[U.S. specific] PPP: free money for self-employed & orgs (time-sensitive)

by steve21522 min read9th Jan 20211 comment

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PPP is the "paycheck protection program", a big US government giveaway to businesses including self-employed people (e.g. many grant recipients) and nonprofits. There was a PPP round last year—see this EA Forum post. There's another round of PPP starting imminently, like maybe this week. As a self-employed person, you can get a check for the equivalent of 2.5 months of net income—this is serious stuff, well worth the time to look into. If you looked into it last year and chose not to apply, consider looking again—there's a lot more information now than there was last year, including clarification on who is eligible and how it works.

For my part, I have a family member who is planning to apply for the first time. She skipped the last round because she was better off claiming unemployment at the time. Therefore the info below assumes that you did not already get a PPP check last year, since that's the case I looked into. But if you did already get a PPP check last year, you may still be eligible to re-apply and get even more free money this round. Please comment if you know more details about that.

I'm not an expert, this is just from a bit of online research. Here are some highlights that I found surprising or important:

  • The amount is impressively high - independent contractors get 2.5/12 = 20.8% of their 2019 or 2020 yearly net income (Schedule C line 31). A couple hours of research and paperwork is as lucrative as 11 weeks of work!!!!
  • Despite the name, you don't need to have employees or give anyone paychecks. If you're self-employed, your net profits (Schedule C line 31) are sorta treated like you're paying yourself. (Search keyword: "owner compensation replacement".)
  • It's open to nonprofits too.
  • It's called a "loan" but if you follow the formula and ask for the right amount of money, you don't have to pay it back, you just fill out a pro forma 2-page application and your entire "loan" including interest is forgiven.
  • If this is your first PPP loan, you don't need to document any pandemic-related harm to your business (!!)
    • ...However, you do need to "certify in good faith" that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant". Before you scrupulously declare that this doesn't apply to you, consider (1) reading this comment and surrounding discussion, and (2) consider that the government has issued an FAQ in which they say that anyone requesting less than $2,000,000 "will be deemed to have made the required certification concerning the necessity of the loan request in good faith". So basically, you're not going to get in trouble—the government is happy for you to take the money regardless of whether the pandemic has been bad for your business, if I understand correctly. This is just between you and your conscience.
  • The application is really easy.
  • You apply through a bank. You can also use PayPal, Stripe, or various other options discussed in the post from last round. Banks get generous commissions for setting up PPP loans, so pretty much all of them will be helpful and enthusiastic.
  • There is a chance that the fund will run out of money, so better to apply as soon as it opens.
    • ...However, don't freak out—in the last round, they wound up having enough money for every applicant.
    • The program is not open yet as of this writing (Jan 9), but my impression is that it will open soon, like maybe this coming week. Then everyone will apply at once. So if you want to ask the bank questions about your application, better to do it now, before the program opens.
    • One possible leg up: community banks have a special pot of money allocated to them. If there's a community bank in your local community that you like and trust, consider getting the loan through them, other things equal.
  • You have to document that you were in business on or around February 15, 2020.

Please correct any errors, I'm not an expert. In fact, I'm deliberately putting all these claims up without any sources, so that y'all are forced to independently check for yourselves. :-)

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I did a bit of research here. As with above, you should confirm this on your own, but it looks like, to qualify for a second PPP loan, you must show a 25% reduction in  revenue from 2019 to 2020, for either any quarter, or the entire year. 

I was having trouble figuring out whether to count the quarterly difference based on hours worked/invoiced or check/deposit dates. It looks like it depends on the method of accounting you use. Most sole proprietors probably use the Cash method (check which box you checked on your schedule C) and that would mean you use check/deposit dates. More guidance may be released to specify which method of accounting you can use, or if you can choose whichever one you prefer. 

I also read that, if you didn't get a loan in the first round, you should be able get one now without showing the reduction in revenue.