Applying for Federal Relief Funds as a Writer or Nonprofit
April 9, 2020
Webinar led by Amy Smith
Disclaimer: These notes are provided for informational purposes only and are not intended as specific advice. Information about these programs is changing quickly. Please research your options carefully and consider consulting financial and legal advisors.
UPDATE 4/16/20: The initial allotment of funds to the PPP programs has been exhausted. Congress is currently discussing ways to increase funding, so it may still make sense to apply in order to be in line if they do. Please keep an eye on the news for information about a new tranche of funding.
This webinar will help members of the literary community think about whether and how to apply for two specific relief programs established through the federal CARES Act in response to the coronavirus pandemic: the Economic Impact Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). (The CARES Act also expanded unemployment compensation eligibility to include for the first time people who are self-employed, either fully or partially; this webinar will not address unemployment in detail, but note that you are eligible to apply for lost freelance income under the new guidelines.)
There has been much confusion surrounding these two programs. This is because they were created and rolled out very quickly, they have been changing frequently, and banks and the Small Business Administration (SBA) have struggled to keep pace with applications. If you’ve felt confused or frustrated by these programs, you’re not alone, but please don’t let it discourage you from applying!
Who is eligible for the EIDL and PPP?
- Organizations (nonprofit or for-profit) with fewer than 500 employees established pre-2/15/20
- Individuals who have declared freelance income to the IRS in the past by filing Schedule C (“sole proprietors” for the SBA, even if not incorporated)
- You can apply to both programs, and this webinar will talk more about that
Highlights of the EIDL and PPP (from Investopedia)
Economic Impact Disaster Loan (EIDL)
- Purpose: Designed to help small businesses and individuals survive the financial losses of the pandemic; see the Small Business Administration’s EIDL page
- What it offers: A loan of up to $2 million (though it can be much less) on favorable terms. Whatever the amount of the loan, applicants can request an “advance” of up to $1,000 per employee (to a max of $10,000k); this “advance” will be paid out quickly and need not be repaid, regardless of whether an applicant accepts the rest of the loan
- Timing: Applications accepted now through December 2020, but it’s likely funds will be depleted by then, so both individuals and organizations should consider applying soon
- Eligibility: Available to any small non-profit or business or individual sole proprietor who has suffered economic losses because of COVID-19
- Individuals who are or were on a business or organization’s payroll who also receive 1099 income are eligible to apply for relief as sole proprietors; in this case, you should only include your 1099 income in the revenues on your application, not your W2 income
- Where to apply: Apply directly through the Small Business Administration (SBA) website
- “Advance”: You have the option to tick a box to be considered for an “advance” of up to $1k per employee (to a maximum of $10k). If approved, this “advance” should be paid directly to your bank account within a few days, regardless of whether you are approved for or accept a loan. The “advance” does not need to be repaid, also regardless of whether you are approved for or accept a loan. This is the program’s way of providing immediate relief
- Loan terms: Beyond the “advance,” if approved, you will be offered a specific loan amount. You do not have to accept it. If you don’t accept, you can still keep the “advance.” The remainder of the loan, if accepted, does need to be repaid.
- Repayment: If accepted, the loan has favorable terms: a 3.75% APR (or 2.75% for nonprofits) over 30 years
- Collateral and guaranty: No collateral is required for loans up to $25,000; no personal guaranty is required for loans of up to $200,000; beyond that, collateral or guaranty may be needed
- EIDL vs PPP: EIDL loans can be used for more kinds of expenses than the PPP (see chart above and details on the SBA site). For larger loans, EIDL may require collateral or a personal guaranty whereas PPP does not – although for smaller loans neither program requires those. The EIDL process requires less information and documentation and is faster than easier than the PPP process. Note that you can apply for both (see below for more information)
Applying for the EIDL – Applying is easy!
- What you’ll need: The only numbers needed are 1) gross revenues, 2) cost of goods sold (COGS), and 3) (for non-profit organizations only) cost of operations
- Gross Revenues:
- For self-employed individuals, use gross 2019 revenues from Schedule C (total revenue in 2019) OR gross revenues in the 12-month period from Feb 1, 2019 to Jan 31, 2020
- If you have not yet filed 2019 taxes, you can create a profit and loss statement for 2019 or start working on your Schedule C to calculate gross revenues
- See a sample profit and loss statement here
- For small businesses, use gross revenues for calendar year 2019 OR gross revenues in the 12-month period from Feb 1, 2019 to Jan 31, 2020
- For either kind of applicant, if there is a difference between these two 12-month periods, you can choose to use whichever period has a higher gross revenue
- Cost of Goods Sold: Cost of any items created for sale (e.g. books, chapbooks, merchandise) over the same 12 month period you’ve used for gross revenue
- For many individuals who are not manufacturing goods to sell, this will be $0
- Non-profit Cost of Operations: If you are a non-profit organization, you will also need the total cost of your operations for the 12-month period you use for the other items above
- What happens next: After submitting this application, if approved, you should in the near future receive the advance of up to $10k ($1k per employee) in your bank account; this advance does not need to be repaid, no matter what happens with the rest of the loan. At some point after that you should also receive a loan offer (which you can accept or decline) with a 3.75% APR (or 2.75% for nonprofits) and a term of 30 years.
