Single-Person Businesses and the Second Paycheck Protection Program (PPP2)

As of December twenty seventh, 2020 the Paycheck Safety Program is again, and Biz2Credit can get your business started with a straightforward course of that can assist you get funded rapidly.

The Paycheck Protection Program (PPP) is back, with functions open by way of March 31, 2021, for first-draw and second-draw loans. Nevertheless, numerous the knowledge we’ve been seeing up to now has been targeted on small- and medium-sized companies (SMBs) whereas sole proprietors and different single-person companies are a lot of PPP candidates. Biz2Credit is likely one of the high PPP lenders for small companies, having disbursed over $1 billion of 2021 PPP up to now, so we needed to stroll by way of PPP funding for single-person companies.

Specializing in the current pointers issued by the Small Enterprise Administration (SBA) of their Interim Final Rule (IFR) documents, we’re going to have a look at:

• the paycheck safety program,
• single-person enterprise eligibility,
• figuring out what paperwork you’ll want to file,
• calculating your mortgage quantity as a single particular person enterprise,
• the lined interval and eligible bills,
• and mortgage forgiveness.

Paycheck Safety Program

In March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, handed and established the primary spherical $350 billion forgivable mortgage program: the Paycheck Safety Program. This system was designed to assist sure small companies, self-employed staff, sole proprietors, sure nonprofit organizations, and tribal companies proceed to pay their staff and their associated payments whereas shut down as a result of native and state COVID-19 steerage.

The December 21, 2020, passage of the $908 billion Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act included $284 billion for the Paycheck Safety Program and $20 billion for focused financial damage catastrophe loans (EIDLs). (The Act was handed inside the Consolidated Appropriations Act.)

The reduction invoice additionally launched a second draw program, which permits “smaller and harder-hit companies” who’ve already used (or plan to make use of) the complete quantity of their unique PPP mortgage to use for a second PPP mortgage. To be eligible for a second draw PPP mortgage (PPP2) as a single-person enterprise, you could have already spent your first-draw PPP mortgage and reveal “a minimum of a 25 % discount in gross receipts within the first, second, or third quarter of 2020 relative to the identical 2019 quarter,” in response to the House Appropriations Committee.

The December legislation is concentrated on small and medium-sized companies (SMBs) and equitable distribution of funds by the SBA and monetary establishments to quite a lot of companies. After Congress authorized the package deal, the Treasury Division and SBA labored out the main points, which had been revealed in January as IFRs earlier than the enactment of the brand new PPP.

Eligibility as a Single-Individual Enterprise

Crucial factor earlier than making use of for a PPP mortgage is figuring out your eligibility. For starters, in response to the most recent SBA IFRs, an eligible single-person enterprise – or single-employee enterprise – consists of:

• sole proprietors,
• impartial contractors,
• and self-employed people.

There are 4 fundamentals tenets of eligibility which might be required for all single-person companies, as specified by the SBA’s IFR on the Paycheck Protection Program:

1. You had been in operation on February 15, 2020.
2. You might be a person with self-employment revenue (resembling an impartial contractor or a sole proprietor).
3. Your principal place of residence is in the USA.
4. You could have/had no workers.

Past that, a single-person enterprise is eligible based mostly on submitting taxes utilizing IRS Form 1040, which may present revenue and bills for the previous fiscal 12 months and show the enterprise was in operation on February 15, 2020.

Sole Proprietorships

The IRS states {that a} sole proprietor is “somebody who runs an unincorporated enterprise by himself or herself.” (In case you are a single-person enterprise with an LLC, see under.) Sole proprietors will use Kind 1040 or a Form 1040 Schedule C to:

• report revenue,
• be aware revenue or loss from the enterprise,
• and pay taxes.

Unbiased Contractors

IRS Kind 1099 exhibits impartial contractors’ revenue and bills and proves they had been in operation earlier than February 15, 2020. If they’re impartial contractors who weren’t full-time W-2 workers of a enterprise throughout the 2019 fiscal 12 months, then they’re eligible as a single-person enterprise.

Unbiased contractors file taxes utilizing Kind 1040 as a self-employed individual, which shall be used when making use of for PPP funding.

Self-Employed People and LLCs

The latest SBA IFR on the PPP says self-employed people are eligible for a PPP mortgage if they filed a Kind 1040 Schedule C.

In case you are self-employed and have fashioned an LLC, the IRS notes that single-member LLCs are mirrored as a “disregarded entity” and don’t hinder the borrower’s means to use for PPP funds. So long as a single-member LLC doesn’t elect to be handled as an organization, then the person (single-employee) proprietor can file taxes with a Kind 1040, like different self-employed people, which qualifies them for the Paycheck Safety Program.

The IRS states this doesn’t apply “if the single-member LLC is owned by an organization or partnership.” The LLC have to be for a self-employed single-employee enterprise.

