Philly Area Creatives and Everyone Else!
Hi, how are you doing? Hopefully as well as can be considering the circumstances.
I’ve been looking into resources available to small businesses, freelancers and independent contractors in the recently signed $2 trillion economic stimulus package. At $2 trillion you gotta think there’s something in there to help us out right? Well, from what I can tell so far, there is.
First things first. I’m not a policy analyst or a financial advisor. I haven’t read the 800 page legislation, but I have collected a lot of information from reputable sources including INC., the US Chamber of Commerce and the National Law Review. This is my best reading of all of this information. You need to make your own call on what’s best for you and your business. That’s why taking your time and educating yourself is so important. So grab a note pad and a cup of coffee, cause there’s a lot to digest here.
FORGIVABLE FEDERAL LOANS:
There’s a section of the new federal stimulus bill called the Paycheck Protection Program. Under this program, the Small Business Administration (The Federal Government) will back loans from approved lenders (banks) to cover 2.5 months of payroll and other approved expenses, such as health benefits, utilities and mortgage interest. Most small businesses with fewer than 500 employees will be eligible. And as long as the loan is used to cover salaries for 10 weeks and no employees are laid off or have their salaries reduced by more than 25% during that time, the loan will be forgiven.
Now, when I heard this my first question was, “what if my business doesn’t have any employees.” I found the following analysis of the legislation from the National Law Review. In the analysis, sole-proprietors and independent contractors were listed among those that are eligible. The analysis also goes on to say that “For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments, including wages, commissions or similar compensation capped at US$100,000.” So moving forward we’re going to assume all contractors, sole proprietors and single member LLCs are eligible.
So now that we know we’re eligible, how large of a loan could we take out. First you need to determine your comfort level with taking on debt. As I mentioned before, if all the i’s aren’t dotted and t’s aren’t crossed, the loan might not be forgiven.
But, with all of that in mind. INC. Magazine has a good calculation for figuring out your loan amount.
Under the rules, the maximum value of a company’s loan is based on that company’s average monthly payroll cost in 2019–including wages for employees making under $100,000, as well as expenses for paid sick leave, health care, and other benefits–multiplied by 2.5. That equals 10 weeks of payroll expenses. The maximum loan size available is $10 million.
Here’s an example of what the formula could look like.
(($75,000 individual annual salary + $10,000 annual health insurance premiums)/12 months)* 2.5 months = $17,708.30 loan
Here’s an example of what the maximum amount of the loan would be for a sole proprietor or independent contractor, given the $100k salary cap. Health insurance premiums aren’t included in this version since we’re already at the compensation cap of $100k.
(($100,000 individual annual salary)/12)* 2.5 months = $20,833.33 loan
According to the information I’ve read, as long as the loans are used to cover payroll expenses, utilities and or business mortgage interest, the loans will be 100% forgivable, which means that you will not have to pay them back.
In order to get the loan forgiven at the the end of the 2.5 months, you’ll need to show your company records to verify that you continued to pay your employees or in our case, yourself, and that the money was used to pay approved expenses during the 10 week period, it seems that as long as you meet these criteria and DON’T FIRE YOURSELF the loan will be forgiven. At this point, I’m not sure who will be reviewing company records, but I’d suggest keeping all receipts and making sure you keep your books simple and clean during this period.
OUR NEXT STEPS:
Right now, I’m pulling together all the info needed to calculate my potential loan benefit. I’ve already reached out to a few banks but most of them still don’t have guidance from their corporate HQs. I would suggest to start by contacting the bank that you do your normal banking with. From the folks I’ve spoken to (banks and small biz owners) it’s probably going to be a week from now (03/28/20) until they have more clarity and start taking applications and issuing loans.
In the meantime, US Bank has a web page where you put in your information and someone will presumably call you back. I also reached out to TD Bank, and after waiting on a 30 minute hold, they told me I had to call my local branch. So, if you work with TD Bank, save yourself some time and call a local branch directly.
Below are the resources where I pulled my info from. Lots of helpful stuff in here. Take this time to educate yourself on what’s available to help you through this crisis.
- INC. and US Chamber of Commerce Presentation on Federal Stimulus ACT: This is a great deep dive into the bill. I found the entire thing particularly helpful. It’s 60 minutes, so grab a cup of coffee.
- Everything You Need to Know to Get Your Business Loan Forgiven
- Small Businesses Could Land SBA Loans in as Soon as 2 Weeks. Here’s Who’s Eligible
I hope this is helpful. I’m gonna try to do my best to share any worthy advice that comes my way. If you have additional info that you think would be helpful to include in this post, you can send it to firstname.lastname@example.org