I’ve spoken to several freelancers, solopreneurs, and small business owners over the last two weeks who either weren’t aware of the government programs available to them, or weren’t sure how to navigate them. From journalists to attorneys to Airbnb hosts to coffee shop owners to daycare providers, I’ve spoken to all kinds of business owners looking for clarity.
Whether you’re a sole proprietor, an LLC, or an S-corp, there are programs that can help you if your income has dropped due to COVID-19. The three primary programs (although there are others, too) are the Economic Injury Disaster Loan (EIDL) program, the Paycheck Protection Program (PPP), and Unemployment.
Many of us self-employed people aren’t used to having a safety net, but right now, we actually do.
Unemployment: Typically, self-employed people don’t qualify for unemployment benefits. But due to recent legislation, we now qualify! And unemployment benefits are higher than they’ve ever been before. That’s because the federal government is increasing unemployment benefits by a flat $600 per week through the end of July! If you qualify for just $1 of unemployment benefits, you get an extra $600 per week.
Benefits vary from state to state, but in general, if you make less than about $50,000 per year through your business, and your income has disappeared (or substantially dropped) due to COVID-19, you’ll likely make as much if not more on unemployment than you were making previously. Yes, you read that right.
Paycheck Protection Program: The PPP provides loans to self-employed people that are potentially 100% forgivable. You can borrow up to 2.5 times your average monthly income from last year (up to $100,000/year). So if you made $48,000 last year, that averages out to $4,000/month, which means you could borrow 2.5 times $4,000, or $10,000. Interest rates are super low on these loans, but that’s not the best part. The best part is that as long as you use the loan money to continue paying yourself (and any employees you have), the loan is FORGIVABLE. You don’t have to pay it back!
Now, there are details to understand and additional requirements for the loan to be forgivable, but this is a great option, especially if you make more than $50,000 annually or want to retain a team member.
Economic Injury Disaster Loan: The EIDL program provides low interest loans to self-employed people. There’s also a possibility of receiving an upfront grant of up to $10,000 that DOESN’T HAVE TO BE REPAID. But before you get too excited, it appears that the grant amount will be related to the number of employees you have, so if you’re solo, your potential grant is likely much less than $10,000.
Okay, are you still with me? Hopefully your brain hasn’t turned to mush yet. Here’s where things get a bit more complex… These programs can be combined in some cases, but it takes some planning to stay above board. And to be clear, I’m 1,000% in favor of utilizing programs you qualify for, but I’m completely against bending the rules.
For example, you might use the PPP loan to continue payroll for yourself for eight weeks, have that loan completely forgiven, and then transition to unemployment.
Or, you might combine an EIDL loan and a PPP loan to cover different expenses and still be able to have the PPP loan forgiven.
There’s a lot to think through, but it’s worth the time - I promise! If you need help navigating these programs and figuring out what makes sense for you, or you know someone who needs help, I’m here.