With the glut of information filling up your email in-box as well as all of your media platforms, it is hard to distinguish what is most critical for you as you prepare to file your PPP loan application as a self-employed individual. 

The first thing you need toknow is that the period when self-employed individuals like you can submit their paycheck protection plan applications with a participating bank will begin on Friday, April 10, 2020. 

The biggest challenge is that there are still key questions that remain unanswered.

  • The first critical concern is that if you are self-employed without employees, there are no definite instructions on how to calculate payroll for the purpose of the loan application. 
  • The second area that is unclear is whether or not self-employed individuals without payroll will have forgiveness under PPP.

In the absence of clarity on these two basic issues from the Small Business Administration (SBA), here are some recommendations and suggestions we can share with you to help you get started.

To begin completing the application, your source for information will be you’re your 2019 Schedule C

Using Schedule C source as a guide, you can determine your average monthly payroll as follows: 

  • Employee payroll starts with the amount reported on the 940 for 2019, line three (Total payments to all employees but capped at $100,000 per employee).  Add to that amount any payments made in 2019 for health insurance plus payments made towards retirement plans, including SEP payments. 
  • For the self-employed individual, you will use 2019 self-employment earnings (again, capped at $100,000) and add the self-employed health insurance and payments towards the self-employed retirement plan, including SEP payments.
  • Add one and two together to determine your annual payroll.  Divide this total by 12 to arrive at the average monthly payroll.  You will need this number to calculate your loan request (see below).
  • When filing your application, your loan request will be 2.5 times the average monthly payroll as you have determined it under item three.

There are a few additional items to be aware of

  • As we noted, for the purpose of determining your payroll, wages are capped at $100,000 per individual as per the guidance issued on April 6, 2020.
  • There is no guidance that informs us how to determine the number of employees to report on the PPP application form. You may consider going to the SBA website for information as to they determine employee headcounts https://www.sba.gov/federal-contracting/contracting-guide/size-standards

Alternatively, some applicants have used the Internal Revenue Service (IRS) formula for calculating full-time equivalents (FTE) especially if you have a part time people.  

Whatever basis you use to calculate your payroll and your loan request, make sure you document how you arrived at the number.  (We believe that the employee count will be used to determine if you reduced headcounts which would then reduce forgiveness later on.)  It will be essential to you to maintain documentation on how you reached your conclusion.  

  • Items that you should have available at the time of submitting your application include the following:
    • 2019 Form 941s 
    • 2019 Form 940
    • Form 1099s that were received in 2019

(The banks are referring to these documents to prove validity as to the operation of the business)

    • Additionally, some banks are requesting copies of 1099s that applicants sent to non-employees  
    • 2019 financial statements (or Schedule C)
    • Copies of paid health insurance bills
    • Documents that support pension payments

We continued to emphasize that guidance has not been published by the SBA to cover every specific situation or circumstance.  

If you are unsure how to handle your exact situation, we encourage you please consult with our SobelCo professionals. 

Loan forgiveness for the self-employed. 

Although things are changing rapidly, at this point we are not aware of any guidance as to the loan forgiveness program under PPP as it pertains to compensation for the self-employed.

We do know that for all other businesses you must immediately put your funds into use for payment of your payroll and payment of your rent, utilities etc. This is especially important if you are going to apply for loan forgiveness.  Don’t forget that the funds must be utilized in the eight week period starting when the money arrives. 

And finally, forgiveness is not automatic and the responsibility is on you to request loan forgiveness from your lender otherwise you will have to pay back all of the loan.

There will be more to come and we will keep you advised.