COVID-19: PPP & EIDL Loan Information

Answers to 75 Client Questions Regarding PPP, EIDL and SVOG

Introduction

The following are some of the questions that we received from attendees participating in one of SCORE Rhode Island’s RestartRI webinar series and from our SCORE mentors. To reflect the SBA’s new PPP loan calculation formula for Schedule C filers, we have added five new questions and revised some of our answers. You can click below on a section that particularly interests you:

Also, if you have a specific question you can use your page search function (Ctrl + F) to search for it.

New PPP Loan Formula for Schedule C Filers

  1. I didn’t apply for a PPP loan because I didn’t feel that I was eligible. What has changed? Here are some of the new changes:
    • If you are a Schedule C filer and had a Net Loss (Line 31) in 2019 and 2020, you can now use Gross Income (Line 7).
    • If you were unable to apply for a PPP loan due to student loan debt delinquency or default, you may now be eligible.
    • If you are a lawful US resident, you may now be eligible.
  2. What is the new PPP formula for a Schedule C filer with no employees?
    • Step One: From your IRS Form 1040 Schedule C, you may select either Gross Income (Line 7) or Net Profit (Line 31). If this amount is greater than $100,000, then use $100,000. If both your Net Profit (Line 31) and Gross Income (Line 7) are zero or less, then you are not eligible for a PPP loan.
    • Step Two: Calculate your Average Monthly Payroll costs (or Average Monthly Gross Income) by dividing Step One by 12.
    • Step Three: For First Draw PPP Loans, the amount of your PPP loan is the lessor of Step Two times 2.5 or $20,833. For Second Draw PPP Loans, if you are in the restaurant or hospitality industry (NAICS code that starts with 72) the amount of your PPP loan is the lessor of Step Two times 3.5 or $29,167. For all other businesses, the amount of your PPP loan is the lessor of Step Two times 2.5 or $20,833.
  3. If I’m a Schedule C filer with employees, can I use the new PPP formula? Yes.
    • Step One: From your IRS Form 1040 Schedule C, you may select either Gross Income (Line 7) or Net Profit (Line 31). If you select Gross Income, then deduct employee benefit program costs (Line 14), pension, and profit-sharing plan costs (Line 15) and wages (Line 26) from Gross Income. If the amount is greater than $100,000, then use $100,000. If both your Net Profit (Line 31) and Adjusted Gross Income (Line 7) are zero or less, then you are not eligible for a self-employment income.
    • Step Two: Add the following amounts to the Step One amount: employee cash compensation, employer-paid health insurance and other fringe benefits, employer-paid retirement contributions and state and local taxes assessed on employee compensation.
    • Step Three: Calculate your Average Monthly Payroll costs (or Average Monthly Gross Income) by dividing Step Two by 12.
    • Step Four: For First Draw PPP Loans, the amount of your PPP loan is the lessor of Step Two times 2.5 or $20,833. For Second Draw PPP Loans, if you are in the restaurant or hospitality industry (NAICS code that starts with 72) the amount of your PPP loan is the lessor of Step Two times 3.5 or $29,167. For all other businesses, the amount of your PPP loan is the lessor of Step Two times 2.5 or $20,833.
  4. If I have just received my PPP loan, can I revise the loan amount based on this new formula? If your PPP loan has already been approved and you have received the loan proceeds and your lender has filed their Form 1502, you cannot use this new calculation methodology to adjust the amount of your loan. Check with your lender as soon as possible to determine the status of your loan and whether you can still cancel your current PPP loan.

