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Major Changes to PPP for Schedule C Filers

It’s important to make sure that any documents you send to your lender are easy to read and are as high-quality as you can make them. But assuming you have not taken your First-Draw or Second-Draw loans, and you are a Schedule C filer, you can move to the calculations. This rule is a welcome change to the previous system which left many creators and the self-employed out in the cold. Previously, you could only base the amount of your “Owners Replacement Compensation” on Line 31 (Net Income) of your Schedule C. This meant that If you made $50,000 and had $55,000 in expenses, your Line 31 would be negative, and you could not get a PPP. Now, you can base your PPP calculations on Line 7 (or, if you have employees, a slightly more complex calculation noted below). Once the loan has been disbursed and the lender has filed Form 1502 with the SBA, there is no option to reapply for a larger amount.

  • Non PPP Fast Lane applicants will most likely need the following documents (required documents may vary by lender, but these are the most commonly requested documents).
  • Next, they changed eligibility rules to allow more business owners to qualify.
  • Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans.
  • The average PPP loan amount so far has been $239,000, though the vast majority of approved loans (70%) have been for $150,000 or less.
  • (a) they were in operation on or before February 15, 2020, and(b) they have self-employment income, and(c) their principal place of business is in the United States; and(d) they filed or will file a Form 1040 Schedule C for 2019.

The Economic Aid Act increases the likelihood that self-employed individuals will qualify for full forgiveness based on owner’s compensation replacement. But if not, any remaining balance will become a loan at 1% interest for five years, unless the loan was made before on or after June 5, 2020. In those cases the repayment period is two years, unless the lender agrees to a longer repayment period. Furthermore, interest payments on any other debt obligations incurred before February 15, 2020 can be paid with PPP loan funds, though those amounts are not eligible for PPP loan forgiveness. Finally, if an EIDL loan was obtained between January 31, 2020 and April 3, 2020 and used for payroll costs, your PPP loan must be used to refinance the EIDL loan, though such amounts will not be forgivable.

First-draw PPP loan borrowers that want to use the new gross income calculations rules will now use SBA Form 2483-C. Depending on your SBA-approved lender, you may need to submit this form and additional documents. When you apply for a PPP loan with Funding Circle, you will not be required to submit Form 2483-C. PPP loan proceeds can be used by self-employed individuals to cover owner compensation replacement, employee payroll costs, mortgage interest payments on business mortgage obligations on real or personal property, and business rent and utility payments. However, these expenses must have been claimed (or must be claimed) on the 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan. With each loan application comes a unique set of facts, issues, and needs, and the SBA’s guidelines to borrowers and their lenders are constantly catching up to the pace of loan issuance.

You’re our first priority.Every time.

The amount of any refinanced EIDL used for will be included in the calculation of “payroll costs.” If you use one of the popular online tax filing programs, please see our guides below. Otherwise, check your files for copies of prior tax returns, or speak to your tax preparer or accountant (if you use one), who will likely be able to provide you a copy.

Get our latest news and information on business finance, management and growth. Michael Jones is a Senior Editor for Funding Circle, specializing lifo method example in small business loans. He holds a degree in International Business and Economics from Boston University’s Questrom School of Business.

  • The individual’s total compensation may not exceed $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.
  • Sole proprietors, Paycheck Protection Program (PPP) loans just got a whole lot better.
  • Contact your lender if you have already submitted a loan application based on Schedule C net profits and have questions about the new calculations.
  • SBA will issue further guidance for those individuals who were not in operation in 2019, but who were in operation on February 15, 2020, and who will file a Form 1040 Schedule C for 2020.

A small amount of interest may have accrued in the meantime and, if so, you’ll need to also pay that. If you keep the loan, the guidance suggests you should still spend those funds for authorized purposes. For that reason, it seems it would be a good practice to write yourself a check from your business account, or use ACH transfer from your business account to your personal account to pay yourself. Whichever method you choose, keep good records in case the SBA later audits your loan. There is an optional demographic questionnaire that will help SBA and others understand who got these loans.

Example for Sole-Proprietor with No Employees

Initially, PPP loans were solely for businesses with employees—which meant sole proprietors weren’t eligible for any funding. Congress made some changes, but these special rules based loan amounts on sole proprietors’ total profits (as shown on their 2019 tax return). For small profit businesses and those already struggling, this meant little-to-no cash. Womply is not a PPP lender, and is not in the business of providing legal or tax advice. We are a technology company offering a web platform designed to assist businesses access the PPP. Womply is compensated by lenders, including for helping you apply with them.

Additional COVID-19 Relief for Small Businesses Looks Like it’s Around the Corner

And now with the Economic Aid Act (the “stimulus bill”) it is any period between 8 and 24 weeks – your choice. Unfortunately, many sole proprietors have already applied for PPP loan funding, rendering this new change useless to them. With only a couple of days left in this latest PPP financing round, it’s not likely to make a significant impact unless the deadline is extended and Schedule C filers are allowed to resubmit to maximize their loan amounts.

Information about the Second Draw PPP loan in other languages

Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing. The new formula, however, eliminates the so-called “sibling discount,” so parents no longer get a break for having multiple children in college at the same time. Anyone who plans to attend college between July 1, 2024, and June 30, 2025, should submit the new FAFSA as soon as possible.

How to Calculate Maximum PPP Loan Amount for Schedule C Filers

We provide documents in 17 different languages to help you understand eligibility requirements, fill out applications, and answer frequently asked questions. If you are unsure about your PPP loan status, or if your PPP loan application has been flagged due to data anomalies, please contact your lender to get more information. Borrowers who have had their application submitted to SBA by their lender can create an account in the SBA Capital Access Financial System (CAFS) to monitor their loan status. This loan may be fully forgiven and may provide essential funding to your business. PPP borrowers must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, there has been a “safe harbor” for loans below $2 million. For those who are self-employed and file a Form 1040, Schedule C, the SBA provides separate calculations based on whether or not you have employees.

The New Calculations

This form may be used for both first and second draw PPP loans, regardless of when you got your PPP loan, as long as it has not yet been forgiven. If you got both a first and second draw PPP loan you must use a separate form for each. Improve your business’s financial health profile to unlock better financing options — only at Nav. First, they released new applications for first-draw and second-draw borrowers. The documents you’ll be required to submit will vary by lender, you’ll want to make sure you gather the right documents. Before, these loans were likely not worth the effort for you—however, now you have the potential to earn some fully forgivable, tax-free financing.

It’s also where you claim deductions, credits, calculate refund or tax bill for the year. Even if you were eligible for significantly more money under these new rules, if you have taken both loans, you can’t go back and increase them (subject to the big gray area above). If you are self-employed with employees, the SBA provides the following instructions. We encourage you to review the SBA guidance carefully and discuss it with your tax professional, attorney, or financial advisor to clarify how it applies to your business. Read more about new PPP loans included in the Economic Aid Act (the “stimulus bill”) here.

That said, it will be a lot easier to apply for PPP if your bookkeeping is up to date and you have kept good records of the income and expenses of your business. Your accounting professional can prove invaluable in this process so make sure you enlist their help in determining which COVID relief programs are best for your business. For businesses with employees, payroll may also include employee payroll costs for employees whose principal place of residence is in the United States. The clock for spending your PPP money starts the day your PPP loan funds are disbursed, or deposited into your bank account. When the PPP Flexibility Act passed in June 2020, the covered period was changed to 8 or 24 weeks.

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