Q: Has the deadline for applying for Paycheck Protection Plan (PPP) loans been extended? I never applied for a PPP loan during the first round last year. Is it too late for a first-round loan? I operate as an independent contractor who is a sole proprietor, and I file a Schedule C as part of my federal tax return. The net income (bottom line of my Schedule C) will be a negative number for 2020. Can I still get a PPP loan?
A: In my March 15 column, "Timing is the key to getting a second PPP loan," I wrote "the deadline for filing a complete PPP application is still March 31." However, at the end of March, Congress passed, and the president signed, a law extending the deadline until May 31.
Most travel advisors who are independent contractors are Schedule C filers; i.e., they report their commissions as income and business expenses on Schedule C of their 1040. Last year, if you had no employees, the amount of the PPP loan that you could get was limited to your monthly average net income (at the bottom of Schedule C) times 2.5. If your net income was zero or a negative number, you could not get a PPP loan.
In March, the Small Business Administration (SBA) changed its policy to allow you to use your gross income instead of having to deduct expenses. The SBA further allows you to choose between the larger of your 2019 and 2020 gross. For example, if you had $80,000 in commissions in 2019, you can now get a PPP loan equal to the monthly average ($80,000 divided by 12, or $6,667) times 2.5, or $16,667.
The new rule applies to both first-time and second-round PPP borrowers. If you received your first PPP loan using the old, net-income formula, you can still use the new, gross-income formula for the new one. For second-round borrowers, one quarter's 2020 gross income must have dropped by at least 25% from 2019, which should be easy to show.
Further, the SBA has made it remarkably easy to apply. There is now a special form for sole proprietors, and it is much easier to fill out than the old forms, especially if you have no employees. For first-time PPP borrowers, the sample form is here, and for second-round PPP borrowers, the sample form is here.
These are called "sample" forms because you have to apply to a bank or other authorized lender for a PPP loan, and those companies can have their own forms, which are typically online. If your bank doesn't make PPP loans or isn't familiar with the new gross-income formula, you can find a lender here.
The PPP loan can be forgiven if you spend the money on authorized purposes, including compensation for yourself. You can pay yourself the entire proceeds of the PPP loan and still have the loan forgiven. That's as close to free money as you can get.