Part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, includes an expansion of the financial relief available for small businesses.
The CARES Act provides $367 billion to small businesses, sole proprietors, independent contractors, and other self-employed individuals for loans of up to $10 million.
If you own a private practice, moonlight, or do locums work, you could receive financial relief from the new programs that were enacted through the CARES Act.
You technically do not have to have lost revenue to apply, however, you should only apply if you believe that the COVID-19 pandemic will affect your revenue. As many businesses and individuals are losing revenue due to the pandemic, it’s likely that you could make a case for having concerns for your revenue as well.
If you are seeking the forgivable loan, apply for the Paycheck Protection Program (PPP) through an SBA approved bank. If this loan is used for payroll or other approved expenses within 8 weeks, it can be forgiven.
Even if your loan is not 100% forgiven, the terms on these loans are uncomparable to other loans in the marketplace. A 10-year, 4% loan with no collateral or a requirement of a personal guarantee for small businesses is unheard of.
If you already took out an SBA economic injury disaster loan (EIDL), you can refinance it into the Paycheck Protection Program (PPP) to have it qualify for forgiveness.
There’s no harm in applying for these programs. If you’re denied, there are no negative consequences except for an inquiry on your credit. If you’re approved, you could receive much needed financial relief with extremely favorable terms.
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Do You Qualify?
The Paycheck Protection Program (PPP) was expanded to include more qualifying businesses, who would normally not be able to get a small business loan. This new program now includes:
- Businesses, ESOPs, tribal small business concerns, or cooperatives with less than 500 employees per physical location who have employees or send 1099s to their contractors. The term “employees” includes all full-time, part-time, or other basis employees.
- Individuals who operate under a sole proprietorship with or without employees, or as an independent contractor.
- Private nonprofit organizations and small agricultural cooperatives.
You must have been in business on or before Feb 15, 2020, to qualify. No, you can not start a business now to apply.
If you own a business that has employees or 1099s people, chances are you qualify for a possibly forgivable loan from the government. Sole proprietorships and contractors do not need to have employees or send 1099s to people to qualify.
If you have a side-hustle in addition to a W2 job, you could qualify as well.
What if you moonlight?
If you moonlight, you can qualify for this program.
You don’t need to run your moonlighting income through an LLC to qualify, sole proprietorships and independent contractors qualify too.
However, the amount you can take out is based on your moonlighting income, not your household income which includes your salary if you’re a W2 employee elsewhere.
You also don’t have to have had reduced hours to qualify. If you are even slightly concerned that your hours will be reduced sometime in the future due to the pandemic, you can take out a loan.
What if you do locum tenens work?
You can qualify as well.
One of our listeners just lost a locum opportunity due to the pandemic, luckily she was able to prove that she had previously earned income as a locum tenens physician in the past and would qualify for either the Paycheck Protection Program or the SBA economic injury disaster loan.
What if you moonlight or do locum tenens work through an S-corp or LLC?
Here’s where the policy gets really interesting.
Your business can qualify for either of these programs. You can take out enough to pay yourself a salary (only up to $100,000 is forgivable), medical insurance premiums if paid through the business, group insurance premiums, the match on any retirement benefits, and state and local payroll taxes.
Any portion of the loan that is used for these expenses can be forgiven, see more on that below.
If you lost a moonlighting or locum tenens opportunity and had not done one in the past.
Unfortunately, if you had not earned income through your LLC, S-corp, or as a sole proprietor prior to February 15, 2020, you probably will not qualify for either of these programs.
This is honestly the worst part of this policy.
In order to qualify, you have to prove that you had income from this source in the past. The amount you can take out is based solely on the average monthly salary over the past year, if that was $0, you can’t qualify for a loan.
If you were hoping to apply for one of these programs due to losing your first opportunity at moonlighting or working as a locum tenens physician, you, unfortunately, will probably not qualify.
How much can you get?
You can receive up to $10 million through this loan. However, you are limited by your average monthly approved expenses times 2.5.
To find your average monthly approved expenses take the average total monthly payments for payroll costs over the past 1-year period.
For businesses that have not been in business for a full year, you can take the average monthly payroll costs from January 1 and February 29 of this year.
Once you multiply your approved monthly expenses by 2.5, you may add the outstanding amount of a loan that was obtained after January 1, 2020, to refinance it into this program.
How does the Paycheck Protection Program (PPP) differ from the SBA Economic Injury Disaster Loan (EIDL)?
The Paycheck Protection Program (PPP) and the SBA economic injury disaster loans (EIDL) are similar, but they have a few major differences including:
- No $10,000 Emergency Economic Injury Grant on the Paycheck Protection Program
- Loans under the SBA economic injury disaster loan program are not forgivable
- $10 million limit under the Paycheck Protection Program
- $2 million limit under the SBA economic injury disaster loans
- SBA economic injury disaster loans are through the SBA website directly, the Paycheck Protection Program is done through SBA approved banks
This advanced grant of $10,000, called Emergency Economic Injury Grant, allows applicants to receive much-needed cash within 3 days of application.