  5. What PPP loan application form should I use? There are now four different PPP loan applications.
    • First Draw PPP Loan: If you want to use the Gross Income calculation method, then use Borrower Application Form for Schedule C Filers Using Gross Income Form 2483-C, otherwise use Borrower Application Form Form 2483.
    • Second Draw PPP Loan: If you want to use the Gross Income calculation method, then use Second Draw Borrower Application Form for Schedule C Filers Using Gross Income Form 2483-SD-C, otherwise use Second Draw Borrower Application Form Form 2483-SD.
    • Your lender may use an online version of these forms.
  6. 5. I thought PPP loans under $2 million were covered by a safe harbor rule that relied on the borrower’s certification that in good faith the current economic uncertainty makes the loan request necessary to support the ongoing operations of the business. Is that correct? Yes. However, if a borrower is filing their first PPP loan application and selects to use Gross Income, which is more than $150,000, the safe harbor rule does not apply. The SBA may review the borrower’s certification concerning the necessity of the loan and whether the borrower complied with the PPP eligibility rules.

PPP Loan Applications

  1. I am a self-employed individual with no employees. If my 2019 IRS Form 1040 Schedule C shows a Net Loss (Line 31), can I still apply for a PPP loan? You have several options:
    • As we mentioned above, you can now use Gross Income (Line 7) or Net Profit (Line 31).
    • You can use 2019 or 2020. If you have Net Income (Line 31) in 2020, you may want to create a draft of your 2020 Schedule C to use.
    • If both your Net Profit (Line 31) and Gross Income (Line 7) are zero or less, you are not eligible for a PPP loan.
  2. I am a self-employed individual with no employees. If my 2019 IRS Form 1040 Schedule C shows a Net Loss (Line 31), can I use my Gross Receipts (Line 1)? No. However, as we mentioned above, you can now use either Gross Income (Line 7) or Net Profit (Line 31).

  3. I am a Single Member LLC with 1 employee. If my 2019 IRS Form 1040 Schedule C shows a Net Loss (Line 31), can I still apply for a PPP loan? You can still apply for a PPP loan based on the payroll costs for your employee. This would include their cash compensation, employer-paid benefits, employer-paid retirement contributions and state and local employer-paid payroll taxes that are based on payroll. In addition, if you have Gross Income (Line 7) greater than zero, you can use the new PPP loan amount formula mentioned above.

  4. When I calculate the Revenue Reduction Eligibility Test for my Second Draw PPP Loan application, do I include the forgiveness amount from my First Draw PPP Loan? No.

  5. When I calculate the Revenue Reduction Eligibility Test for my Second Draw PPP Loan application, do I include any unemployment benefits? No. Revenue should be based on sales of your products or services. If you are a Schedule C filer, you would use Gross Receipts (Line 1).

  6. Do I send my PPP loan application to the SBA or to my bank? You should send you application to your bank. If your bank is not an SBA approved lender or isn’t issuing PPP loans, contact SCORE Rhode Island or find an eligible PPP lender in your area.

  7. I collect pandemic unemployment benefits. Am I still eligible for a PPP loan if I’m a Gig worker or a 1099 contractor? We believe that you cannot use your PPP loan proceeds during the same period that you receive your unemployment benefits.

  8. I am a Single Member LLC Startup incorporated in 2019, but started operations in January 2020. My 2019 Schedule C shows a Net Loss on Line 31. Can I use my Net Income in 2020? Yes, as long as your business was operating on February 15, 2020, you can use:
    • Net Income for January and February 2020. To calculate your Average Monthly Payroll Costs, divide your Net Income for January and February by 2 months.
    • Net Income for Calendar 2020. You can create a draft of your Schedule C to support your PPP loan application.
  9. Do I need to file my 2020 federal tax returns before I can use my 2020 Schedule C to calculate my PPP loan amount? No. You can create a draft of your Schedule C to support your PPP loan application.

  10. Can I apply for both a PPP loan and a Shuttered Venue Operators Grant (SVOG)? No. You can apply for either a SVOG grant or a PPP loan in 2021, but not both. If you had a PPP loan in 2020, that does not prevent your from applying for a SVOG grant in 2021.

  11. I’ve been in business since February 15, 2020 and have not register my business with the State, can I apply for a PPP loan? Yes.

  12. As a 501(3)(c) non profit entity, how do I calculate the maximum amount that I can receive for my PPP loan? You can apply for a PPP loan based on your 2019 or 2020 payroll costs. Payroll costs include your employee cash compensation costs, employer-paid benefits, employer-paid retirement contributions and state and local employer-paid payroll taxes that are based on payroll.