Documentation Wanted

As soon as you understand if your small business is eligible, the following step is to collect the documentation to file for a Paycheck Safety Program mortgage. The basics you’ll need are:

• Date your small business began.
• Annual income (can use Kind 1040).
• Enterprise mailing tackle.
• You might want a NAICS code to your business.

As a self-employed particular person in a single-person enterprise, the lender might want to see all wage, fee, revenue, and internet earnings paperwork you must set up proof of revenue. This may include:

• Earnings experiences
• Pay stubs
• Invoices
• Kind 1099-MISC
• Revenue and bills utilizing IRS Kind 1040 Schedule C.
• You may as well use financial institution information to show payroll and revenue.
• When you use a payroll processor or have payroll tax submitting information, these could also be wanted too.

An bill, financial institution assertion, bookkeeping document, or fee document could also be required to show your small business was in operation on or earlier than February 15, 2020.

All of this documentation is just for companies that do not need workers or payroll bills. It’s for single-employee companies.

When you personal a couple of enterprise, you will want to make sure that your funds and documentation are separate. In any other case, you can run into hassle securing a PPP mortgage and mortgage forgiveness.

Calculating Mortgage Quantity

Figuring out the quantity of the mortgage is finished in 4 steps:

1. Decide your annual payroll
   • Consult with your tax return for the way a lot you made previously calendar 12 months
2. Subtract any annual compensation in extra of $100,000
   • The SBA permits annual compensation as much as $100,000.
3. Calculate your common month-to-month payroll prices
   • Divide annual payroll by 12
4. Multiply common month-to-month payroll prices by 2.5

As a single-employee enterprise, you’ll be reporting your internet enterprise revenue, which might be discovered on Kind 1040 Schedule C.

As a single-employee enterprise, the maximum loan amount you may obtain is $20,833. (That is based mostly on a most annual wage throughout the previous 12 months of $100,000.)

Eligible Bills and the Lined Interval

Single-person small companies are capable of observe the identical pointers for eligible bills and lined durations as different small companies making use of for PPP loans, whatever the variety of workers and bodily areas they’ve. Nevertheless, as a result of mortgage quantity, having fewer workers might imply that single-person companies will solely be capable of cowl payroll prices with the PPP mortgage proceeds.

Eligible Bills

Debtors have to make use of 60 % of the mortgage on payroll prices and 40 % on non-payroll prices. Spending the PPP mortgage on these covered expenses ensures that the mortgage shall be forgiven.

• Payroll costs are:
  • Wages and wage in addition to any insurance coverage or advantages.
• Non-payroll costs include:
  • Lined mortgage curiosity funds.
  • Lined enterprise lease and lease obligations.
  • Lined utility funds.
  • Lined operations expenditures: enterprise software program, cloud computing service, or different human sources and accounting wants that assist the enterprise operate.
  • Lined property harm prices regarding 2020 protests that weren’t lined beforehand or by insurance coverage.
  • Lined provider prices embody buying important items for the enterprise and purchases made pursuant to a contract previous to taking out the PPP mortgage.
  • Lined employee safety expenditure: private protecting gear and adaptive investments to adjust to well being laws.

Eligible non-payroll bills have to be incurred throughout the borrower’s lined interval. These bills should even be paid earlier than the following billing date to keep up eligibility for full forgiveness.

Lined Interval

Debtors can choose when their lined interval ends, with the choice for an 8 or 24 week interval starting after the mortgage’s disbursement. Lined durations can lengthen past the March 31, 2021 PPP deadline.

PPP Mortgage Forgiveness

The SBA says mortgage forgiveness shall be offered for the sum of documented payroll and non-payroll prices with a PPP mortgage. So long as your ratio is 60 % (or extra) payroll and 40 % (or much less) non-payroll, then your mortgage is relevant for full forgiveness of the principal quantity and accrued curiosity.

The borrower should submit a mortgage forgiveness software to its lender inside 10 months after the tip of the lined interval.

For a single-person small enterprise, the Treasury and SBA introduced the idea of Proprietor Compensation Alternative. This program permits self-employed people to say a portion of the PPP mortgage to make up for misplaced revenue as a result of COVID-19. Relying on in case your PPP mortgage declare included different payroll bills, this could possibly be the complete quantity of your mortgage, which might be totally forgivable.

To say Proprietor Compensation Forgiveness, fill out the mortgage forgiveness software (Form 3508) and report the quantity claimed – the complete PPP mortgage quantity – on Line 1.

Making use of for Your PPP Mortgage

In case you are an eligible single-person enterprise and have your documentation prepared, Biz2Credit can assist you get started now on making use of to your Paycheck Safety Program funding. The deadline to use is March 31, 2021, however the sooner you apply, the quicker you may obtain cash for your small business.

Because the coronavirus pandemic continues to shutter companies throughout the USA, it’s extra necessary than ever earlier than for PPP debtors to use throughout this second spherical of funding. Utilizing the knowledge above about eligibility and documentation, you may start the method of making use of at this time!