The federal government’s PPP loan allows contractors, self-employed individuals, and small businesses under 501 employees to get funded to the amount of 2.5 times their average monthly pay.
The loan has a 2 year term and 1% interest rate, with all payments deferred for 6 months. No collateral or personal guarantee is needed and no loan fees will be charged.
If you spend the loan proceeds on payroll, rent, mortgage interest, or utilities over the 8 weeks after getting the loan, and you maintain employee compensation levels, the loan will be forgiven. You’ll have to use 75% of the loan proceeds on payroll for forgiveness of the full loan.
That’s a shot in the arm for any business that is affected by COVID-19.
While the first round of loans were mostly snapped up by larger businesses, the second round has made its way to smaller businesses.
The PPP loan request requires businesses to certify in good faith that “current economic uncertainty” made the request necessary.
The SBA added FAQ #31 in recent weeks that “It is unlikely that a public
company with substantial market value and access to capital markets will be able to make
the required certification in good faith.”
Then they added FAQ #37, which said that “private companies with adequate sources of liquidity would also be unlikely to make that certification.”
However now they added FAQ #46 that “Any borrower that, together with its affiliates received PPP loans with an original principal amount of less than $2 million will be
deemed to have made the required certification concerning the necessity of the loan
request in good faith. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.”
That should come as a relief to many small businesses that were confused about previous guidance.
Businesses that still want to return funds can do so until 5/18 without penalty.
You can still apply for a PPP loan. I’ve heard from dozens of readers who have been approved after applying for a PPP loan through Kabbage. Many of them were approved by the SBA within 24 hours after waiting weeks for their primary banks to get them a PPP loan.
Were you able to get approved for a PPP loan?
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56 Comments On "SBA Says They Won’t Scrutinize PPP Loans Under $2MM, Have You Received A Forgivable PPP Loan?"
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Yup got the money in the first round
Do we have to show that revenue went down?
No, you need to certify in good faith that “current economic uncertainty” made the request necessary.
If loan is over 2 million you should be ready to prove that the current economic uncertainty led to your need for the loan. Speak to your accountant as to how to do this.
So it’s still not clear to me what needs to be provided in order to make this loan forgivable? Or are they automatically forgiving loans under 2 million?
“If you spend the loan proceeds on payroll, rent, mortgage interest, or utilities over the 8 weeks after getting the loan, and you maintain employee compensation levels, the loan will be forgiven. You’ll have to use 75% of the loan proceeds on payroll for forgiveness of the full loan.”
My understanding is that the SBA reviews the forgiveness applications which are likely initially submitted to the lender. For standard businesses, it seems pretty straight forward. I’m curious to know how/what 1-person schedule C fillers will have to submit to get their loans forgiven.
@Dan I applied under a schedule C as an independent contractor so what documentation do I need to provide?
does that mean you don’t have to pay it back
I got a ppp the 2nd time around. (Thru my primary bank they came thru before kabbage did.) Does the new info mean I wont be required to submit proof of how I used the money? Under 2 million unfortunately 😉 just curious if this means they won’t even ask for documentation?
You will still need to provide documentation to show what you spent the proceeds on, but they will take your word for it that you needed the funding.
You will need to prove that 75% went to payroll based expenses and they are similar to payroll based expenses over the last year. The other 25% can be used for other business expenses like mortgages/rent etc
Got a very small loan from Capital One under 10k. They totally missed first round and only opened applications to their own business account holders. Approved on 5/1. Took them until 5/9 at 9:30pm to send me documents for signature. Only funded this afternoon. Applied through Dime and BlueVine still processing. Gonna cancel now.
do they need proof that u used the loan for pay roll or is it in “good faith”
You must document the expenditures to qualify for forgiveness.
Small non-profit.. Got it the second time around through Kabbage
Kabbage is only as good as one is lucky. I have two applications with them (for two separate businesses). One was already approved and loan documents signed, they say they deposited the funds, but those never showed up in my account. Calling them is a waste of time. After emailing, they claimed that the deposit was returned to them and requested a color copy of a void check. I sent that, and haven’t heard back or seen funds.
The second application has been saying for the past 2 weeks that it’s subject to SBA final review and that should be done in 5 days (the other application also said that initially and cleared after a couple of days). There’s no-one to talk to.
