Released in the first couple of days of March 2021, the updated Interim Final Rules from the December update to the CARES Act addresses a glaring flaw in the implementation of the CARES Act. This is that Sole-Proprietors were instructed to use Net Profit (Line 31 of the Schedule C) to do their calculation (Line31/12×2.5). As many small business owners know, that final ‘score’ for the year doesn’t always capture the economic benefit their business brings them. For someone with $12K here, this may not reflect the actual money-transferred-to-personal-accounts that made up your personal income. This is especially true if you’re on cash basis or in an asset-heavy business with a lot of depreciation expenses.
Let’s take that $12K net income. Under the old rules, this would be 12/12 x 2.5 = $2,500 of PPP. In my experience, many banks, especially national ones, just didn’t want to deal with the hassle of these micro-loans (their 5% Lender’s fee=$125 for processing your application and doing the loan paperwork). And, given the original requirements for onerous documentation (hope you have a good bookkeeper!), most sole proprietors took an understandable pass. Which is a shame because it was these small businesses that could have used the help the most!
Under the new rules, your calculation is instructed to consider your Gross Income instead (Line 7 of the Schedule C). Did your business generate more than $100K? You could qualify for the maximum $20,833 ($100K/12 x 2.5). This is certainly more worthwhile to pursue than the $2,500 in the example above.
Are you a contractor paid via 1099-MISC/NEC that doesn’t bother with the Schedule C? The 1099-MISC is sufficient documentation of your income for these purposes. You can probably apply based on it, whereas before it was a more difficult situation to navigate.
One thing to keep in mind is that PPP Loans CANNOT overlap any Unemployment you may have collected as a self-employed entrepreneur. For example, if you collected unemployment March-May and were able to resume business activities after that time, you should be able to specify that the PPP was retroactively for Aug-Oct. Or, for current use. Not quite sure on how the timing works out. But the takeaway here is separating the time periods.
Even if you HAVE been continuously collecting unemployment, worst case scenario is that you return the unemployment for the covered period. For example, if your unemployment was for $480/week, the 10 weeks of the 2.5 month period the PPP was active is worth $4,800. If you collected $20,833, you’re still retaining $16,033 after returning those payments to the issuing authority. You are supposed to report the PPP as income (max $2,083.30) for the weeks covered by the period. Again, this is still a developing situation but that is my understanding at this time.
I encourage you to approach your bank. Ask about the PPP application process. Cite the updated IFR. Get a piece of the aid made available to help people like you get through these challenging economic times.
A final word, *DO* expect to pay for assistance if you need it. In the original CARES Act, your assistance (Agent) was supposed to collect a small part of the bank’s Lender’s Fee and were expressly forbidden from charging you directly. The banks benefited from a previous IFR that allowed them to keep the full Lender’s Fee. A consequence of this is that Agents can now charge you directly for their services. Beware exorbitant fees and the scammers who will inevitably accompany this program. Work with someone you trust.
You also want to act fast. The PPP program ends on March 31, 2021.