Sample EIDL application screenshots for a self-employed individual (application site)
- You may enter Gross Revenues, COGS, and (for non-profits) cost of operations for either 1) calendar year 2019 or 2) the 12 months from Feb 1, 2019 to Jan 31, 2020
- If you are or were on an organization or business’s payroll and also receive 1099 income, only include 1099 income under Gross Revenues
- If none of the “Business Activity” choices seem perfect, just choose the best approximation
- If you are a self-employed person, consider yourself an employee of yourself, and enter 1 for “Number of Employees”
- Whether or not organizations can count independent contractors as “employees” here has been a source of confusion that may be clarified by the SBA in the coming days or weeks
- At this time it seems likely that individuals who have been convicted of a crime will be disqualified.
- Don’t forget to check the box at the top if you want to be considered for an “advance”
- For individuals, use the bank account you use for self-employment income
- Be sure to save your confirmation number (redacted below), since you will not receive a confirmation email.
Paycheck Protection Program (PPP)
Note that applications for individuals applying as sole proprietors / independent contractors opened on Apr 10, so the nuances of that process were not fully worked out at the time of the webinar. Be sure to supplement this with a more recent source.
- Purpose: Designed to encourage small businesses and individuals to keep people on payroll during the pandemic. See the SBA’s main page on PPP here and their PPP FAQ here; see also the Treasury Department’s information sheet here
- What it offers: A loan of 2.5 times your monthly payroll (broadly defined, with some caps), most or all of which will be forgivable (i.e., not need to be repaid) if used on payroll and certain other costs in the 8 weeks following the receipt of the loan funds
- Timing: Applications due by June 30
- Where and how to apply: Apply through an SBA-approved bank or credit union (an existing relationship may help) – unlike the EIDL, you do not apply directly to the SBA.
- See SBA’s sample PPP application here; each bank will adapt this for themselves.
- Begin by contacting the bank or credit union you already use, and if you aren’t able to use that bank, look elsewhere. The SBA often works with community banks, so they may be in a better position than larger banks, which have been inundated with applications.
- To find a potential lender, start by simply Googling “community bank” or “credit union” and your location, or use the SBA’s tool for finding a lender
- You must have or open a business account with an SBA-approved bank or credit union
- When opening a business account as a self-employed person, the bank may require you to go to the user-friendly (really!) IRS website and get an EIN (Employer Identification Number), which is an easy and straightforward process
- Calculating average monthly payroll: You are eligible for a loan of 2.5 times your average monthly payroll over 12 months, with “payroll” broadly defined but with certain caps, most notably for employees making over $100,000 a year.
- Exactly what can and cannot be included is a bit complicated. This Forbes article walks through the calculation of “payroll” for both organizations and individuals.
- Depending on your bank, you may be able to use any of several 12-month periods to calculate the average, including the calendar year 2019 or the 12 months ending Jan 31, Feb 28, or Mar 31, 2020. Choose the period that is easiest to calculate and document, or the period that yields a higher average. If your revenue is highly seasonal or variable, other ways of calculating the average monthly payroll may be available to you.
- Payroll companies (e.g., Gusto) are helping by creating PPP-specific reports for clients, so if you use an outside payroll service, check to see if they have added these reports
- Documentation required: This may vary from bank to bank, but organizations may need the following. (Requirements for individuals may differ; check your bank’s application)
- Calculation of your average monthly payroll
- 940 (the document you or your payroll provider file annually showing how much payroll you processed) and 941s (the quarterly document) covering the 12-month period
- Profit & loss statement and balance sheet
- Additional documentation may be required
- Use of funds: PPP is designed primarily for payroll costs, but a smaller portion (25%) can be used for occupancy such as mortgage interest, rent, and utilities
- Individuals with home offices could put the 25% towards the home office portion of your rent or mortgage, utilities, etc.
