COVID-19 Business Survival Webinar Recap

It’s been about a month since the CARES Act was signed into law and with it a significant amount of legislation designed to ease the financial strain on businesses and individuals. Guidance has been difficult to follow at times, conflicting, and ever-changing. Much has been reported on provisions for small businesses and individuals, but what about the self-employed? The Paycheck Protection Program loan funding is designed to cover the self-employed, too.  On April 16, 2020, all PPP funding was exhausted, but on April 24, 2020, an additional $310 billion was allocated to the PPP through an interim stimulus plan.

In our latest webinar, Adams Brown professionals tackled this question and provided insight and guidance on what self-employed individuals need to do now and options that might become available to them soon. The webinar also touched on self-employed in the agricultural industry as well as necessary HR perspectives to keep in mind.

PPP Overview for Self-Employed Individuals

When the Paycheck Protection Program loan funding became available, self-employed individuals still had to wait to apply. Applications opened to businesses on April 3, and self-employed became eligible on April 10. This included sole proprietors, independent contractors, gig workers, farmers, and others. While funding was exhausted, more PPP funds were signed into law on April 24, 2020.

Therefore, it is essential for self-employed individuals who need financial relief to plan for a PPP application in the coming weeks.

In the interim, the SBA issued new guidance for the self-employed that includes individuals that were in operation as of February 15, 2020, who file a Schedule C on individual taxes. Additionally, the new guidance directs that the self-employment income of partners in a partnership may be reported as payroll costs up to $100,000 on the PPP loan application filed by or on behalf of the partnership.

Keep in mind individual partners may not submit a separate PPP loan application as a self-employed individual. Double-dipping between the business and individual income is not permitted.

Adams Brown is currently hearing that banks are rejecting PPP applications altogether because they’re backlogged or don’t understand the new rules. One thing to remember is that the bank must be an SBA lender, so it’s a good idea to call them and confirm whether they’re still taking applications and they’re certified to lend on behalf of the SBA.

What can PPP loans for the self-employed cover? PPP loans for self-employed individuals can cover owner compensation replacement, employee payroll costs, rent, business mortgage interest payments, business utility payments.

One thing to consider is whether you have multiple businesses. There is currently no technical guidance issued for a multiple-business situation. For example, one business may report a net profit and another business, owned by the same self-employed individual, may report a net loss. In that scenario, it would be generally recommended to file under the business with a net profit because the net loss wouldn’t be available for this type of loan based on existing guidance, versus netting those businesses together in one application. However, if there are multiple profitable businesses, it’s best to talk with your lender to see what their guidance is because federal guidance hasn’t been issued yet.

Discussed next was how to calculate the maximum that can be borrowed and what documentation is required. It depends on whether additional employees are on the payroll or not. If there are no other employees, use the following methodology:

  • On the Schedule C, find the net profit.
    • If 2019 taxes aren’t filed yet, fill out the Schedule C and compute the value for net profit. 2019 taxes don’t have to be filed to complete the PPP application.
      • If the net profit amount is over $100,000, reduce it to $100,000 for the application.
      • If the net profit amount is zero or less, PPP loan funding is not available.
    • Next, calculate the average monthly net profit amount by dividing the total net profit by 12.
      • There is currently no guidance on seasonality. This is a straight calculation of 12 months, not factoring in the ebbs and flows of individual businesses.
    • Then, take the net profit amount and multiply it by 2.5, adding in any outstanding amounts for the EIDL loans made between January and April of this year that could be refinanced.

If a self-employed individual HAS employees, the same methodology applies EXCEPT that gross wages, tips, and employer health insurance contributions, and employer social security taxes are now factored in. With that said, the AICPA recently put out a loan calculator, so if there’s no easy explanation from your lender or there are issues with the calculation, visit the AICPA website and use the calculator. The most recent Schedule C or Schedule F will be required, depending on which form is applicable.

As far as other documentation, most lenders may also require Form 1099-MISC, recent invoices or bank statements, or county records to demonstrate self-employment and that you were in business prior to February 15, 2020.

One thing to remember about filing for PPP loans as a self-employed individual: it may affect one’s ability to get state-administered unemployment compensation assistance and/or eligibility for employee retention tax credits.

PPP loans, when reopened, will still be on a first-come, first-serve basis.

Self-Employed Individuals and the Agricultural Industry

On Friday, April 17, 2020, the USDA announced a new program called the Coronavirus Food Assistance Program. This program was specifically designed to support farmers and ranchers and to maintain the integrity of the food supply.

She pointed to supply chain interruptions as an example. Recalling the news stories of milk being dumped out and packing plants shutting down, dairy and meat packaging plants must transition quickly from commercial production to residential production. Since restaurants are either shut down or operating minimally, all the food that was being packaged and meant for that industry now must be repackaged and resold for residential sales. That change requires time and a different set of logistics. In the meantime, a loss in demand has temporarily collapsed commodity prices, which has hurt the agricultural industry.

Other aspects of the CARES Act that were designed to support agriculture included $90 billion in funding toward food assistance programs, and of that, $16 billion was directed toward farmers to assist the producers with additional adjustments and marketing costs resulting from lost demand and short-term oversupply.

Another $3 billion was directed toward a new program called the USDA Purchasing and Distribution Program. Each month, the USDA will purchase $100 million in fruits, vegetables, berries, and meat. The USDA will then distribute that food to faith-based organizations and not-for-profits. That program was announced the week of April 13, 2020, but it is unclear how farmers will receive assistance for this fund.

Finally, remember that farmers can take advantage of the PPP loan as any other self-employed business. The application process and calculation methods are much the same as other casualty businesses, but farmers with questions on how to calculate net profit, average monthly profit, or other contributions can reach out to their Adams Brown representative for immediate assistance.

The panelists also discussed questions about self-employed loan forgiveness and other concerns.

Next Steps

View the recording below to catch the entire webinar and reach out to Adams Brown anytime with questions. We’re here to help your business weather this storm, whether it’s your solo operation or you and your employees. Contact us for questions.

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