How to take advantage of the recently-passed CARES Act for your Small Business (Staffed or Sole Proprietorship) even if you’re a freelancer, artist, or other self-employed professionals. 

I’m going to keep this brief because our small businesses are struggling, many have already closed, and we need to take action now. I spoke with Haseeb Qureshi, a Knoxville-based attorney and UT Haslam lecturer, for the specifics on the recently-passed CARES Act (Coronavirus Aid, Relief, and Economic Security Act”) and how small businesses owners can get funding quickly. For ongoing commentary and interpretation of the law (and its interpretations by others!) follow Haseeb on YouTube; he’s publishing new videos regularly on the CARES Act. Though the SBA published their own Small Businesses’ Guide to Pandemic Funding, we’ve simplified it further into this one-page PDF.

Download this Quick Start Guide, your one-page checklist for eligibility, preparation, and application for funding, published April 9, 2020.

Two options for funding: Paycheck Protection Program (PPP or “Triple-P”) and Economic Injury Disaster Loan (EIDL)

PPP Loan Specifics: 

Under the Paycheck Protection Program (PPP), small business owners (anyone who made money for themselves last year not from a W2, and whose compensation was less than $100,000) can go to any FDIC-backed bank to get a maximum 1% interest, two-year maturity loan to pay paycheck expenses. These include: 

• Payroll for staff and/or yourself, including salary, wage, compensation, and payment of cash tip or equivalents

• Rent

• Utilities

• Mortgage

• Interest payments on business debts that originated before the covered period. 

This does not cover COGS (cost of goods sold), office supplies, subscriptions or other business services. This applies to even sole proprietors or self-employed consultants.

It’s estimated that self-employed folx can start applying for PPP loans as early as April 10, whereas small businesses have been applying as soon as their bank makes the option available.

Loan Specifics: 

You can borrow your monthly payroll costs multiplied by 2.5 (in other words, to cover 2.5 months of payroll expenses).

How to translate, an example: 

Your average monthly “payroll costs” (see above) are $2000 per month.

At 2.5 multiplier, this is $5,000 per month.

This example loan would be up to $5,000, and anything not forgiven (check out below) would continue as loan over two years at no more than 1% interest, non-recourse, no collateral or personal guarantee.

Now, remember, you have to use the loan for payroll, rent, mortgage, utilities, and or interest on any indebtedness during the covered period (so before June 30, 2020). (The maximum amount of the loan is all determined by your 2019 payroll amounts, so pull up those Quickbook numbers. If you’re new and don’t have full 2019 numbers, you’ll need your numbers from January and February of this year.)

The only way to take advantage of the 25% or eight-week forgiveness is to:

1. Spend at least 75% of the expenses on payroll costs (see above list)

2. Employ the same number of employees on June 30 as it did on February 15

3. Ensure wages do not decrease at or more than 25%

If you keep or re-hire your staff before the end of the covered period (June 30, 2020) and do not decrease your payroll expenses by more than 25%, you could have up to eight weeks of your loan forgiven. 

Translation: Any loan funds used to pay expenses within the first eight weeks of loan origination, you will not have to pay back. 

Who should apply for a PPP Loan: 

• Small business owners whose ability to do business, retain staff, maintain payroll, and earn income are affected by the COVID-19 pandemic.

  • Coffee shops, restaurant owners, and other hospitality businesses. 

  • Brick & mortar shops with or without employees (solo-preneurs are still employees of their own business!) 

  • Freelancers, artists, gig-workers, makers, dancers, performers, and other self-employed persons who make their primary income from their own business. 

• There are even more advantages for the restaurant and hospitality industry. Any business with a NAICS code starting with a 72 can defer payments on a PPP loan for at least 6 months, and in some cases up to 12 months.

How to apply for a PPP (Payroll Protection Program) Loan: 

1. Get your payroll costs on paper. The money you earn as a sole proprietor or self-employed person will count as your payroll costs. 

2. Organize your numbers easily, like in an Excel spreadsheet or listed notes. Collected 1099s are best. 

3. Bring this information, along with your business information (as much as you have, such as your federal EIN #) to your local bank or credit union. Call first to inquire about PPP Loans, or use this online tool to find a lender near you facilitating PPP loans.

4. Apply for the loan at your bank. Fill out this PPP application form to be sure you’re prepared, then bring to your financial institution.

5. (Haseeb has learned that there are some banks that are still learning the laws, and are coordinating with the SBA on whether they can issue a PPP loan. Just watch out for a varying degree of responses between banks.)

