More emergency funding is available for small businesses and freelancers through the federal Small Business Administration, though it’s unclear how long the money will last.
The SBA reopened applications for the Paycheck Protection Program (PPP) on April 27, after President Trump signed a new law that supplies an additional $370 billion in relief funds.
The PPP program was created through the $2 trillion economic stimulus package to encourage small businesses to keep their workers on the payroll throughout the coronavirus pandemic. The first round of funding, $359 billion, became available April 3.
On April 16, the SBA announced that those funds had run out.
Suzanne Clark, president of the U.S. Chamber of Commerce, lauded the bipartisan effort to make more money available but noted the new funding isn’t likely to last much longer than the first round.
“These additional funds will provide badly needed relief for more small businesses on the brink of closure,” Clark said in an announcement. “Unfortunately, we anticipate these new funds will be exhausted quickly. Congress must start working now on bipartisan solutions to ensure these programs do not lapse again.”
What’s in the New PPP Law?
The new law, the Paycheck Protection Program and Health Care Enhancement Act, provides $484 billion to support economic and public health initiatives in response to the coronavirus. The $370 billion is provided to the SBA, and $100 billion is allocated to the Department of Health and Human Services. The remaining $14 billion will cover administrative costs.
The law’s primary function is to replenish the PPP, which ran out of funds in 13 days. Of the $370 billion to the SBA, it specifies $310 billion for the PPP and $60 billion for Economic Injury Disaster Loans.
Both emergency assistance programs are available to small businesses with fewer than 500 employees (more in certain industries), independent contractors and sole proprietors.
Paycheck Protection Program
If you’re a qualifying small business owner, sole proprietor, freelancer or self-employed, you can borrow either $10 million or 2.5 times your monthly payroll cost, whichever is less. Salaries used to calculate payroll are capped at $100,000.
You have to use at least 75% of the loan on payroll costs. The remaining 25% can be spent on rent, mortgage, utilities and other fixed expenses.
The ultimate goal of the program is to keep employees on payroll, rather than sending them into the unemployment system. If at the end of eight weeks, all employees are still on payroll, you can have the loan forgiven. It won’t even count as taxable income.
For freelancers, your “payroll” is essentially the money you earn as an independent contractor. Technically speaking, it will probably be defined as your net self-employment income, which is how much you bring in after expenses.
Say your net freelancer income is $30,000, the math works out like this:
$30,000 divided by 12 = monthly payroll cost of $2,500.
$2,500 times 2.5 = maximum loan of $6,250.
Lenders will calculate your average income based on either your 2019 tax returns or the past 12 months’ worth of bank statements.
For this program, you apply to an approved lender locally, not through the SBA. The PPP applications on the SBA’s website are for banks, credit unions and other community lenders — not small businesses or freelancers.
The SBA encourages lenders to work “expeditiously” on backlogged applications from the first round of funding.
Economic Injury Disaster Loans
While the focus of the new law is to replenish PPP coffers, the SBA is also receiving $60 billion for disaster loans. This long-standing loan program has been retooled for the coronavirus.
You can apply for a loan for up to $2 million, or a loan advance for immediate funds of up to $10,000.
“The Economic Injury Disaster Loan advance funds will be made available within days of a successful application, and this loan advance will not have to be repaid,” the SBA website states, making it more a grant than a loan.
To qualify, you must have fewer than 500 employees. For the $10,000 loan advance, you must meet the same requirement plus show a “temporary loss of revenue” due to COVID-19. Freelance, self-employed and gig workers are eligible.
This loan advance will not have to be repaid.
Applications for this program are accepted through the SBA website.
What Happened the First Time Around?
Freelancers, gig workers and independent contractors didn’t receive PPP eligibility until April 10, only six days before funds depleted.
Large employers including Shake Shack, a publicly traded company with nearly 8,000 employees, received small business loans, qualifying through loopholes. The company returned a $10 million loan after public backlash. The Los Angeles Lakers also received ― and then returned ― a small business loan.
More than $2 billion of the first round of #PaycheckProtectionProgram funding was either declined or returned and will be made available during the current application period.
— Jovita Carranza, SBA (@SBAJovita) April 27, 2020
SBA Administrator Jovita Carranza tweeted that the funds from returned or denied loans will be available in the new round of applications, and the new law gives large businesses who received funds until May 7 to return the loans without consequence.
While public businesses remain technically eligible for small business loans, the Department of Treasury warned large employers to back off the money this time, stating that “it is unlikely that a public company… will be able to make the required certification in good faith.”
Adam Hardy is a staff writer at The Penny Hoarder. He covers the gig economy, entrepreneurship and unique ways to make money. Read his latest articles here, or say hi on Twitter @hardyjournalism. Senior editor Robin Hartill contributed reporting for this article.