- Forgiveness: The PPP loan is up to 100% forgivable (i.e., does not need to be paid back) if at least 75% of the loan is used for payroll and the remaining portion is used for occupancy costs
- It’s highly advisable to open a separate bank account for PPP funds so you can track exactly how they’re spent, and to make it easier to report to your lender that you’ve used the funds as intended so the loan can be forgiven
- It seems that funds must be spent within about 8 weeks to be forgiven; this should be made clear if you receive funds, and if it isn’t, you should ask
- Repayment: Any part of the loan that is not forgiven must be repaid at a 1% APR over 2 years
- Individual applicants: The new application for self-employed people opens on April 10, the day after this webinar, so you will need to do a bit of additional sleuthing – but individuals are specifically eligible to apply as sole proprietors / independent contracts if they file Schedule C, even if they are not formally incorporated
- It is unclear what will count as “payroll” for self-employed individuals
- If you intend to apply, it would be good to begin working on your Schedule C for 2019, as you may need that as the basis for calculating average monthly payroll
- If it seems your average monthly payroll would be higher if you used the 12 months from Feb 1, 2019 to Jan 31, 2020, you will likely be able to use a profit and loss statement for those 12 months. (See a sample profit and loss statement here)
- Frustration alert: Many people have experienced issues with their bank’s online interfaces, which were constructed hastily to begin implementation, but don’t let that discourage you!
- Using the Google Chrome browser and Adobe seems to yield the fewest technical issues
- PPP vs EIDL: The use of PPP loan funds is more restricted, especially if you want it to be forgiven (i.e., not need to be repaid). The application process is longer and somewhat more complicated for the PPP than the EIDL. No collateral or guarantee is required for PPP loans, whereas it may be for larger EIDL loans. Note that you can apply for both (see below for more info)
Can you apply for both programs?
- Yes. But you cannot use both funds for the same purpose. The “advance” portion of EIDL (the $1k per employee up to $10k) will reduce the forgivable amount of PPP if you apply for both.
- For example, if you apply as a nonprofit organization for EIDL with two employees and you get a $2k advance, which does not need to be repaid, and then you apply for PPP and get a $10k loan and use it for payroll and other approved costs, the $10k would normally all be forgiven, but because you got $2k from the EIDL, only $8k of the PPP loan will be forgiven; the rest will need to be paid back at the 1% APR
- There are still some unknowns about the interplay between the two programs, so, it’s very important to keep careful track of what you’re using each pool of money for
- Can the loss of journalism income and/or the loss of speaking engagements count?
- Yes. These programs are trying to cover the costs of continuing to work and provide your own self-employment in spite of the loss of income. So it’s using 2019 as a way of calculating what you might have earned in 2020
- It’s also important to keep track of lost income in anticipation of the 2020 tax year, because more programs may roll out that give you a benefit for lost income in other ways
- How can artists working on commission benefit?
- You’ve likely lost 1099 (i.e., self-employment or independent contractor) income, in which case you should consider applying for EIDL right now and for the PPP as more guidelines on applying for that program as an individual are released
- If I haven’t had immediate discernable losses from the crisis, am I still eligible?
- Both programs ask you to report that you have incurred financial losses, but do not ask you to specify how much. If you haven’t yet and don’t anticipate any losses, you might consider not applying, but if you have, you are eligible even if you cannot yet quantify the size of those losses. The PPP application in particular is meant to help with economic uncertainty, not necessarily realized losses
- Can a small business that has lost revenue, for example through an inability to present live income-generating programs, use funds from these programs to make up losses?
- You could use the EIDL to cover many costs associated with these losses. EIDL is much broader in scope. PPP should really be used to keep people on payroll
FAQ about Unemployment
- Are individuals who only receive 1099 income eligible for unemployment compensation?
- Yes, these individuals are newly eligible for unemployment as a result of the CARES Act
- If I get unemployment, can I still apply for EIDL?
- Yes. There may be a question in your unemployment application asking if you have applied for EIDL, and if you so, they may reduce your unemployment compensation
- What counts as not working? Does an artist or writer with reduced income still qualify?
- Often. Unemployment Compensation is administered on a state-by-state basis, but in general, if you’ve partially lost income, you can apply for benefits and receive partial benefits. Thanks to the CARES Act, the federal government will add $600 per week to whatever your state unemployment insurance amounts to
- Some freelance artists have begun to compile a Google doc with state-based information on unemployment insurance for independent contractors and self-employed workers here
- For additional information on applying for NY State Unemployment Insurance and Pandemic Unemployment Assistance, see this recorded webinar by Volunteer Lawyers for the Arts
- Emergency relief for individuals
- Artist Relief, $5k grants to artists facing dire financial emergencies due to COVID-19