Once you receive funding: 

• Keep track of your expenses using an application like Quickbooks Online, Freshbooks, or WAVE App (free equivalent to QBO). 

• Scan your receipts into your chosen expense tracking app. 

• Download your bank statements. 

• Organize this information into a secure file on your hard drive or cloud. 

EIDL Specifics: 

The Economic Injury Disaster Loan is specifically for businesses whose ability to “do business” has been directly impacted by a national disaster. Examples may include food service, care of the elderly or immunocompromised, “non-essential” brick and mortar businesses that cannot deploy online sales in a timely manner (or at all due to product type), physically-involved businesses such as nail salons, massage studios, estheticians, etc. 

There is less money available in this program, but applicants regardless if their loan application is accepted or denied may be eligible for an emergency grant (that does not have to be repaid) within 3 days of the application of up to $10,000. The rest of your approved loan amount will be subject to the low interest, long-term maturity terms.

You can apply for and receive both EIDL and PPP if they are both relevant to your business. Be careful, only borrow what you need and be honest in your report for reasoning. 

Similar to the PPP, you can use this funding for: 

• Payroll for staff and/or yourself, including salary, wage, compensation, and payment of cash tip or equivalents

• Providing paid or sick leave for employees. 

• Meeting increased costs to obtain materials for doing business. 

• Rent

• Utilities

• Mortgage

• 1099 contractors receiving “salary, wage, commission, or similar compensation”, and likely can include legal, accounting, bookkeeping, graphic designers, copywriters, etc. 

• Main difference: You can use EIDL funding to pay debt payments (payment + interest) on business debts that originated before declared pandemic (January 31) [as opposed to just interest with PPP]. 

This does not cover COGS (cost of goods sold), office supplies, subscriptions or other business services. 

EIDL funding, though considered a loan, is technically an “advance,” which the applicant must receive from SBA within three days, and that amount can be forgiven entirely. 

How to apply for EIDL funding: 

• Go to SBA.GOV and apply with this application. 

• Only your credit score will be utilized for consideration for this funding. 

• According to the CARES Act, SBA will authorize an advance within or at 3 days of the borrower’s application. This advance will be the loan amount and is presumed to be completely forgiven. More on this as it develops.

Bonus Funding Option for Self-Employed/Entrepreneurs: Pandemic Unemployment Assistance (PUA)

If you are a self-employed person (entrepreneur, freelancer, artist, maker, performer, independent contractor, etc.), you may be eligible for up to 39 weeks of unemployment benefits, with a possible additional $600 per week. This part is still contingent on your state of residency and whether they have arranged an agreement with the U.S. Department of Labor, so track your state’s unemployment status carefully.

About that up to $600 additional per week, from the Department of Labor website:

Depending on how your state chooses to implement the CARES Act. The new law creates the Federal Pandemic Unemployment Compensation program (FPUC), which provides an additional $600 per week to individuals who are collecting regular UC [unemployment compensation]… This benefit is available for weeks of unemployment beginning after the date on which your state entered into an agreement with the U.S. Department of Labor and ending with weeks of unemployment ending on or before July 31, 2020.

This means that the states are in charge of when they get their act together and get with the program, when they implement the benefits in their state, and how they determine eligibility and compensation amounts from these funds. For my TN readers, stay up to date with our State Department’s progress by following them on Twitter. For readers in other states, look for your State Dept. on Twitter.

Download the Quick Start guide for Unemployment, published April 8, 2020.

How to apply for Pandemic Unemployment Relief as a Self-Employed Worker or Entrepreneur: 

• You must prove you’ve been actively seeking work. Your state will outline this on their application page (via the state department website). Collect your evidence and maintain the “search” for a job. Here’s the TN link for my local readers.

• Show your past income through 1099s or other financial tracking. 

• Be prepared to pay this back if your case isn’t strong and the government investigates. 

Don’t wait. There are billions of dollars available in funding and also millions of small businesses that will apply. 

• Re-hire your staff and do not cut payroll expenses by more than 25%. 

• Get your financials straight by organizing 1099s, an Excel spreadsheet, and/or other documentation through Quickbooks or WAVE App. 

• Apply for PPP funding if you have been impacted, even if you are a sole proprietor. 

• Apply for EIDL funding if your ability to do business and maintain payroll is directly impacted by the national disaster (pandemic). 

And, it goes without saying, share this resource with your fellow entrepreneurs! 

Any questions asked in the comments or by email will have answers vetted by a lawyer before posting, so please allow 24 - 48 hours for a response.