Although not officially announced, sources are reporting that the SBA’s current $10,000 Advance program for sole proprietors and small businesses isn’t what it seems. The $10,000 grant falls under the Economic Injuty Disaster Loan program. Originaly advertised as a no questions asked advance of $10,000 that doesn’t have to be repaid. Now, it appears that the SBA is pivoting to instead provide only $1,000 per employee (or per sole proprietor) per business applicant. To make up for the difference, the Paycheck Protection Program (PPP forgiveable loan) is now available to Sole Proprietors. This will force most people to contact their bank for the additional funds.
Sole Proprietors are taxpayers who receive cash or 1099-MISC income and report their earnings on a Schedule C on their personal income tax returns. Typically, Sole Proprietors do not have access to the same benefits a small business or employee would have. These individuals are considered Self Employed and must pay Self Employment Tax on their net earnings from their business each year.
The PPP Loan initially was only available to Employers with W-2 employees. Small businesses without employees were not eligible to apply to the PPP. As of Friday, the SBA has expanded the PPP to allow Sole Proprietors to apply and receive the same forgiveable loan that an Employer business would be eligible for. The PPP loan amount will most likely be based on 2.5 months of their average income from self-employment. This leaves Sole Proprietors to prove to the bank what their income is (after business expenses). For example, if your net income on Schedule C in 2019 was $12,000, then your eligible loan amount for the PPP would be $2,500.
PPP forgiveable loans are only available through approved SBA Lender Banks. Many business owners are scrambling as some banks are not offering the PPP or are slow to start taking applications. Currently, most banks are also not accepting new customers for the program. Now we fear they may become overwhelmed with applications from the thousands of sole proprietors who are struggling.
What if you already applied for the $10,000 Advance? Well, any money expected to be received through the EIDL will be deducted from your PPP loan amount.
At AFSG, we are still committed to guiding business owners through these difficult times and help you decide which program is best for you. Please contact us if interested in applying for either program. See our original article that we have updated based on the changes to these programs.