Starting Monday, April 27th at 10:30am Eastern Time, the Small Business Administration (SBA) will start accepting applications for two forgivable loan programs: The Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).
Last Friday Congress added new funds to both programs, but it’s possible these programs will quickly run out of money again.
To apply for the EIDL, apply directly through the SBA here. To apply for the PPP, download an application form here and take it to your local bank. You may get faster service for the PPP loan from PayPal here than from your bank.
I recommend that most family child care providers apply for both of these loans. If you have previously applied for these loans, you do not need to apply again. Your application will be handled in the order it was received.
How much can you expect to get from EIDL and PPP?
You can receive up to $1,000 per employee under the EIDL. Count yourself as an employee. So, if you don’t have any employees, the most you can get is $1,000. Money received from this loan is forgivable, meaning you do not have to pay it back.
PPP will pay you for up to eight weeks of eligible expenses, including payments for your lost income. The maximum amount you can receive from the PPP depends on your average monthly profit as indicated on your 2019 Schedule C. Here’s the maximum amount you can receive based on your 2019 profit. If your profit was:
- $10,000, you will receive $2,083.
- $20,000, you will receive $4,166.
- $40,000, you will receive $8,333.
- $60,000, you will receive $12,500.
- $80,000, you will receive $16,666.
Note: See below to learn how these calculations were made. If you had employees last year the amount you can receive will be more.
Money received from this loan is forgivable, meaning you do not have to pay it back.
What about unemployment?
I recommend that all providers apply for unemployment benefits. If your unemployment benefits are less than the money you receive from either SBA loan, you will come out ahead by receiving the loans. If your unemployment benefits are more than the money you receive from the loans, you can always turn down the loans without consequence. Therefore, you should apply for both unemployment and the SBA loans.
The rules regarding unemployment are complicated! State unemployment benefits vary widely from state to state. Under the new CARES Act, your state benefits generally last for 26 weeks. The new CARES Act extends these benefits 13 weeks until July 31st, and adds an extra $600 per week to whatever your state pays you.
So, if your state benefit is $150 per week, you would get $750 per week under the new law until July 31st. The more money you made in 2019, the higher your benefit. You can be open and caring for children or closed but still being paid by some parents and qualify for unemployment. Money you make now could reduce how much your state benefit will be. But, you will always get the additional $600 per week.
Your state benefits will start from the week you first saw a large drop in your income. The extra $600 will be added to your weekly benefit once the state has set up its unemployment system to accept self-employed taxpayers. This has already happened in some states, but not all. If you closed your business in March, but can’t get unemployment from your state until May, your benefit will be retroactive to March. All unemployment benefits are taxable income.
To find out if your state is accepting unemployment applications for the self-employed, look for the Pandemic Unemployment Assistance (PUA) program on your state’s website. That’s where you should apply. If you have applied under your state’s regular unemployment system and been denied, you may or may not have to reapply under the PUA.
I’ve heard from some providers that their state unemployment application form is asking how many hours or days they worked in a week and disqualified them depending on their answer. The PUA program was designed to give at least minimal help to the self-employed, so I don’t believe these questions should be asked. It could be that the state’s website has not yet adopted the guidelines under the new law.
How does an EIDL loan affect your unemployment benefits?
If you get money from EIDL, you must report it as income to your unemployment office in the week you receive it. Doing so may disqualify you for receiving unemployment for that week. However, after using the loan money you can then reapply for unemployment and start receiving it again. So, let’s say you received $700 each week from unemployment for three weeks. In week four you received $1,000 from EIDL. Since you have to report this $1,000 as income, you are likely not eligible for unemployment in week four. But, in week five you can reapply for unemployment and start receiving $700 a week going forward.
If your unemployment benefit is more than $1,000 in a week, it doesn’t make sense to apply for this loan. If your unemployment benefit is less than $1,000 a week, it does make sense to apply for this loan, even if it means losing a week’s worth of unemployment. We do not know yet if money from EIDL is taxable income or not. For more about how to fill out the application form for his loan, see my article: “What Grants and Loans are Available to Family Child Care Providers?” See also a webinar I’ve done that describes how to fill out the application form in detail.
How does the PPP loan affect your unemployment benefits?
The money received from the PPP must also be reported as income to your unemployment office. The PPP money is intended for eligible expenses for eight weeks after you receive it. The PPP money should be spread as income over the eight weeks after you receive it. Therefore, if you received $4,166, you would report each week’s income as $508 ($4,166 divided by eight weeks = $508 as in the above example). In this example, if you know your unemployment benefits are more than $508, it wouldn’t be worthwhile to apply for the PPP. If you know your unemployment benefits are less than $508 a week, it is worthwhile to apply for the PPP.
Money received from the PPP may reduce or eliminate your unemployment benefits for eight weeks. But, you can get back on unemployment after the end of eight weeks. Money received from this loan is forgivable, meaning you do not have to pay it back. For more about how to fill out the application form for this loan, see my article: “The Paycheck Protection Program Can Offer Financial Relief.” See also a webinar I’ve done that describes how to fill out the application form in detail.
In general, the more money you made in 2019, the more likely the PPP program will benefit you. If you made a $60,000 profit in 2019, your income would be $1,562 each week for eight weeks (see example above). This would likely be more than you would get from unemployment each week.
If you haven’t applied for unemployment benefits yet, you won’t know how much you can expect to receive from unemployment. You may not know if your PPP application will be accepted given the great demand for this program. In either case, you are better off applying for everything and then sorting out your best option later.
You can apply for both loans and unemployment. If you find out that unemployment will give you more money than either loan, you can always refuse to accept the loan without penalty. If you find out that getting the PPP loan will give you more money for eight weeks than unemployment for eight weeks, you simply report your PPP money as income and let your state tell you that you are ineligible for unemployment for those weeks. Then reapply for unemployment after eight weeks.
One other factor: Unemployment benefits are taxable income while PPP income is not. That means this that after taxes your unemployment benefits would be about 10-20% less (depending on your family’s tax bracket and the state you live in) when making the comparison with the PPP.
If you have employees, this will increase the amounts you can get from EIDL and PPP. This will make it more likely that the SBA loans will give you more money than unemployment benefits for the weeks you get the loans.
I’ve attempted to explain the basics of the SBA loan programs and unemployment. Your state unemployment office may have different rules that I haven’t covered in this article. I wish this was simpler to understand! If the PPP or EIDL money runs out again, hopefully Congress will add additional funds later. We can only hope.
How to calculate how much you will get from the PPP:
Under the PPP, the maximum forgivable loan you can get is based on your average monthly profit from 2019. Your annual profit from 2019 is line 31 on your 2019 Schedule C. Your average monthly profit is this amount divided by twelve months. So, if your annual profit on line 31 was $40,000, your average monthly profit was $3,333 ($40,000 divided by twelve = $3,333). The PPP program allows you to apply for 2.5 times your average monthly profit. In our example, $3,333 multiplied by 2.5 = $8,333, which is the most you can ask for under this loan. If you have employees, add your average monthly payroll for your employees to the total of $3,333 in this example. Note: The language on the PPP form and bank forms always says “payroll.” For a self-employed person, this means your average monthly profit. Don’t let the word “payroll” throw you. If you have zero profit or a loss on your 2019 Schedule C, you are not eligible for the PPP loan. If you haven’t filed your 2019 taxes, you should fill out Schedule C to the best of your ability.
Tom Copeland – www.tomcopelandblog.com
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