PPP Loans For Freelancers: What You Need To Know
***This article has been updated to reflect changes to the program rules. Look for messages like this one.***
April 10, 2020 has arrived and lenders can start processing PPP loans for freelancers, solopreneurs and other self-employed people.
PPP stands for Payroll Protection Program, and before you shrug it off thinking you don’t have employees, prepare for the good news:
You don’t need employees to qualify for these funds.
“Payroll” under this program includes money that you pay yourself.
What is PPP?
The CARES Act, that $2 trillion federal package that’s supposed to give the people stimulus checks, also included $349 billion to provide loans to small businesses under the Payroll Protection Program.
The goal of the PPP is to help you keep your business afloat by replacing lost pay (in your case to yourself) and providing money to cover business expenses, such as mortgage interest, rent and utilities.
How much money can you get?
Under the rules, freelancers who were in business as of February 15, 2020, can get up to 2.5 times their average monthly income. But only up to $100,000 a year of income will be considered.
So, say you made $50,000 last year. That’s approximately $4,167 a month. Multiply that by 2.5 and you may be able to borrow up $10,717.
If you have employees, they’ll be factored into your loan request using the same calculation—up to $100,000 of annual income will be considered for each person.
And each business can borrow up to $10 million.
What are the repayment terms on PPP loans for freelancers?
***As of June 19, 100% of PPP loans for freelancers, independent contractors and other self-employed recipients will be forgiven. (Here are the new SBA rules on that.) But remember, you MUST apply for forgiveness. ***
You may not have to repay anything.
Up to 100% of PPP loans for freelancers can be forgiven if you use the funds for the expenses outlined above: income, mortgage or rent and utilities.
But, be careful, if you spend more than 25% on expenses that aren’t income, such as a combination of rent and utilities, you probably won’t get 100% forgiveness, the Small Business Administration forewarns.
The government is really trying to push businesses to spend at least 75% of this money on payroll.
Another thing…only the portion used for approved expenses in the first eight weeks is eligible for forgiveness.
If you don’t request forgiveness, or if any portion isn’t forgiven, there’s a fixed interest rate of 1%. The loan term is two years, and your first payment is deferred for six months.
***Initially, the funds were supposed to be used over an eight-week period. Now, you have 24 weeks. And, instead of spending 75% on payroll, borrowers only need to use 60% for payroll.***
Where and how do you apply?
Although the PPP is federal, it’s designed to be handled by everyday lenders.
In theory, you can apply at any existing SBA lender and any federally insured depository institution, federally insured credit union, and Farm Credit System institution. However, some banks only want to process PPP loans for their existing customers.
So, to save time and, likely get a better experience, it’s best to go to one of the banks or financial institutions where you have an account.
What else do you need to know?
Wherever you apply, that financial institution is not supposed to ask you for collateral or personal guarantees. The SBA is backing these loans so you don’t need any of that.
The lender will use your tax return to determine how much money you can get. So if you didn’t already file your 2018 taxes last year and you haven’t filed your 2019 taxes this year, you need to complete one or both of those first.
And keep the supporting documentation handy when you’re filing for the PPP loan.
The request for forgiveness will also be processed through the lenders. So, keep proof of the expenses you paid.
Have you checked: The list of tax deductions for freelancers
When should you apply?
***Although the program closes June 30, some reports say that many lenders will stop accepting applications June 25. So, get it done if you plan to do it.***
The program is open until June 30. But as of April 8, $100 billion from the PPP pot had already been committed to applicants, USA Today , reported.
That’s because bigger small businesses were allowed to start submitting PPP applications on April 3.
Congress is expecting all of the money in this program to be consumed. Treasury Secretary Steven Mnuchin said he would push for another $250 billion for the program. But as a Thursday an effort to fast-track that money was blocked in the Senate.
And that brings us to something else you should know about PPP loans for freelancers.
Remember I told you the good news is that you may qualify?
Well, the bad news is this program has started out as a hot damn mess. Not just for freelancers, but for everyone.
The idea behind the CARES Act was to pump out money fast and easy. But this is a U.S. government program we’re talking about. And the U.S. government should be barred from EVER suggesting they can roll out anything in a simple and speedy way.
When the first PPP application period opened on April 3, some banks weren’t ready because they were waiting for guidance that didn’t come until the night before. And numerous other problems arose.
For example, Wells Fargo processed so many applications that it hit its lending cap within days, prompting the bank to announce it couldn’t help any more PPP applicants (This has been resolved, but still…). People have experienced technical issues and incompetent bank staff. The flood of applicants has created a backlog, and the funds aren’t being disbursed as rapidly as expected.
Keep those things in mind if you plan to apply for a loan and are in critical need of immediate funding.