Self-employed and 1099 contractors, these include YOU! On Friday, March 27, the U.S. House of Representatives passed the CARES Act, which was signed by President Trump. The intent of the CARES Act is to keep people employed while businesses are suffering significant drops in revenue. Typically, the self-employed or sole proprietors get overlooked. The CARES Act provides for them as well.
If you want to read the bill for yourself, look up House Bill H.R. 748. The applicable sections are 1102: Paycheck Protection Program and 1106: Loan Forgiveness.
Points of interest regarding CARES:
• The government will guarantee loans made by local banks.
• The amount of the loan is determined by your average monthly “payroll” times 2.5.
• The majority of a loan will be forgiven by the time the first payment is due.
• The amount of loan forgiveness is based on what you will spend on “payroll,” rent, utilities, and mortgage interest for the eight-week (8) period after the loan starts.
“Payroll” means both your typical payroll and, if you are a sole proprietor, your average monthly net income. This simple framework means that if you have a small business or a sole proprietorship, it should be very straightforward to go to your local bank and apply for this loan and get approved. Typically, it is very hard to get approved for these types of loans, but, in this case, the only requirements are that:
• You were in operation on February 15, 2020.
• You had employees for whom you paid “payroll” and taxes, or paid independent contractors, as reported on Form 1099-MISC.
If you don’t run payroll, you need to determine your average monthly net income earnings from your Schedule C (maximum $100,000), and then multiply that by 2.5. That means if you had a net income of $40,000 for 2018 or 2019, you should be able to get a loan for approximately:
($40,000 / 12) * 2.5 = $8,333.
You can then use this loan for any of the following:
• Payroll costs.
• Health insurance.
• Mortgage interest for your business.
• Rent for your business.
• Interest on any debt obligation incurred from February 15 to June 30, 2020.
You cannot use this loan for any other nonessential items for your business.
The other good thing about these loans is that they do not need to be personally guaranteed, nor is any collateral required. By spending it wisely, you should be able to get the full, or close to the full, amount forgiven. The remainder will be a 10-year loan, at an interest rate of no higher than 4 percent.
The Small Business Administration (SBA) will soon release more details on how to apply for the loans and which banks will participate. The loans are expected to be available by Friday, April 3.
If you are a sole proprietor with a negative net income and thus cannot apply for the SBA Loan, there’s still some other good news. Section 2102: Pandemic Unemployment Assistance allows self-employed people to apply for unemployment insurance. While this can be a pretty low amount, every little bit can help. More information on this can be found through your state’s Unemployment Insurance programs.
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