So far, the Small Business Administration’s Paycheck Protection Program rollout has been messy at best. Banks have already been inundated with applications from small businesses (who were able to begin applying for the loan on April 3) and have already struggled with the volume of applications and their own liquidity. But on April 10, a new set of applicants are able to join the pool: independent contractors and self-employed individuals.
Of the PPP loan rollout, “The process was clunky on both sides,” says Stephanie O’Rourk, partner and member of the SBA task force at accounting and consulting firm CohnReznick. “There isn’t a tremendous amount of guidance [for independent contractors], but I think if [the banks] leverage off of the guidance that’s been currently given to them, I think they’ll be able to help their customers.”
Self-employed individuals and independent contractors cover everything from accountants to artists, electricians, and more. The SBA’s PPP loan borrower application is the same for small businesses (including self-employed individuals and independent contractors, who were delayed from applying until April 10).
Those like Rafael Espinal, executive director of the Freelancers Union, are telling freelancers to apply on Friday.
“It is a first-come, first-serve loan and potentially grant if it is used to pay payroll and rent for up to eight weeks,” Espinal told CNBC Friday. “I expect there to be the same amount of confusion. Major lenders, for example, are only assisting freelancers and small businesses that already have a business checking account with them. That will leave many freelancers out who only have a personal checking account. I encourage people to search for lenders that are willing to take new customers. They exist.”
One such lender accepting new customers is Republic Bank, based in Philadelphia, covering areas in Pennsylvania, New Jersey, and New York. Chairman Vernon Hill tells Coins2Day the bank is already receiving a “tremendous volume” of PPP loan applications, and that they are now accepting independent contractor and self-employed applications as of Friday.
Which independent contractors and self-employed individuals are eligible for loans?
Self-employed individuals and independent contractors can apply for the PPP loan if they were in operation on February 15, 2020.
The guidelines for this group are thus far the same as small businesses: They can borrow up to 2.5 times their average monthly payroll from the previous year, but payroll is capped at $100,000 per employee (The loans have a maturity of two years at a fixed interest rate of 1%, and are capped at $10 million per business). According to the SBA’s final interim rule, “payroll costs” for self-employed or independent contractors include “wage, commissions, income, or net earnings from self-employment or similar compensation.” The loans can be forgiven (essentially turning into grants) as long as the borrowers meet certain conditions.
At the time of this writing, the SBA had not yet released a separate form for self-employed individuals and independent contractors for the PPP loans.
What should self-employed individuals and independent contractors include in their application?
The SBA’s program was designed to help small businesses keep their employees on the payroll during the difficult coronavirus crisis—including helping those who pay themselves stay afloat. Much of the information needed to extend these loans is found in payroll documentation.
“The payroll information is the basis for the loan, and this group of people don’t usually have the normal corporate-type data that you expect from a business,” Republic Bank’s Hill says of independent contractors and self-employed workers.
However, Republic Bank is already accepting independent contractor and self-employed individual applications on Friday. “They just need to submit their salary information in whatever form they have,” as prescribed by the SBA rules, says Hill.
Self-employed and independent contractor applicants should follow the guidelines for the application from the SBA and Treasury. For this group, the kind of documents needed to establish eligibility include payroll processor records, payroll tax filings, Form 1099-MISC, or income and expenses from a sole proprietorship.
The SBA notes that, for borrowers who don’t have this traditional documentation like 1099’s or payroll records, they just need to submit “other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”
Along with the application on the bank’s site, Republic Bank notes this group should provide backup documents like Schedule 1, C and SE of the 2019 tax return, as appropriate, and Schedule SE 1040 (for individuals with a salary over $100,000), as part of the information requested by the SBA.
Advice for applying
Alongside the Freelancers Union’s Espinal, O’Rourk and Hill encourage freelancers to apply as soon as possible, as the loans are first-come, first-served.
O’Rourk suggests getting as much information as possible together beforehand to ensure you’re ready for the application. She also recommends applicants “speak to your accountant so they can give you some guidance.”
Both Hill and O’Rourk suggest speaking to your bank. Adds Hill: “If they have some problem, they should give us and the banks a call and we’ll walk them through it.”
More must-read finance coverage from Coins2Day:
—3 strategies small business owners are using to get their SBA stimulus loans faster
—When will your SBA loan be approved? Why the process is moving so slowly
—College educated investors may be more likely to fall for coronavirus scams
—Corporate credit markets do brisk business after Fed help
—Listen to Leadership Next, a Coins2Day podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
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