Last month, as the coronavirus pandemic began affecting businesses across the nation, Congress and the president approved the CARES Act to help small businesses — including self-employed design and remodeling pros. But at first the rules for self-employed people weren’t immediately clear. Then the initial $377 billion allocation ran out.
Now Congress and the president appear on the brink of approving an additional nearly $500 billion in relief to help small businesses (and provide funds for hospitals and testing). If you’re a freelancer or the owner of a one-person business, here’s what you need to know about the Coronavirus Aid, Relief and Economic Security (CARES) Act, federal and state unemployment and other new programs that can help your business now.
1. Forgivable Loans Through the Paycheck Protection Program
The Paycheck Protection Program (PPP) is a forgivable loan that will cover up to 2½ months of your firm’s average payroll costs (up to $100,000 in salary per employee on an annualized basis), including benefits. This program is available to freelancers and solo business owners — meaning that as a solo design or remodeling pro, you can use it to cover your paycheck.
Last week the SBA clarified that payroll costs for an independent contractor or sole proprietor consist of “wage, commissions, income or net earnings from self-employment or similar compensation.” In other words, “you can get the loan,” says Gene Marks, a certified public accountant and small-business expert in Pennsylvania.
In short, 75% of it has to cover payroll costs, but some money can go toward other expenses such as rent and utilities.
Use the money as outlined and your loan will be fully forgiven. If you don’t follow the rules, you’ll need to pay back your lender. Whatever portion of the loan is not forgiven would carry a 1% interest rate with a two-year term and six months of repayment deferral.
Apply for the loan first through your regular bank, as your existing relationship could help move the application along. “Talk to your banker. Try to get on the phone with someone,” says Paige Marie Griffith, attorney at The Legal Paige in Montana. “I have heard that has helped with getting loans processed quickly and transferred to accounts.”
If your bank isn’t participating in the program or you’re having a hard time getting through to someone, you might consider working with a local community bank. “Smaller banks are more likely to get you through the process better,” says Thomas C. Jardim of Jardim, Meisner & Susser in New Jersey.
Marks suggests looking into online lenders like Paypal and Kabbage. “They have the infrastructure set up to accept loans and data that a lot of the banks don’t have,” he says.
2. Unemployment Benefits for Independent Contractors
Unemployed independent contractors and other self-employed workers normally ineligible for unemployment may now apply for benefits through the Pandemic Unemployment Assistance (PUA) program, part of the CARES Act. This new benefit applies to those who are not “eligible for regular unemployment benefits” and who are “unemployed, partially unemployed or unable or unavailable to work because of certain health or economic consequences of the COVID-19 pandemic,” according to the U.S. Department of Labor.
Workers may be eligible for up to 39 weeks of unemployment benefits, retroactive to Jan. 27, 2020, and up through the end of the year. On top of that, you could receive an extra $600 per week until July 31 as part of the CARES Act. Each state is responsible for implementing the program, so check with your state unemployment insurance office to apply and learn more.
The new policies and staggering demand have overwhelmed state unemployment offices, resulting in payment delays and challenges for applicants, including the inability to even reach the offices to apply for the benefits. Once the states have had time to incorporate the benefits expansion into their systems, retrain staff and update technology, the process should begin to run more smoothly. “You’re going to have to be patient,” Marks says. “Once they get their act together, it will be easier.
Can You Get Both the Paycheck Protection Program and Unemployment?
As a self-employed worker with no employees, you could be eligible for both a PPP loan and unemployment benefits. But you can’t accept both. “You can only take one, otherwise it’s double dipping,” Marks says. “If you get accepted for both, you’re really not supposed to be taking both.”
There are benefits to both programs. In some instances, your weekly salary could go up by filing for unemployment. “Some states pay high enough amounts of unemployment that combined with the $600 from the federal government you can make more than 100% of your normal compensation,” says Scott Salmon of Jardim, Meisner & Susser. With a PPP loan, you would continue to receive your same pay, including benefits, and some additional funds to help cover rent, utilities, insurance premiums and other expenses to keep your business running — all untaxed if forgiven, unlike unemployment.
The best program to apply for and then accept help from will depend on your circumstances and what you think would be the best course of action for your business. “Get out a calculator and a spreadsheet,” Marks says. “You have to figure out what you’re eligible for under unemployment and compare that to PPP.
3. Emergency Funds Through the Economic Injury Disaster Loan Program
Self-employed workers can also apply for an EIDL, a long-standing loan program administered by the SBA for small businesses suffering substantial economic losses in disaster areas (which now include all 50 states). These loans of up to $2 million can be used to cover the next six months of operating expenses of a business and include an emergency cash advance of up to $10,000 (which never needs to be repaid).You can receive an EIDL even if you also get a PPP loan or unemployment benefits.
Due to high demand, the U.S. Chamber of Commerce has indicated that initial loan amounts are capped at $15,000 per company in addition to the $10,000 advance. The loans are at 3.75% interest, with up to a 30-year term and 12 months of repayment deferral.
4. Additional Relief From Your State or City Government
Some local governments are offering their own financial assistance programs. “There are many cities that have set up relief funds for small businesses, including independents,” Marks says. Chicago, San Francisco and New York are just a few of the cities offering low-interest loans and grants. “And there are many states that have done the same,” Marks adds.
Some of the programs apply exclusively to businesses with fewer than five employees or thathave less than a specific annual gross income, helping those who may be feeling ignored by bigger banks and lenders. Self-employed workers “should always check with their individual state,” Jardim says.
5. Grants and Loans From Nonprofits and Corporations
Some corporations, nonprofit organizations and even individuals are also providing financial relief to small businesses affected by the pandemic, with some relief available only for businesses under a certain size or that are made up of underserved workers. Facebook, Amazon and Verizon, in partnership with the Local Initiatives Support Corporation, a nonprofit that helps with community development initiatives, are just a few of the companies that have established funds to provide COVID-19 relief for small businesses. “There are so many grant opportunities out there,” Griffith says. “You can apply for all of these other grants” in addition to government aid.
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