Have you tried messaging them on Twitter?
I applied through Ira Zlotowitz’s Eastern Bank (advertiser on Dans Deals). First application was submitted immediately upon process being opened. During Pesach, when I was not checking emails, I received an email requesting more information (essentially to resubmit the entire application due to his bank’s negligence). I, therefore, missed out the first wave. I submitted again when second wave opened. I was rejected, even though I have had to lay off employees and my expenses exceed revenue. I emailed without response.
Yesterday, I submitted an application through Intuit…I will submit through Kabbage, though I think that is an Eastern affiliate, no?
Thanks Dan for your everyday help, just to confirm your words, I applied thru kabbage last week, in less than a week I had the money sitting in my account.
Applied by 6 banks, took some time for approval.
You will need proof documentation for any dollar amount you want to be forgiven.
https://bench.co/blog/operations/ppp-forgiveness-contractors-sole-props/
Hi, thanks. The info at this link does answer some of my questions just posted here.
How about a small LLC with only one employee no payroll
What type of documentation would I need to make it forgivable
You can pay yourself proportionally the same amount you made last year as well as other business expenses.
Does anyone know if you must spend the 75% on payroll from the actual bank account that the funds went into, or payroll reports from a different bank account, but same company, will suffice to get forgiveness?
Meaning, if you have many back accounts for one business, and the money went into the account that typically doesn’t pay the payroll.
The source/bank account does not matter. Your proof will be your payroll reports. (Enrolled Agent with 15 years of tax and small business experience)
a ? what about if you are self-employed only you the owner and got the PPP can yous till get unemployment or PUA whats your thoughts on that
No, you cannot collect both (at the same time). That would be considered double dipping. You should stop claiming unemployment when your loan is funded. (Enrolled Agent with 15 years of tax and small business experience)
How about a landlord I do not file a schedule C no partners but have vacancies and Some tenants not paying due to covid… can I get either a forgivable loan or PUA? I started the process of unemployment / PUA but when I certified my first week the money I stayed I made was more then the eligible amount. So if the rent comes in the first week of the month can I certify the others and zero income?
Does anyone know if payroll needs to be run over the full 8 weeks or can spend 75% on payroll in the last 4 weeks because NY restrictions still in place.
As long you kept your FTE employees and paid 75% of total for payroll by Jun 30
Hi Dan, thanks for this and for your very helpful blog in general. As to the loan, I’ts hard to figure out what counts as “payroll” for the self employed? Do you just pay yourself and use it for everyday uses just as regular income and as any employee is using their payroll checks for anything? How do you prove it was used for payroll?
Could the self employed “payroll” be withdrawn all at once, or must be spanned over the 8 weeks? Could it be used for everyday expenses, house rent or credit card debts of past months, or must be used for current living expenses?
If you lost part of regular earnings, could the loan be used only to cover for the losses, or you can use the whole amount even if the funds exceed the amount in losses and still be forgiven? If you do better now, could the loan still be used to compensate for slowed business in past weeks and months?
There seems to be a lack of clarity in guidance on fair use and rules of loan forgiveness for the self employed.
There is definitely a lack of clarity on forgiveness for the self-employed loans. I am not even sure that I would trust the Bench link above as Treasury is expected to issue additional guidance on this matter soon. I would keep checking the SBA website’s FAQs. As it currently stands, forgiveness is based on the calculation based on line 31 of the 2019 Schedule C. At a minimum, I would write a check from the business account that has its own tax ID number to yourself (not a transfer) so that you have a cancelled check as part of your proof. (Enrolled Agent with 15 years of tax and small business experience)
Line 31 is net income, or gross income minus expenses. So how does one calculate expenses for the forgiveness period? Some expenses are as needed at that moment, some are monthly (like rent), others are annual (like insurance, membership fees). Are expenses everything spent in that 8 weeks for that business? Is it the average weekly expenses from 2019 schedule C? Do schedule C fillers have to wait until 2020 is over to calculate all the tax year’s expenses? A typical business needs earnings to simply break even. Everything after that break even is net income that appears on Line 31.
