Time Is Running Out For The Self-Employed And PPP Loans

Winston Churchill once said in a speech, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

While Churchill was referring the Allied defeat of Rommel in November of 1942, he could just as easily have been talking about the Covid-19 crisis. While lockdown restrictions have been lifted and Americans are starting to resume a restrained yet normal life, coronavirus cases are spiking all around the country. The future seems uncertain and the economic recovery a bit precarious.

As this negative news increases across the country, another important moment is upon us. Small businesses and self-employed individuals have until June 30^th to apply for the Paycheck Protection Program (PPP) loan. 

While a lot of press has focused on small businesses applying for PPP, the self-employed group should not be ignored. This group account for a sizable portion of the American workforce. In 2019, Pew Research Center found that 30% of the American workforce was self-employed or employed by self-employed. Further, of this group, 10% or 14.6 million had no employees at all.

To some degree, there is a feeling that those self-employed individuals who needed to access funds, have already done so. But perhaps that is not how self-employed individuals should be viewing it. Given the current state of the crisis across the country, we may not even be halfway through the Covid-19 crisis. Many risks may still lie ahead. 

Risks Are Significant For The Self-Employed

Perhaps these risks are even more so for the self-employed group who are more dependent on being hired by others. The question becomes if they have not filed an application for a PPP loan, should they still consider one this late in the game.

“If they are eligible and can find a bank to do one, I certainly would,” says Eric Hjerpe, CPA and Managing Partner, Hjerpe & Tennison CPAs in Bloomington, Illinois who helped his clients apply for the loans. “My recommendation would be [to apply] as we still don’t know where this whole thing is headed. You may need it 6 weeks from now.”

As a result, for self-employed individuals who have not applied for this loan they may want to take a second glance at this program before the application period shuts on June 30^th.

Self-Employed Have a Straightforward Process

Often one of the biggest impediments for the self-employed on these types of decisions is that the process might seem complicated. The good news is that with the PPP loans, it is straightforward for those applying as a self-employed individual, especially if you have filed your 2019 tax return.

“If no employees, it is very easy. They will take net their Schedule C income and divide by 12 times 2.5 to get their loan amount,” explains Hjerpe.

One thing to be aware of is if the net income on your Schedule C is in excess of $100,000, you should use $100,000 as the PPP program has an income cap.

Further, the submission to your bank is also straightforward.  PPP loan requires the application, your 2019 Schedule C, incorporation documents and your government identification.

Seeking Professional Help

But as straightforward as the process is, it can still be daunting, especially due to all the headline press PPP loans have gotten. It may have deterred some self-employed individuals from applying.

“I fear there may have been quite a few who didn’t have that professional person to help guide them” explains Hjerpe.

As a result, this might be a good inflection point for self-employed individuals to see a tax professional, not just for PPP help but to provide guidance on their businesses overall. Since time is of the essence due to the filing deadline, it might make sense to apply and then seek tax help.

Apply, Apply, Apply

As the deadline nears, applying for a PPP loan may make a lot of sense for self-employed individuals. While many self-employed individuals have weathered the storm so far, there is a lot of uncertainty ahead. The best business planning is to follow Churchill’s advice and assume this is just the end of the beginning and that there are still tough day to weather.