Under the CARES ACT signed into law by President Trump March 27, 2020, there are several financial assistances programs for small business and sole proprietors in the form of tax credits, loans and grants. Listed below are two of the loans that convert into grants if used for their intended purposes.
1. What is available?
a. Economic Injury & Disaster Loan (EIDL)
b. Paycheck Protection Plan (PPP)
2. Who can apply?
a. Both Self-employed and independent contractors are eligible with less than 500 employees (sole proprietors)
3. What are the eligibility requirements (any of the items below)?
a. Do you pay wages?
b. Do you pay commissions?
c. Do you have income?
i. Net earnings from the business
4. How would you prepare for the process?
a. Get your bookkeeping records current and make sure they are accurate.
i. Income (Profit & Loss) statements
ii. Balance Sheet
b. Review them for any possible errors
i. If unclear what is current and not correct
1. Consult your accountant-if you have one
2. Contact your local SBDC office-they have specialists (at no cost) that can help
5. What will you need to provide for the application process? (required for EIDL)
a. Gross Revenue (sales)
b. Cost of Goods Sold (if any)
c. Net Income (net profit)
6. Where can you find this information?
a. If the business files their federal tax return as a sole proprietorship, they would be on the tax return (use 2019 if available) or 2018 on the Form Schedule C as an attachment to your 1040
b. This information can also be found by running a report from your bookkeeping software (if you use one)
c. Collect any tax filings made within the last 12 months (required for PPP)
i. Any payroll filings such as Form 941 (payroll withholdings), W-2, W-3
ii. Bank statements for the past six months
iii. Have your EIN or Social Security Number handy
iv. Have the bank account routing number and account number (on bottom of your checks)
7. You are ready to jump in and file the application(s)
a. Where do You go?
i. Go online to the sba.gov and maneuver to the EIDL application
ii. Fill out the questions (simple application)
iii. Use the information from step 5 above for some of the questions
iv. At the end of the application
1. Check YES you want the advance payment of $10,000
2. You will then be asked to input your bank account information
a. Routing number and bank account number (bottom of check)
b. In theory this amount will be deposited into your account within 3 days
i. This loan will convert to a grant (FREE Money) if it is used for its intended purpose (Payroll, utilities, rent, interest on a mortgage) and not have to be repaid
a. How do you prepare for this process?
i. This loan requires the same preparation as listed in steps 1-7 above
b. How do you apply?
i. This loan is only processed by your bank
ii. It is advisable to contact your bank and confirm the documents they may require
iii. Check with your bank in reference to how to apply
1. Each bank has a different process-you need to contact them
iv. The application is only 3 pages long but, they will want to see the above documentation (confirm with your bank on what to provide)
c. How much can you get?
i. This loan will be 2.5 x your average monthly payroll costs paid over the last 12 months (total payroll costs/12)
ii. Self-employed and independent contractors without employees will use the net income (profit) from their business as their wages (will be on the Form Schedule C of their 1040 tax return)
iii. If the funds are used for their intended purpose (wages, utilities, rent, mortgage interest), the loan will convert to a GRANT and not have to be paid back.
10. Can you apply for both loans?
a. You can apply for both loans, but the funds should be used for different purposes
i. It may be wise to put the $10,000 into a separate bank account you set up and pay those bills from that amount and use the PPP for different types of bills from your regular account
Contact Neil at www.theshnidergroup.com or 614-582-0108 for more information