Overview of SBA Disaster Relief Programs Available to Self-Employed People
Lubbock attorney Laurie Key explains, in the simplest and briefest way possible, which SBA loan/grant program might work best for you and the specifics of how to apply for it.
HAL HUMPHREYS: We’ve been trying to deal with COVID-19 and the potential shutdown of business, the lack of work for a lot of professional investigators across the country. I’m joined by Laurie Key, attorney out of Texas. She has taken her time to dig into relief programs available to self-employed people. Laurie, just jump right in on what we can do.
LAURIE KEY: Thank you for having me. I’m an attorney in Lubbock, Texas, have been for about 19 years. I was fortunate enough to have an accountant and a banker I have good relationships with. They gave me an education on programs available. I know we’re all scared, frightened, anxious, especially those of us that have small businesses or are self-employed. So let me break it down the best way I can.
EIDL – Economic Injury Disaster Loan
First: There are two different loan programs available through the Small Business Administration. One is called the EIDL, the Economic Injury Disaster Loan. That’s a loan you apply for through the SBA — that’s at SBA.gov/disaster. It is a loan that would carry a 3.75% interest up to 30 years. You have a one year deferment for any payments. However, interest accrues at the time of disbursement of the loan.
Within that loan you can request a $10,000 grant for working capital. On the loan application, there’s a box to check saying yes, I want the grant. You will receive that within 3 days of applying for the loan, whether or not you’re accepted for the loan. The grant is just a grant. So I would encourage you to do that. It does not require any other documentation, no tax returns, nothing like that, and your credit doesn’t really matter.
PPP – Paycheck Protection Program
The one I’ve spent more time with and actually applied for is the PPP. This is the Paycheck Protection Program. What I’d note about this: While $350 billion sounds like a lot of money, in the scheme of things, it’s not. Because the PPP is for small businesses with less than 500 employees. That’s a lot of businesses. And these loans are given on first-come, first-served basis.
The first opportunity to apply for those loans was last Friday, April 3. That was for businesses with employees, so not necessarily self-employed people. Now, if you’re a sole proprietor but you have employees, you could apply starting that day. If you are strictly self-employed, you have to wait for this Friday, April 10, to apply for this loan.
What is this loan about?
First, you do not go through the SBA.gov. You go through an SBA lender — local banks that are SBA approved. And they are approving more banks as we go along. You can find a list of those at SBA.gov.
How do you figure out how much this loan is?
A neat little equation: I suggest you contact an accountant to help you. These accountants will be paid through the loan servicing, not through you. So, figure out your payroll. For example, I am a sole proprietor, and I have one full-time employee. I do not pay myself a paycheck; I do pay my employee a paycheck.
So what is my payment? I take my 2019 tax return (if I filed that), and I use my adjusted gross income. That is my personal payroll for myself. And I’m capped at $100,000. So I take that, plus my employee’s payroll for the year, add those together, divide by 12, you get your monthly payroll.
Payroll includes also any health insurance benefits for yourself and your employee, and retirement benefits that you provide your employee. Add all 3 of those things up — payroll, health insurance, and retirement — and multiply it by 2.5. That is your payroll.
You also get to figure in utilities and either rent or mortgage interest. Figure it up on a monthly basis. The payroll plus your utilities and rent or mortgage interest is the amount of the loan you would qualify for.
This gets tricky. We’re calling it a loan, but that’s not really what it is. It can actually be a grant. So the way this works is, you have to track your expenses for eight weeks. So long as you use 75% of that “loan” for payroll and these other expenses, the “loan” is forgiven, and it turns into a grant.
If it is NOT forgiven, the portion of the loan that is not forgiven, if you spent it on whatever you wanted, the interest rate becomes 1%, and it is a 1% note for two years, and the interest does start accruing from the date the loan is made. However, payments are deferred for 6 months. There’s also no pre-payment penalty.
What if you applied for the EIDL, you got the $10,000 grant, but you didn’t get the EIDL loan. But you also applied for the PPP, which you got?
That grant portion of the EIDL will be subtracted from the forgiveness amount that you have on your PPP loan.
I know that’s a lot of letters being thrown out there. But that’s it in a nutshell.
Try Smaller Community Banks
One thing I’ll tell you: A couple of the largest banks associated with the SBA, number one, Wells Fargo, they are no longer doing loans on the PPP. They capped themselves at a total amount, and they have already surpassed it. There’s a rumor that Bank of America is going to do the same thing.
So my suggestion would be this: There are SBA-approved lenders that are smaller, community banks. They want your business. It’s better to get one of these loans from a bank you already have a relationship with. If that happens to be Wells Fargo or BoA that are capped, go to one of these smaller banks. Open an account with them. They want your business. They will do the loan. And it’s better to give back to your own community anyway, in my opinion. So that’s my suggestion.
HAL: That is crazy useful. In a nutshell, like you said.
Podcast: Emergency Aid for the Self-Employed – Labor attorney Jason Smith offers an overview of benefits available to self-employed people during this emergency. [PursuitMag]