Q&A for PPP and EIDL
Update! The Senate has just passed a bill today to extend the deadline to apply for the PPP until August 8th. It is certain that the House will pass the same bill shortly. Therefore, family child care providers should go ahead and apply now!
The Economic Injury Disaster Loan (EIDL) program remains open to new applications. Information on how to apply for the EIDL is here.
Update July 21st: The SBA has closed applications for the EIDL "advance" but not the EIDL "loan."
Here are some common questions I’ve received in recent weeks about these two programs.
Paycheck Protection Program
Q: Can I use this money for expenses I incurred before receiving the money?
A: No. You must use the money for expenses after receiving the PPP.
Q: Over what period of time can I spend the PPP?
A: You can either choose 8 weeks or longer, up to 24 weeks. You can apply for forgiveness at any time.
Q: What can I spend the PPP money on?
A: You can spend it on your payroll, utilities, mortgage loan interest and rent. Nothing else.
Q: How do I pay myself payroll?
A: Write yourself a check and put "PPP payroll" in the memo line. You can then redeposit back into the same bank account. If you have more than one bank account you can transfer the payroll money from one account to another. Make a note in your records that is is for your payroll.
Q: Once I spend money on my payroll, what can I use this money for?
A: Anything you want. Let’s say you got $5,000 from the PPP and paid yourself $4,000. Once you pay yourself, you can spend the $4,000 on any business expense or for personal purposes.
Q: What is the limit on how much I can spend on payroll for myself, if I spend it over 8 weeks?
A: Let’s look at an example. Your 2019 profit was $36,000 (Schedule C, line 31). Your average monthly profit was $3,000 ($36,000 divided by 12 months). The maximum you could receive from the PPP is $3,000 x 2.5 = $7,500. The maximum you can spend on your own payroll over 8 weeks is your average weekly profit ($36,000 divided by 52 = $692) x 8 weeks, or $692 x 8 = $5,536.
Q: In the above example, can I still pay myself $692 a week for 8 weeks if I haven’t lost that much in income for those weeks?
A: Yes. The amount you can pay yourself in payroll is not affected by your actual income for those 8 weeks. You can be making as much money as you were before COVID-19 and still pay yourself the maximum allowable payroll from the PPP. In other words, lets say your average weekly profit from 2019 was $2,000. In 2020 you are now making $500 in one week and $3,000 in another week. You can still pay yourself payroll of $2,000 per week for those two weeks.
Q: If I get $7,500 from the PPP, can I pay myself the full $7,500 on payroll if I spend the money over longer than 8 weeks?
A: Yes! If you pay yourself $692 per week you will have spent the entire $7,500 over eleven weeks.
Q: What happens if I don’t spend all of the PPP money on my payroll or the other allowable expenses?
A: The money that you don't spend will not be forgiven. It can then either be returned to the SBA or kept as a 1% interest loan payable over 5 years.
Q: How do I get my PPP loan forgiven?
A: Contact your lender to find out what forms your lender will want you to fill out to get forgiveness.
Q: Is there a Small Business Administration (SBA) forgiveness application form?
A: Yes. Here is a link to this form. Note that this is a new form as of June 16th and is much easier to fill out than the earlier version of this form. I will be writing about how to fill out this form soon.
Q: How will accepting the PPP money impact my ability to claim unemployment benefits?
A: Each state is different. Most states will say that you must report your PPP money as income. It’s not clear if you can report all the PPP money as income in one week, or if you must spread it over 8 weeks or longer. In any case, this may affect your ability to claim unemployment benefits for the week or weeks you do report the PPP money. It may also mean you can go back claiming unemployment benefits after running out of the PPP money.
Economic Injury Disaster Loan (EIDL)
Q: What is the difference between the EIDL “advance” and the EIDL “loan”?
A: The EIDL advance is a $1,000 per employee forgivable loan. You can count yourself as an employee. You don’t have to pay back this money. The EIDL loan is a 3.75% interest loan you must pay back over 30 years.
Q: What can you spend the EIDL loan or advance on?
A: You can spend it on any business expense except repairs and fixed assets. Fixed assets are furniture, appliances, equipment such as swing sets, deck, fence and home improvements.
Q: Can I spend the EIDL loan or advance on payroll for myself?
A: Yes. Use your average weekly profit from 2019 as a guide to how much to pay yourself for payroll. Write a check to yourself and put “EIDL payroll” in the memo line.
Q: Can I spend the EIDL loan or advance on business expenses before I received the money?
A: Yes. Note: You cannot spend the PPP money on business expenses before you receive the PPP money.
Q: Can I spend the EIDL loan over 30 years?
A: Yes. You can always spend the money sooner.
Q: I have been offered the EIDL loan but haven’t received the EIDL advance. Why?
A: This has happened to many family child care providers. Providers haven’t asked for a loan, but are being offered one to the tune of tens of thousands of dollars in some cases. It appears that the advance application is still being processed and you should receive it.
Q: I’m being offered the EIDL loan. Do I have to accept all or part of it?
A: You don’t have to accept this loan. If you don’t want all of it, you may be able to indicate how much you want before accepting the loan. If not, you can always pay off the amount you don’t want immediately after receiving it to reduce your interest payments.
Q: Is the EIDL advance or loan taxable income?
A: The EIDL loan is not taxable income. We don’t know yet if the EIDL advance is taxable or not.
Tom Copeland - www.tomcopelandblog.com
Image credit: www.sba.gov
