ASCP continues to stay on top of small business administration programs, unemployment benefits, and disaster relief aid to help you stay financially afloat during the COVID-19 pandemic. There are currently three financial relief options available to you:
- Expanded Unemployment Benefits
- Paycheck Protection Program (PPP)
- Economic Injury Disaster Loan and Grant (EIDL)
1. Expanded Unemployment Benefits
The states are slowly coming online and updating their websites with pandemic unemployment information and application forms, allowing self-employed individuals to apply for unemployment benefits. ABMP has noted, much like yourselves, that this is proving to be a lengthier process because it requires states to develop a program and to calculate wages for the self-employed.
Unemployment benefit amounts vary from state to state, and not all individuals are eligible for the maximum amount of benefits. However, in addition to your state benefits, the federal government is issuing $600 per week. Let’s say, for example, your state allows for $500 of unemployment benefits a week. The total financial aid you would receive in this scenario is $1,100 a week.
To help you feel more secure in this unstable time, unemployment benefits will be extended an additional 13 weeks beyond what is routinely available in your state, which is typically 26 weeks.
Under regular unemployment rules, a participant must continue to look for work. Although a few states have removed this requirement, as of April 9, 2020, we are not yet seeing widespread changes to this rule, despite the CARES Act giving states the ability to ease this requirement for those harmed by the COVID-19 impact. Once work is found, the unemployment benefits may stop, depending on how much you are making in your new job.
During the COVID-19 pandemic, unemployment benefits were expanded for the self-employed. Benefits for the self-employed are available up until December 31, 2020; however, if we find ourselves in a similar state by the end of 2020, we suspect the ability to apply for these benefits may be extended.
2. Paycheck Protection Program
The Paycheck Protection Program (PPP) is available for small businesses, the self-employed, and sole proprietors beginning Friday, April 10, 2020.
To apply, contact a bank with whom you already have a lending record. This should be a bank that you have more than a checking account with, and that is an approved Small Business Administration (SBA) lender. Here's a helpful link to find a lender: https://www.sba.gov/paycheckprotection/find
When you contact your bank, tell them you are applying for a PPP loan with the SBA. From what we know right now, these loans are going to be based on credit. If you do not have such a relationship with a bank, you can seek one out, but you may be sent “to the back of the line” as a new customer. Banks will originate the loans and the SBA will guarantee the loans 100%. The SBA is partnering with the banks to get this money out to the public. The scope of this undertaking is enormous. We are frequently learning of new processes and changes.
Required documentation includes 2019 payroll records or your most recent 12 months of payroll records. Identify a monthly average based on the last 12 months of the 2019 records. Special rules regarding self-employed individuals will hopefully soon be forthcoming; they likely will equate your average monthly income from professional services provided during the past year as a proxy language. One can multiply this average by 2.5 for the total amount of the loan related to payroll.
The PPP loan amount can also cover monthly rent/mortgage, health benefits, insurance, utilities for your business office, and other fixed existing debts that otherwise cannot be paid due to COVID-19. The term of the loan can be up to 10 years. Interest rates start at 1% for businesses and non-profits.
The maximum loan amount is 2.5 times the average monthly payroll, plus the other costs identified above, if one includes those. The loan covers the period between February 15, 2020, and June 30, 2020. A PPP loan is available through June 30, 2020, or until the funds run out, whichever comes first.
A portion of a PPP loan covering eight weeks of expenses can be forgiven—that is to say you do not have to repay it—so long as at least 75% of expenses relate to payroll. If you subsequently fire or cut pay of any employees, the amount of loan forgiveness will be reduced. Accountants suggest that if you aim to have the loan forgiven, be prepared to provide an accounting showing that the funds were disbursed according to the program requirements.
The question that we have on behalf of the self-employed is how does one prove payroll when one is not working. Proving payroll is much easier for businesses that continue to work. As with so much of what is being rolled out right now, we will have to wait and see what guidance the SBA gives to the self-employed regarding this issue. ASCP has heard that all SBA loan processes and payouts are taking longer than expected, so please be patient. In addition, the banks are using an underwriting process, during which loan applications go through a bank credit quality assessment. Because of this, the loan processing is taking longer. More is being learned daily on processes and what to expect. We will update and post information as new developments occur.
Here is a helpful FAQ from the SBA regarding this program: https://www.sba.gov/sites/default/files/2020-04/Final%20PPP%20FAQs%20for...
Unfortunately, that FAQ doesn’t address issues about self-employed individuals applying, but it covers most other questions you might have about the PPP and the application process.
3. Economic Injury Disaster Loan
Also available to you is the Economic Injury Disaster Loan (EIDL) from the SBA. These are loans that must be paid back.
Individual EIDL loans are capped at $2M. The covered period is January 1, 2020, through December 31, 2020. All states have been declared a disaster due to COVID-19, although some counties may not have been included. EIDL loans are available for small businesses (500 or fewer employees) sole proprietors/self-employed individuals, C corporations, S corporations, LLCs, partnerships, and non-profit companies. The interest rate is 3.75% for businesses and 2.75% for non-profits. The term of the loan is up to 30 years. One can obtain up to a $10,000 advance on the loan that doesn’t have to be paid back if the loan isn’t approved. The time period for loan payout is three days for the advance and three weeks or more for the first loan disbursement.
Business and personal assets will be required as collateral for owners with more than a 20% interest in the business; however, a loan will not be denied solely due to lack of collateral. No personal guarantees are needed for loans of less than $200,000. For loans greater than $200,000, 20% owners must issue guarantees.
EIDL funds may be used to pay for expenses that cannot be paid due to COVID-19, including existing debts, rent, mortgage interest payments, salaries, health benefits, insurance, payroll, sick leave and medical leave, and accounts payable.
The Synopsis
Each of these programs has plusses and minuses. You need to decide which one best meets your personal needs in your unique situation. We encourage you to carefully sort through which option might be most helpful to you and may provide the quickest relief.
Take, for example, the fact that one cannot apply for payroll relief through the PPP or the EIDL and receive unemployment benefits at the same time because one cannot be paid for work and paid for unemployment simultaneously. In addition, consider whether it benefits you to apply for two loans through the SBA (PPP and EIDL) at the same time, and how that could impact your credit.
ASCP is hopeful that we will all be able to return to work in some form sooner rather than later, even though it will most likely look a bit different than our work in the past. We hope the financial relief programs will help get you through these trying times until we can all rejoice in the reprieve. If you hear that your state is officially online with unemployment for the self-employed or that any of the stay-at-home orders are modified, please let us know. We appreciate your membership—stay safe and stay well. Please contact gr@abmp.com with questions.