If You Are Self-Employed You Need to Know About the Payroll Protection Program
Earlier this month, the federal government launched the Payroll Protection Program , which gives small business owners the opportunity to apply for a Small Business Administration (SBA) loan designed to help businesses with payroll during the coronavirus pandemic. If the loan money is spent on certain designated expenses – salaries, mortgage interest, rent, and utilities – the loan can be partially or fully forgiven.
Today, the Payroll Protection Program (PPP) is open to sole proprietorships, independent contractors, and self-employed individuals. Here’s how to apply and here’s what you need to know:
Your business must be hit by a pandemic
I am a self-employed person but managed to continue my freelance work during the COVID-19 pandemic. This means that I will not be eligible for an SBA loan. If your freelance business or sole proprietorship has been hit by the pandemic, you may be eligible to apply.
The loan only covers certain types of business expenses.
Here’s what you agree to by filling out the PPP application:
These funds will be used to retain workers and maintain wages or mortgage interest, rent and utility bills as outlined in the Payroll Protection Program Rule; I understand that if funds are deliberately used for unauthorized purposes, the federal government may prosecute me under the law, such as fraud charges.
In other words: you can’t use that money to buy ads, upgrade your laptop, or book a trip to an upcoming conference (and let’s be honest, all upcoming conferences are canceled anyway). A payroll protection program is literally what it sounds like: a way to protect people’s salaries during a pandemic and subsequent recovery.
The PPP program is designed to protect the income of the self-employed.
You may be asking yourself if you are actually eligible for an SBA Payroll Protection Program loan given that many self-employed people do not issue salaries to employees. Luckily, your paycheck also matters, so if you’ve received fewer checks from clients in the past few weeks, you may be eligible for a loan.
This is how it is explained in the CARES Law :
[…] the term “payroll costs” means [a long list of claims related to employee salaries followed by] the amount paid of any compensation or income to a sole proprietor or independent contractor, which is salary, commissions, income, net income from self-employment or similar compensation, which is not more than $ 100,000 per year, in proportion to the period covered […]
In other words: if you are a freelancer or self-employed person who did not receive that many salaries, you may be eligible for salary protection.
You can get partial or full loan forgiveness, depending on how the funds are spent.
SBA Payroll Protection Loans are eligible for forgiveness, depending on how the money is spent. To quote the loan application again:
I understand that loan forgiveness will be granted for the amount of documented payroll expenses, covered mortgage interest payments, covered rent and covered utilities, and no more than 25% of the forgiven amount may be attributable to non-payroll expenses …
Use your funds wisely if you want them to be forgiven.
The process of applying for and issuing a loan may take some time.
Let’s say you are very active and filled out your PPP application today. When can you get a loan? It is hard to say; the program is completely new, the government is doing a lot of things right now (are we all), and there are many small business owners who need financial help. As Fast Company reports:
The SBA, lenders, and virtually everyone involved in making loans to people seem to be completely overwhelmed by the volume of applications. If you’re lucky, the sooner you start, the better.
If you have additional questions about the payroll protection program — which I assume you have — start with an overview of the SBA program and then read the FAQ for lenders and borrowers . If you have already applied for an SBA loan through a PPP, whether you are a sole proprietor or running another type of small business, we would love to hear from you about the process.