Webinar Recording: "How to Take Advantage of the SBA Loan Programs

Here is a recording of a webinar I recently conducted on "How Family Child Care Providers Can Take Advantage of the PPP and EIDL Forgivable Loans."

I strongly urge all family child care providers to apply now for the Paycheck Protection Program (PPP). This money is not taxable and you do not have to pay it back. It can represent financial relief during this difficult time.

https://www.youtube.com/watch?v=DgijuTOsZRY&feature=emb_logo

This webinar covered:

• What is the difference between the First Draw and Second Draw of the Paycheck Protection Program (PPP)?

• When are you eligible for these forgivable loans?

• How do you apply for the loans?

• How to fill out the application forms?

• How do you ask forgiveness for the loans?

• What are the Economic Injury Disaster Loan (EIDL) programs and how do you apply?

This webinar was sponsored by the Office of Child Care's (OCC) National Center on Early Childhood Quality Assurance.

The Office of Child Care has posted a similar webinar for child care centers along with other resources that offer financial assistance to child care providers here.

Questions and Answers

Here are some of the questions raised in my webinar about the PPP and EIDL programs.

Paycheck Protection Program (PPP)

There are two different PPP programs that you may be eligible for: The First Draw and the Second Draw. You are eligible for the First Draw if you did not receive money from the PPP in 2020.

If you did receive money from the PPP in 2020 you may be eligible for the Second Draw.

Q: What is the PPP?

A: It's a federally funded program that offers a forgivable loan to help small businesses, such as family child care providers, cope with financial losses due to COVID-19. The money you receive is not taxable income on your federal tax return. Your state may treat this as taxable income. It can be spent on a variety business expenses and you won't have to pay it back.

Q: How do I decide if the PPP is right for me and my child care business?

A: I believe all child care providers should apply for the PPP since it's not taxable at the federal level. It's money you can use to help you through this financial crisis. Don't hesitate to apply!

Q: Does my business have to have employees who received a W-2 or a 1099 in order for me to be eligible for the PPP?

A: No! You can apply for the PPP without having any employees. You do count yourself as an employee when you fill out the application form.

Q: Can an individual apply? Can a sole proprietor apply? Or do I have to be incorporated (Inc.) or a Limited Liability Company (LLC)?

A: You can apply as an individual. When you start caring for children you are automatically a sole proprietor (self-employed). You do not have to be incorporated or an LLC to apply.

Q: I do not pay myself. Am I eligible for the PPP?

A: Yes. If you are self employed, any money you earn is yours. You don't have to pay yourself.

Q: Last year, I did not have any income from the business. Am I eligible?

A: You must show a profit on your Schedule C (for self employed providers) to be eligible for the PPP. This can be a profit on your 2019 or 2020 Schedule C. If you haven't filed your 2020 tax return yet, you can still fill out your 2020 Schedule C and use these numbers when applying for the PPP.

Q: I had income in 2020 but not in 2019 from my business. Am I eligible?

A: You must show a profit from your business to be eligible for the PPP in either 2019 or 2020.

Q: If my net income was $0 but I paid payroll and unemployment, am I eligible?

A: Yes, as long as the payroll you paid was to someone besides yourself. For example, if you showed a zero profit on Schedule C, line 31, but you showed $10,000 in wages paid to an employee, you can use $10,000 in the calculation of your PPP application.

Q: If I received a grant from the state or local government, can I get the PPP, too?

A: Yes!

Q: If I received subsidy payments while I was shut down, can I get the PPP for the children who were private pay?

A: The amount you can get from the PPP is based on your profit (or payroll) from your business. It doesn't matter whether you are being paid by private pay parents or subsidy payments.

Q: If I received unemployment, am I eligible for PPP?

A: Yes. However, receiving PPP money may reduce or eliminate your unemployment benefits. You should check with your state unemployment office to see if you must report PPP money as income and if so, over how many weeks you need to report this income. Reporting this income may make you ineligible for unemployment benefits (or reduce your benefits) for these weeks. Each state has different rules about this.

Q: If I received the PPP in 2020, can I apply and receive another PPP?

A: You may be eligible for the Second Draw PPP, but not the First Draw.

Q: When did I have to be operating my business to be eligible for the PPP?

A: You must be in business by February 15, 2020.

Q: I closed my business temporarily because of COVID-19, am I eligible?

