The economic impacts of the COVID-19 pandemic continue to affect small businesses across the country. While the CARES Act helped revitalize local economies in nearly every state, there is an overwhelming demand for even more grants and loans for small business owners.
Loans such as the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program Loan (PPP) are available for small business owners that qualify. Even so, some businesses don’t have employees and still need economic assistance.
Sole proprietors without employees have received little attention compared to other business owners. However, there are available options that can help you and your business. If you’re a sole proprietor with no employees and you’re also interested in disaster relief options, here is what you should know.
Relief Options Available for Sole Proprietors without Employees
There are two options available for sole proprietors without employees: Economic Injury Disaster Loans (EIDLs) and Paycheck Protection Program Loans (PPP).
How do I Know if I Qualify?
Whether you’re interested in an Economic Injury Disaster Loan or Payment Protection Program, you need to know the requirements.
To qualify for an EIDL, you must have been in business since January 31st, 2020. You also need to be self-employed, an independent contractor, or a sole proprietor.
To qualify for a PPP Loan as a sole-proprietor, your business must have been in operation since February 15th, 2020.
You also must meet qualifications to receive PPP Loans. You must:
- Be an individual with self-employment income, such as an independent contractor or sole proprietor
- Have a principal place of residence in the United States
- Have filed or will file an IRS Form 1040 Schedule C for 2019
Where Can I Apply for Disaster Relief?
To apply for an EIDL, you’ll need to apply through the Small Business Administration.
To apply for a PPP Loan, you must apply through a financial institution, such as a bank, credit union, or other approved lender. It is important to note that you must already have a previous business relationship with your financial institution to get a PPP Loan.
What Documents Will I Need?
To apply for disaster relief options such as the EIDLs and PPP Loan, you’ll need several documents. Both processes of applying and ultimately receiving these loans are different.
To apply for an EIDL, you’ll need:
- Credit score
- IRS Form 4506T
- Most recent federal income tax returns
- SBA Form 5 (The Disaster Business Loan Application).
- SBA Form 1143 (Personal Financial Statement).
- SBA Form 2202 or a similar schedule of liabilities listing all fixed debts.
For PPP Loans, you’ll need:
- Payroll expenses
- Required documentation, which may vary by bank.
How Can I Use the Money?
Funding from either the EIDL or the PPP Loan will allow you to use the loans for almost the same purposes. Upon receiving your EIDL, you can use the loan for:
- Accounts payable
- Payroll costs, including benefits
- Rent or mortgage payments
- Other bills
Upon receiving your PPP Loan, you can use the loan for:
- Interest on mortgage, incurred before February 15th, 2020
- Rent, under lease agreements made before February 15th, 2020
- Utilities used before February 15th, 2020
If used properly, EIDL and PPP loans are forgivable, so make sure to keep careful records of how you use your loan money!
What Else Should I Know?
There are a few things that you should know before applying for an EIDL or PPP.
The maximum amount available through the PPP is part of a formula on the 2019 Schedule C (Line 31 of Form 1040).
There is a limit of eight weeks to use the loan money to have it fully forgiven. If you use over 25% of the funding for non-eligible expenses, you must pay after the eight-week period. There’s an interest rate of 1% for all borrowers, and you’ll have up to 2 years to pay the loan if it isn’t forgiven.
If you haven’t completed a Schedule C (Form 1040) for 2019, you can still file a PPP application. When completing your PPP Loan application, you’ll need to provide a completed Schedule C with a Form 1099-MISC.
When applying for a PPP Loan, you’ll also need proof that your business was in operation on or around February 15th, 2020. This can be a bank statement, book or record, or invoice for 2020.
Finally, you can receive both an EIDL and a PPP Loan. You can’t use them for the same things, such as payroll or rent, for two consecutive months.
Work with a Professional
If you’re a sole proprietor without an employee, navigating the disaster relief loans available to you may be difficult. The two loans available to you have their benefits and drawbacks.
It’s also possible that your state offers local disaster relief for businesses. Make sure to check your local government website for options.
It may be helpful to work with an accounting professional during such an unprecedented demand for small business loans. An accountant will guide you through the EIDL and PPP Loan process or help you receive both types of loans. Don’t hesitate to seek advice from the experts to guide your business through this global crisis.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.