: I am not a lawyer, accountant/CPA, financial services adviser or any other financial expert related to the PPP program. I am solely providing you my experience with the program and offering some things for you to consider. You should doublecheck all information with an expert and do your own research.
Sole proprietors are allowed to apply for a PPP loan at about a maximum of $20,000, depending on how much you earned in 2019. The process to have your entire loan forgiven is fairly straightforward if you are a sole proprietor. This effectively turns the PPP loan into a grant that you do not have to pay back. Even if you do have to pay back part or all of the loan, the interest rate is only 1%.
You may have heard in the beginning of the PPP program that it was hard to get a loan. I cannot speak to whether that is still the case for each individual sole proprietor, but there is a lot of money left in the program and the federal government is concerned that people are not applying. As of July 6, $130 billion was still available for businesses and sole proprietors.
First, let’s talk about applying for the loan. Initially, it appeared to be difficult for people to get these loans. In fact, sole proprietors often faced a burden from their own banks because in the beginning major banks issued their own requirement that you had to have a business checking account with them. And many freelancers do not have that. You should check first with your own bank to see if that is still the case and if you can apply through that bank.
If not, there are other options, such as Kabbage, PayPal, BlueVine and others. You are only allowed to have one PPP loan. This is important. I encourage you to NOT apply for more than one loan at a time, thinking you can just refuse one of the loans if you are offered more than one. I tried this and the Small Business Administration (SBA) had a glitch that did not flag my Social Security number showing that I had already received a loan approval. So, I was approved for two loans, and it took over a month to work out with one of the lenders how to send back the money back and get it all straightened out with the SBA.
To avoid all that, my biggest advice is DO NOT apply for more than one loan at a time.
One of the biggest considerations of whether you should apply for the loan is how much money you made in 2019. The loan amount is supposed to cover paychecks. For you as a sole proprietor, you don’t have employees. So, that means your own income. If you did not make much money in 2019, it might not be worth applying for the loan. The loan application MUST be based on the Schedule C form for your 2019 taxes.
On your 2019 Schedule C, look at your net profit on line 31. If that number is under $100,000 use whatever that number is. If it’s over $100,000, you have to use $100,000. The PPP has a $100,000 cap.
Take that number, whatever yours is, and divide it by 12 to get a monthly total. Then, you multiply that number by 2.5. That is the amount of the loan you are requesting.
The paperwork to apply was fairly easy. I did the entire process in a few hours. I had to scan copies of all the 1099s I received for 2019 work and put them into one pdf to submit with the application. I also had to send in a photocopy of my driver’s license and copies of bank statements, which I easily downloaded online.
Let’s talk about loan forgiveness. The government has changed a few rules since March, actually making the process easier and better for sole proprietors. The loan forgiveness timeline was eight weeks. Now, you can choose to wait for 24 weeks, which means there is a greater chance you’ll have the entire loan forgiven.
To have your loan forgiven, you do have to officially ask your lender. The SBA has created an easier form to do this, called the 3508EZ form.
My CPA recommended that to easily show my PPP lender how I was spending the money, I write myself four checks over the next eight weeks, so one check every two weeks, just like a paycheck. I divided my loan by four and I now write myself a check for $5,208 from my checking account that received the loan into my personal account. He recommended I do this process of writing physical checks, rather than just transferring the money electronically, so that we could easily show photocopies of the check to my lender when asking for forgiveness. Your CPA might have a different solution, so be sure to ask an expert.
Also know that you cannot get the PPP loan if you are getting unemployment. You can’t have both. There’s also another loan program called the EIDL, or economic injury disaster loan, through the SBA. That is a true loan program that you have to pay back. You can have both the EIDL and a PPP loan, but you have to be able to show that the money went for separate areas of your business. I don’t know much about the EIDL, so be sure to do your research and talk to an expert to learn more about that program.
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Resources:
Trump signs extension of PPP small business coronavirus relief fund
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