A: Yes.

Q: I closed my business permanently, am I eligible?

A: No.

Q: I purchased my business during the pandemic, am I eligible?

A: As long as the business was open as of February 15, 2020, the business is eligible to apply for the PPP.

Q: I moved my business location but continued to operate, am I eligible?

A: Yes.

Q: If I own 2 businesses, should I apply separately for PPP for each business? Or can I apply for both on one application?

A: Apply separately for each business.

Q: How much could I receive from the PPP?

A: It depends on your profit and amounts you spent on payroll for employees. If you are self employed, take line 31 from your Schedule C for either 2019 and 2020 and add to this number any wages you paid employees. Then divide the total by 12. That represents your average monthly profit (payroll). Then multiply this number by 2.5. This represents the maximum amount you can receive from the PPP. Note: If you received an EIDL loan in 2020, you can add this amount to the total. If you do so, this 30 year loan will turn into a 5 year loan at a 1% interest.

Q: Does my child care program have to be licensed or registered by the state for me to be eligible for the PPP?

A: No. As long as you are not operating illegally, according to your state rules, you can apply for the PPP.

Q: Can I apply for PPP if I have filed for bankruptcy?

A: If you are presently involved in filing for bankruptcy, you are not eligible. If you declared bankruptcy in the past, you can apply.

Q: Do I have to pay the PPP back?

A: As long as you spend the PPP money on either payroll (for yourself or other employees), mortgage loan interest, rent, utilities, transportation, food, or items to deal with COVID-19, you will not have to pay any money back.

Q: What happens if it is not forgiven?

A: I can't imagine this will happen. It can happen if you don't spend the money properly. If so, you can either return the money that wasn't spent properly, or you can keep it and it will turn into a 1% loan payable back in five years.

Q: If I received one PPP, does it need to be forgiven before I get another one?

A: If you previously received a PPP loan in 2020, you may be eligible for the Second Draw PPP even if your first loan was not yet forgiven.

Q: Where do I apply for the PPP?

A: Apply either to a local bank or through an online lender.

Q: Do all banks offer the PPP? How can I find out if my bank offers the PPP?

A: No, not all banks process PPP applications. Some banks may require you to have a separate business checking account. This is a bank requirement, not a requirement from the Small Business Administration. If you don't want to open up a separate business checking account, apply through an online lender.

Q: If I don’t have a bank, what do I need to do?

A: Apply through an online lender.

Q: Are there any fees from the bank or online institution if I apply for or receive the PPP?

A: No.

Q: Can I apply for the PPP at several banks to be sure I get it?

A: Yes.

Q: What financial documents do I need to have to apply for the PPP?

A: You will need a copy of either your 2019 or 2020 tax return. If you are self employed, this includes your Schedule C. Your lender may ask for proof that you were in business as of February 15, 2020. You can submit your child care license for this proof. You will be asked for your bank account numbers so the SBA can deposit the PPP money directly into your account. You may be asked to submit various payroll forms such as Form 941 or Form 944. Unless you have employees, you did not have to file these forms, so tell your lender you do not have these forms to submit. You may also be asked to submit your drivers license.

Q: Do I need to have an Employer Identification Number (EIN)?

A: No. You can submit your Social Security number. I strongly recommend that all providers get an EIN to protect yourself against identity theft.

Q: What is the NAICS code?

A: For child care programs it is 624410.

Q: Do they check your credit when you apply?

A: Your lender should not check your credit when applying for the First Draw. They will check your credit for the Second Draw. I don't know what credit score you must have to qualify.

Q: How long will it take for me to receive PPP after I apply?

A: I don't know exactly. Maybe two or three weeks after your lender submits your application.

Q: How can I use the PPP money?

A: You can use it pay employees or yourself. You must use at least 60% of the money for payroll, including yourself. You can use all of the money to pay yourself. In addition, you can use the money for utilities, mortgage/vehicle loan interest, rent, transportation, food, business debt and supplies to deal with COVID-19.

Q: If I have an employee, can I use 100% of the PPP for myself?

A: Yes.

Q: Can I use the PPP to fix my home? (Windows, carpet?)

A: Not directly. However, once you use money to pay yourself, you can then use this money for whatever you want, including windows and carpets.

Q: Can I buy equipment or pay my mortgage with the PPP?