  13. If my business has not applied for a PPP loan, can I apply for either a First Draw PPP Loan or a Second Draw PPP Loan? If you don’t have a PPP loan, then you must apply for a First Draw PPP Loan. If you have a PPP loan, then you must apply for a Second Draw PPP Loan. A borrower can only have one of each.

  14. How soon can I apply for a Second Draw PPP Loan after I have been approved for a First Draw PPP Loan? You must use 100% of the proceeds from your First Draw PPP Loan on eligible costs before you can receive proceeds from your Second Draw PPP Loan.

  15. I received my first PPP loan in 2020 from Square. They have no information for applying for a second draw PPP loan. What should I do? Square’s website indicates that they are now accepting Second Draw PPP Loan applications. If your bank doesn’t accept Second Draw PPP Loan applications, check with your local SBA office or talk with a SCORE mentor.

  16. If I’ve never applied for a PPP loan, which PPP loan should I apply for? First Draw PPP Loan.

  17. Are nonprofit organizations eligible for a PPP Loan? The following nonprofit entities are eligible for a PPP loan:
    • 501(c)(3)
    • 501(c)(6) Excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other related activities.
    • 501(c)(19)
    • 31(b)(2)(C)
  18. Are there differences in the calculations when applying for a First Draw PPP Loan and a Second Draw PPP Loan? Yes. When applying for a Second Draw PPP Loan, a restaurant or hotel (NAICS code starting with 72) loan amount will be calculate using their average monthly payroll costs times 3.5 instead of 2.5 used for all other businesses.

  19. Prior to applying for a Second Draw PPP Loan, what must be done as it relates to my First Draw PPP Loan? 100% of the funds of your First Draw PPP Loan must be used on eligible costs prior to receiving the proceeds from your Second Draw PPP Loan.

  20. If my total forgiveness amount is less than my PPP loan amount, do I have to repay the entire amount when my loan is forgiveness? No. You will be required to make monthly payments on your PPP Loan balance (the amount not forgiven) over the remaining months until the maturity date of your loan. If you PPP loan was issued prior to June 5, your loan maturity date is two years and on or after June 5, your loan maturity date is five years.

  21. When is the deadline for filing a PPP loan application? March 31, 2021.

  22. What steps should I take to file for a loan application?
    • Step 1: Check to see if you qualify.
    • Step 2: Verify that your bank is accepting applications.
    • Step 3: Determine your bank’s filing requirements.
    • Step 4: Calculate your PPP loan amount.
    • Step 5: Submit loan application. Most banks use an online application process.
  23. Can I withdraw my loan application with a lender to apply with a new lender? Yes. We believe that you can withdraw your loan application prior to your loan being submitted to the SBA portal.

  24. I purchased a building for my business prior to the pandemic. Does that increase the size of my PPP loan amount? No. The PPP loan amount is based on your average monthly payroll costs for 2019 or 2020.

  25. I started a business in 2020. Am I eligible for a PPP loan? If your business started on or before February 15, 2020, you may be eligible for a PPP loan.

  26. How do I calculate the average monthly payroll costs? The average monthly payroll costs equal the total amount of your 2019 or 2020 payroll costs, including the following annual costs, divided by 12:
    • Employee cash compensation.
    • Employer-paid employee benefits
    • Employer-paid employee retirement benefits
    • Employer-paid state/local payroll taxes
    • Owner-employees or owner replacement compensation
    • Less the portion of employee or owner-employee annual cash compensation over $100,000.
  27. If my business started after February 15, 2020, are there other SBA programs available?
    • The SBA has programs such as, the 7(a) loans or 504 loans and other financing programs. Visit SBA.gov for further details.
    • Depending on your industry consider seeking grants. The SCORE Rhode Island has a listing of some grant and funding programs that is not all inclusive of other programs in the marketplace.
    • Contact the Rhode Island Commerce to discuss other COVID related funding options.
  28. Should the RestoreRI grant be used in the calculation of the revenue reduction eligibility test for a Second Draw PPP Loan? We believe the answer is yes, however, you may want to check with your CPA.

