Businesses and Self-Employed Individuals Must Prepare for Re-Funding of the PPP

As discussed in a prior Alert, the Paycheck Protection Program (“PPP”) was developed to allow businesses to bridge the economic downturn of COVID-19 and keep people employed.  Loans are fully forgivable, subject to the terms of the loan program.  The PPP loan application period has been open for both businesses and self-employed individuals, but the $349 billion originally allocated to the program has been used up. 

Many self-employed individuals missed out on the first round of funding due to the delayed application period for such individuals and the fact that PPP applications are processed on a first come, first served basis.  Thus, other businesses had a head start on self-employed individuals. 

Now, armed with eligibility guidance from the Treasury and SBA, self-employed individuals can be prepared for when the PPP is allocated additional funds by Congress.  The Interim Rule issued provides the following guidance for self-employed individuals:

• Self-employed individuals and independent contractors who file a Form 1040 Schedule C are eligible for PPP loans if they were (1) in operation on February 15, 2020, (2) their principal place of residence is in the United States, and (3) they filed a Form 1040 Schedule C for 2019.
• Partners in a partnership (or members in an LLC filing taxes as a partnership) must file one PPP application and cannot apply separately as self-employed individuals, with self-employment income of active general partners (up to $100,000 annualized) reportable as payroll costs on the partnership’s PPP loan application.
• Participation in the PPP may affect your eligibility for unemployment programs.
• Additional guidance will be issued for self-employed individuals that were not in operation in 2019, but were in operation on February 15, 2020.
• The Interim Rule provides different formulas to use to calculate the eligible loan amount based on whether self-employed individuals employ other individuals or not. 
• For self-employment income, the applicant must rely on the information on his/her 2019 Form 1040 Schedule C.
• Covered benefits for owners are excluded from the forgiveness amount. 
• Forgiveness for individuals with self-employment income is limited to a proportionate eight-week share of 2019 net profit, as reflected in the individuals’ 2019 Form 1040 Schedule C. 
  

Congress has been debating re-funding the loan program to provide an opportunity for those who did not receive a loan in the initial funding period.  If you’re a business or self-employed individual that did not receive a PPP loan in the first round of funding, or has yet to apply for a loan, contact your attorney, accountant, and banker to make sure your application and supporting documentation are ready to go when the program is re-funded. 

Just like round one of funding, round two of PPP funding is unlikely to last long.  Our office is closed under the Governor’s Business Closure Order, but MacDonald Illig attorneys are working remotely.  Contact us to help you before the PPP is allocated additional funding.  Our attorneys are available at any time via e-mail or cell phone to assist you with issues related to PPP loans, or any other matter during this difficult and uncertain time.