A: No. But, see the above answer.

Q: When is the deadline to apply for PPP loan forgiveness for the first PPP?

A: March 31, 2021.

Q: Will the loan be forgiven if I apply in time?

A: We don't know if the PPP program will run out of money before March 31, 2021. If not, and your application is submitted and you spend the money properly, you will be forgiven.

Q: When is the deadline to apply for PPP loan forgiveness for the second PPP?

A: You can apply for forgiveness up to ten months after you spend the money. You must spend the money between 8 and 24 weeks after you receive it.

Economic Injury Disaster Loan (EIDL) Program

Q: What is the Economic Injury Disaster Loan (EIDL) Program?

A: There are two different EIDL programs: The EIDL Advance and Targeted Advance and the EIDL Loan.

The EIDL Advance and Targeted Advance

The EIDL Advance was a program available to child care programs in 2020. Providers may have received $1,000 for themselves and an additional $1,000 for each employee. This money was automatically forgiven and providers do not have to pay it back. It is not income for federal tax purposes. Your state may require you to pay state income taxes on this money. It could be used for almost any business expense, including paying yourself. You do not have to submit a forgiveness form. This EIDL Advance was replaced in 2021 with the Targeted EIDL Advance.

The Targeted EIDL Advance is a new program for 2021. To be eligible for this program you must have either applied for the EIDL Advance in 2020 and didn't receive the maximum you could have received, or you applied but were denied because the program ran out of money. Do not apply for the Targeted EIDL Advance until you hear from the SBA. The SBA will send you an email indicating that you are eligible to apply.

If you do get such an email, you must meet further qualifications to be eligible for the Targeted EIDL Advance. First, you must live in a low-income community. Go here to see if you live in such a community. In addition, you must then show a decline in your gross income for an 8-week period between March 2, 2020 and December 17, 2021, compared to the 8-week period immediately preceding March 2, 2020 or one during 2019. Wow! I will be writing more about this on my website in the near future.

We don't have any more information about how this program will be administered. We are waiting for further guidance from the SBA and when we receive it, I will post a future article about it.

Here's where you can find out more about the Targeted EIDL Advance and whether you business is eligible.

The EIDL Loan

The EIDL Loan is a 3.75% payable back in 30 years. It cannot be forgiven. It is not taxable income. All family child care providers and child care centers can apply.

Q: Which businesses are eligible?

A: All child care programs are eligible to apply for this loan.

Q: How much can you borrow?

A: Up to $2 million dollars! However, it will be limited by the gross income of your business.

Q: How can the loan money be used?

A: It can be used for any business purposes, including paying yourself, with the exception of repairs, home improvements, acquisition of fixed assets, and more. Fixed assets are furniture, appliances, deck, fence, patio, etc. If you pay yourself with some of the loan money, you can then use this money to for any purpose, including fixed assets and home improvements and repairs.

Q: How do I decide if the EIDL is right for me and my child care business?

A: Some providers use this loan to keep their business afloat during this pandemic. Other providers use it as a backup fund in the event of a future financial need. There are providers who do not want to take on any new debt that they would have to repay.

Q: Can I apply for the Paycheck Protection Program and EIDL?

A: Yes, you can apply for the PPP and the EIDL loan. If you are eligible for the Targeted EIDL Advance you can also apply for the PPP.

Q: Where do I apply for the EIDL?

A: You apply directly to the Small Business Administration (SBA) here.

Q: Are there any fees to apply?

A: No.

Q: Will they check my credit score when I apply?

A: Yes. You may also have to have collateral to guarantee the loan. However, loans up to $25,000 do not require collateral or personal guarantees.

Q: What financial documents do I need to have to apply for the EIDL?

A: The SBA will notify you what financial documents they will want. This will likely include your tax return and identification information such as a drivers license and child care license. If you don't have employees, you will not need to submit any payroll documentation.

Q: How long will it take for me to receive the loan after I apply?

A: I don't know.

Q: What happens if I my business doesn’t pick up and I can’t pay back the loan?

A: The SBA cannot seize your business or personal property. However, if you default on the loan it will likely affect your credit score and it can affect your ability to get future loans.

This document was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care (OCC), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS. This resource may be duplicated for noncommercial uses without permission.

Tom Copeland - www.tomcopelandblog.com

Image credit: National Center on Early Childhood Quality Assurance