  29. Can fishing boat owners include payroll costs in their PPP loan applications that are attributable to crew members? Yes. A fishing boat owner may include compensation reported on Box 5 of IRS Form 1099–MISC and paid to a crew member described in section 3121(b)(20) of the Internal Revenue Code, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, as a payroll cost in its PPP loan application.

PPP Forgiveness Application

  1. I am a self-employed individual with no employees. How can I use my PPP loan proceeds? If you have no employees, you probably will use a 100% of your proceeds on owner compensation replacement, which is just a fancy way of saying you’re going to pay yourself. While there isn’t specific language on how a self-employed individual should disburse PPP proceeds to oneself, a suggestion would be disbursing the funds over an 8-week period with a maximum weekly disbursement of $1,923. If your PPP loan is $20,833, then you would disburse those funds over 11 weeks.

  2. I am a self-employed individual with no employees. How can do I apply for forgiveness? Check with your lender to determine whether they used the SBA Form 3508S or an online version of the form. Generally, your forgiveness amount should be 100% of your PPP loan based on owner compensation replacement.

  3. I am a self-employed individual with no employees. Do I need to provide the bank with documentation when I file for forgiveness? Maybe.
    • If you are filing your Second Draw PPP Loan forgiveness application and you have not provided your lender with documentation showing a revenue reduction of 25% or greater in 2020 compared to 2019, the lender will require you to submit documentation supporting the reduction in revenue.
    • You should, however, maintain a paper or electronic file that includes your PPP loan application, your forgiveness application, the Schedule C that you used to calculate your PPP loan, and copies of your cancelled checks or bank statements supporting the transfer of funds from your business account to your personal bank account.
  4. I am a self-employed individual (sole proprietor) with no employees. Should I consider using non-payroll costs to support my forgiveness amount? There is nothing in the regulations that prevents you from using non-payroll costs to support your forgiveness amount, however, the PPP program was designed to pay employees, which includes you. As a Schedule C filer, the non-payroll eligible costs are limited to the related amounts on your Schedule C.

  5. Which PPP Forgiveness Application should I use?
    • $150,000 or less: Form 3508S
    • $150,001 or greater with no change in FTEs or salary or hourly rate changes: Form 3508EZ See the checklist for using SBA Form 3508EZ.
    • $150,001 or greater with changes in FTEs or salary/hourly rate changes: generally you will use Form 3508, however in some situations you can still use Form 3508EZ. See the checklist for using SBA Form 3508EZ.
  6. Will my EIDL Advance be deducted from my First Draw PPP Loan forgiveness amount? No.

  7. If I submitted my forgiveness application in 2020 and my forgiveness amount was reduced by my EIDL Advance, does the Repeal of EIDL Advance Deduction Requirement apply to my loan? Yes. The SBA will transfer funds to you lender in the amount of your EIDL Advance if the EIDL Advance was previously deducted from your loan forgiveness amount.

  8. Will my EIDL Advance be deducted from my Second Draw PPP Loan forgiveness amount? No.

  9. What costs are eligible for forgiveness? Costs that are eligible for forgiveness include covered payroll costs, mortgage interest, rent payments, utility payments,covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.

  10. When does the Covered Period start? Covered Period begins on the date you receive your loan proceeds.

  11. What is a Covered Period? The Covered Period starts on the date the PPP loan proceeds are deposited in your bank account and ends, based on your selection, between 8 and 24 weeks. The Covered Period is the period when you can use your PPP loan proceeds on eligible expenses for forgiveness.

  12. What is the deadline for filing the forgiveness application? You have until your loan maturity date to file your PPP loan forgiveness application. If you do not file for forgiveness within ten months following the end of your Covered Period, your lender will require you to begin making monthly payments including principal and interest.