This is only for SBA economic injury disaster loans (EIDL) that are offered through SBA directly. The Paycheck Protection Program (PPP) does not have an advance grant.
As of March 28, the SBA website notifies applicants that the Emergency Economic Injury Grants have not been updated on their site and anyone that applies now will need to reapply for the advance grant once their system is updated. Once their system is updated, the advance grant will be included in the process.
The Emergency Economic Injury Grant gives a $10,000 advance on your SBA economic injury disaster loan within 3 days of your application.
Congress has set aside $10 billion to fund these grants. Once the money is gone you will no longer be able to receive this advance on your loan as a grant, but you will be able to receive a loan.
You must have been in business as of January 21, 2020, to receive this grant.
If you receive this grant, it will reduce the loan amount you receive from the SBA economic injury disaster loan by $10,000 – because you advanced this portion of your loan.
Here’s an example:
- You have approved expenses of $5,000 a month, so you can receive up to $12,500.
- After you apply, you will receive a $10,000 advance grant within 3 days. You will not get the advance grant if the $10 billion that was set aside for these grants was already claimed.
- Once your loan is approved, you will receive the additional $2,500. If your loan is not approved, you don’t have to give back the $10,000 grant – you just will not receive the additional $2,500.
What is forgivable?
SBA economic injury disaster loans (EIDL) are not forgivable, however, they can be refinanced into the Paycheck Protection Program (PPP) to become forgivable.
This policy will forgive the portions of the loan that were used to pay for up to 8 weeks of average payroll and other business costs, including paid sick or family leave, if the business retains its employees at their normal salary levels.
You cannot use the forgivable portion of this program to pay a salary in excess of $100,000 per year per person.
You cannot pay the salary of an employee whose principal place of residence is outside of the United States.
If you spend any portion of this loan on the following items within 8 weeks of obtaining the loan, that portion will be forgiven by the government. You can have up to 100% of the loan forgiven.
- Payroll expenses under the annual equivalent of $100,000 per person. This includes average commissions.
- Sick leave pay
- Medical leave pay
- Family leave pay
- Health insurance or group insurance premiums
- Match on retirement benefits
- Mortgage interest payments
- Rent or lease payments
- The interest portion of your payments on debts incurred before the covered period
- State or local payroll taxes
- Business equipment
What about the amount that is not forgiven?
For the portion of the loan that you take out that is not forgivable, it’s treated as a true loan.
This loan does not have any administrative fees, the rate is capped at 3.75% (2.75% for nonprofits), has a 10-year term starting on the date you applied, and there are no payments required or interest charged for the first 12 months.
This no collateral or personal guarantee required loan and grant is truly one of a kind. Never have we seen a loan and grant program from the government that has so few restrictions, and could be forgivable.
How to Apply For the Paycheck Protection Program (PPP):
SBA approved banks are currently managing the applications for the Paycheck Protection Program. Unfortunately, there is not a list of SBA approved banks at this time, so finding the right bank may take some time.
Start with your own bank; if they cannot offer the Paycheck Protection Program try visiting one of these banks:
As of Sunday, March 29 these lenders are requesting potential borrowers to submit their contact information, and do not have the full application process available yet. This is an ongoing effort for banks to “go live” and we will update you as we learn more.
You may be required to allow them to check your credit. However, it seems that this measure is to ensure that applicants do not submit multiple applications – not to check for a minimum credit score to be approved.
Borrowers are required to make a “good faith certification” that they are applying for the loan due to the uncertainty of current economic conditions which makes the loan request necessary to support the ongoing operations of the recipient.
The deadline to apply for the Paycheck Protection Program (PPP) is June 30, 2020.
To start your application for the SBA economic injury disaster loan, visit this page on the SBA’s website.
After you submit your application, you may be asked for these documents:
- Copies, including all schedules, of the most recent Federal income tax return
- IRS Form 4506T – Request for records of your tax returns
- SBA Form 413D – Financial Statement
- SBA Form 2202 – Schedule of Liabilities
- Current year’s profit and loss statement
You will be required to submit them within 7 days of the information request or your loan application could be denied, so you may want to start preparing them now.
The deadline to apply for an SBA Economic Injury Disaster Loan (EIDL) is June 30, 2020.
What if you have multiple businesses?
As long as each business meets the requirements, you can submit multiple applications for the loan.
You can only submit one application per business, but for someone with more than one business or a business and a side-hustle, they could receive multiple loans.
Are there any tax implications?
Any proceeds that you do not spend on qualifying funds are not taxable. Also, the loan forgiveness portion is not taxable.
More Resources & Guidance on the Paycheck Protection Program (PPP) and the SBA Economic Injury Disaster Loan (EIDL):
The Coronavirus Emergency Loans Small Business Guide and Checklist from the U.S. Chamber of Commerce
The Small Business Owner’s Guide to the CARES Act by the U.S. Senate Committee on Small Business & Entrepreneurship