Thanks for the informative input. Question: if I have one bank acct, not a separate one for the business (is this common for self employed?), what’s wrong if I just write out 25% for business rent and keep the rest for myself (provided that self “payroll” indeed equals 75% of the received loan)? Does it have to be an official payroll check from myself to myself?
For example, if the loan is 8,000, your average monthly 2019 net income is 3,000, and your rent expense (suppose for the purpose this is the only business expense you are using the loan for) is 1,000. You’re writing 2 checks in amounts of 1,000 each for 2 month’s rent, and keep the rest in the amount of $6,000 8 weeks worth of “payroll” in the bank acct to use for your personal needs. Would this create problems?
Also, why write a check; a recorded transfer won’t qualify as proof? And why cancel and not actually cash it out?
Any updates on the self employed payroll/forgiveness confusion? The SBA has released updated guidance and an application. Could someone explain in plain terms?
If the funds were received in a bank acct not specific for the business, how does a self employed person prove paying himself the “payroll”?
I got approved and funded by Kabbage in under a week. They were great!
@Dan can I still apply for a 2nd business I own?
Yes as long as it’s a different EIN and had payroll or schedule C Profits for a sole proprietor
Does anyone know what exactly is included in the 25% for mortgage interest/rent? Do I need documentation of lease agreement to prove rent? Because without it what is stopping me from paying 4 months rent? And would car maintenance fees be included?
The rules say the expenses have to be incurred and paid during the eight week period after funding.
While asking for forgiveness they will probably ask you documentation of any payments you want to be forgiven.
in addition to “incurred and paid during the 8 weeks”, it also has to have been in effect prior to Feb 15. (can’t sign a new lease)
Does the payroll have to be for future months after I got the loan or it can go for earlier months it should get forgiven ?
From when you receive the money till the end of the 8 weeks. No back pay allowed
No back pay meaning of the paycheck period was before loan was funded? Or does it go by the actual check date?
i.e if checks were late and only created after loan was funded even though pay period and correct check interval should have been before. In other words, will postponing a check until after loan is funded count towards forgiveness?
(For context, question is referring to self employed s-corp on W2 payroll, no other employees)
I had no luck with Kabbage. I applied for a loan through Kabbage on April 21. Kabbage still says my application is under review and they will contact me by email. They never responded by phone, email, or Twitter. I applied through PayPal and my loan was funded about 8 days later.
On a single employee on my LLC can I just write myself out a check as payroll?
Got 3 loans approved (for 3 different businesses)2 through kabbage and 1 through chase. Chase was a pain no one to talk to and just sit and wait while kabbage twitter dm worked amazing!! They speed up the process for u if u contact them and address any issues. They got me sba approval on only half the amount i was eligible for so i dm them and they fiXed it within 24 hrs.
If you take the loan in good faith thinking there is a good chance your business will be affected and in the end it wasn’t affected what are the rules?
Got for 2 different business. 1 american express that only gives to business clients. I couldn’t get for the other business through them because the other business doesn’t have an amex account. The other I got from cross river. Cross river needed more info amex was easier to apply for and both took a bit over 2 weeks.
After waiting week for my bank, I submitted a new App thru Kabbage and Funds were on the way within 5 days.
The headline is dangerous and misleading. The rules need to be followed meticulously. They can audit and scrutinize anyone. Doing something wrong is criminal and immoral.
If your income is filed as k1 Is your income Forgiven from the loan?
Kabbage worked as stated for me, except that I got no response to a question I posed on Twitter messaging. Submitted a PPP application on 5/15 and got approved for the loan on 5/16 (after uploading a document to clarify a question they had). My business bank isn’t even taking applications any more!
Now I’m wondering, though, if the Employee Retention Credit (ERC) might not be a better option for my business. Apparently, the ERC comprises a credit of up to 50% of paid wages if a business meets certain criteria. Plus, the EIDL grant I received seemingly doesn’t reduce the ERC credit as it would the forgivable amount of a PPP loan. It isn’t possible both to take a PPP loan and submit for the ERC, so I’m trying to figure out which one is better. Has anyone gone through the process of comparing those two options?
Hi Dan and all! I opened sole prop (self employed) business in 2020. Can I apply ? And what would I show for income ?
Any good banks ??
Thanks so much ,
Mike