  13. Before April 14, 2020, I believed that I could include 1099 employees in the calculation of my average monthly payroll costs, how do I apply for forgiveness? You may want to check with your lender on whether you should return the portion of the loan attributed to the 1099 employee compensation amount.

  14. My lender accepted my PPP forgiveness application, however, I have not heard if my loan has been forgiven. What should I do? Contact your lender and follow-up on the status of your forgiveness application. Please keep in mind that your bank must first review your application prior to submitting the application to the SBA portal for final review. Bottom line: Stay in touch with your bank.

  15. I heard that the PPP forgiven applications for loans under $50,000 are not currently accepted by the SBA or by the banks until March. Is this accurate? Forgiveness applications for all loan amounts are currently being accepted by certain banks. This is a question to discuss with your bank, which simply may not be in a position to accept your forgiveness application. The SBA has not mandated that lenders should not accept PPP forgiveness applications, however individual lenders have their own timetable for accepting applications.

  16. When can I expect to get my loan forgiven after I submit my application? Depending on the complexity of your application, the bank has 60 days to review your application prior to submitting the application to the SBA, who then has 90 days to review your application for approval. That said, if your loan is for an amount less than $50,000 the process should not take very long.

  17. Will the forgivable amount of my PPP Loan be taxable? No. The PPP loan forgiveness amount is not taxable income for calculating federal income taxes. As for taxability of the forgiveness portion at the State level, it varies by State. Please check with your tax advisor or CPA.

  18. In addition to Rhode Island unemployment taxes, can the Rhode Island Job Development Taxes be used in the calculation of Payroll costs?
  19. Rhode Island unemployment taxes and Rhode Island Job Development Taxes are eligible payroll costs that you can use for forgiveness. However, Rhode Island Temporary Disability (TDI) should not be used to calculate eligible payroll costs because it is an employee cost (withholding), not an employer cost.

  20. Are Paychex or ADP payroll processing costs eligible costs for forgiveness? If your forgiveness application hasn’t been approved by the SBA, you can include payroll processing fees as an eligible forgiveness cost (covered operations costs) with your First Draw or Second Draw PPP Loan forgiveness application.

Shuttered Venue Operators Grant Program (SVOG)

  1. I operate a jewelry shop, am I eligible for a SVOG grant? No. Eligible businesses for a SVOG grant include:
    • live venue operators or promoters
    • theatrical producers
    • live performing arts organization operators
    • museum operators
    • motion picture theater operators
    • talent representatives
  2. I operate a business that falls into the SVOG category. If I have a Second Draw PPP Loan, can I still apply for an SBA SVOG grant? No. You cannot have both a Second Draw PPP Loan and a SVOG grant. The fact that you had a PPP loan in 2020, doesn’t impact your ability to apply for a SVOG grant.

  3. I understand that I can’t apply for both a SVOG grant and a Second Draw PPP Loan. Do you have any suggestions on how to develop a plan to keep my options for both programs open? The deadline to file a PPP loan application is March 31, 2021. I would monitor the SBA PPP Loan Data page to see how much of the $258 billion, which was allocated to PPP for 2021, has been issued to borrowers. As of February 15, the SBA has approved $126 billion in PPP loans.

  4. If I am eligible for either a SVOG grant and a Second Draw PPP Loan, which program would provide my organization the largest forgiveness or grant amount? The PPP loan amount will be based on the lessor of 2.5 times your average monthly payroll costs in 2019 or 2020 and $2 million. The SVOG grant will be based on the lessor of 45% of gross earned revenue or $10 million. Excluding other eligible requirements, Second Draw PPP Loan requires a reduction in revenue between 2019 and 2020 of 25% or greater and SVOG requires a reduction in revenue between 2019 and 2020 of:
    • First Priority: 90% or greater.
    • Second Priority: 70% or greater.
    • Third Priority: 25% or greater.
  5. I believe my business meets the eligibility requirements of the SVOG grant program, however, the NAICS code that I use on my tax returns does not fit with any of the eligible businesses. Can I still apply? Yes.

  6. When will the SVOG application be available? The SBA is working expeditiously to open SVOG applications and encourages you to stay up to date by frequently visiting this SBA link for information and updates.

  7. Where we apply for a SVOG grant? The SBA is creating an application platform or portal similar to the EIDL program. You will apply for a SVOG grant using the SBA portal and not through your bank.

  8. Will an EIDL loan or advance, disqualify me for SVOG? No. We do not believe that an EIDL advance would disqualify you for SVOG. If you received a First Draw or Second Draw PPP Loan in 2021, that would disqualify you from receiving a SVOG grant.

Targeted EIDL Advances

  1. Are nonprofit organizations eligible for an Targeted EIDL Advance? Yes, if they meet the other eligibility requirements.

  2. Is the SBA still providing EIDL Advances? Yes. The SBA is providing Targeted EIDL Advances to entities located in low-income communities.

  3. What are low-income communities? Low-income communities or Opportunity Zones are defined by federal law and includes specific communities within towns and cities that meet certain household income levels. Use this SBA tool to determine if your business is located in a low-income community.

  4. What are the eligibility requirements for receiving a Targeted EIDL Advance?
    • Business must be located in a low-income community.
    • Reduction in gross receipts of 30% or greater during any 8-week period beginning on March 2, 2020 or later.
    • Businesses with 300 or fewer employees.
  5. How is the Targeted EIDL Advance calculated? The Targeted EIDL Advance is $10,000 regardless of how many employees that you have. However, the maximum amount of your total EIDL Advances is $10,000.

  6. Will the Targeted EIDL Advance of $10,000 be impacted by any EIDL Advance received from the first EIDL grant program? Yes. The maximum amount of your total EIDL Advances is $10,000. Example: If you received an $2,000 EIDL Advance last year and you meet the eligibility requirements for a Targeted EIDL Advance, you would receive an Targeted EIDL Advance of $8,000.

  7. How do I apply for a Targeted EIDL Advance? Yes. Applicants must wait until they receive an email invite from the SBA to apply for the new Targeted EIDL Advance.

  8. Is the Targeted EIDL Advance completely free and non-repayable? Yes.

  9. Is the Targeted EIDL Advance taxable? No, we believe EIDL advances are non-taxable income for federal income taxes, however, you should check with your CPA.

  10. Do I still have to repay my EIDL Loan? Yes, your EIDL Loan is different than your EIDL Advance. You are required to make monthly payments on your EIDL Loan based on the terms of your loan agreement.

  11. When my PPP funds ran out, I applied for an EIDL loan, will I get an EIDL advance? Businesses and nonprofit organizations that received a previous EIDL Advance in an amount less than $10,000 will have first priority to apply for the Targeted EIDL Advance and will be the first group to receive email invites to the application portal. The second priority group are businesses and nonprofit organizations that applied for EIDL assistance before December 27, 2020 but did not receive an EIDL Advance because available funding was exhausted in mid-July 2020. The Targeted EIDL Advance program have different eligibility requirements than the original EIDL Advance program.

  12. Will my EIDL Advance be deducted from my Second Draw PPP Loan forgiveness amount? No.

Getting Help

For some small business owners, filing for a PPP loan or forgiveness may still seem overwhelming. If you feel that way, request assistance from a SCORE Rhode Island Mentor. SCORE Rhode Island is a chapter of SCORE, a national organization and a SBA’s resource provider. SCORE Rhode Island is a volunteer organization providing free mentoring and educational services to small businesses in Rhode Island and South Coast Massachusetts.

Other Resources

Loan Applications
Forgiveness Applications

Disclaimer

The information provided in this post does not constitute legal, tax or accounting advice, but is designed to provide a current understanding of the Paycheck Protection Program and other SBA programs. You should rely on the guidance provided by the SBA and US Treasury Department, advice from your CPA or attorney, and instructions from your bank. This content has not been approved by SCORE or the SBA.


Contact

If you have any questions or comments, please feel free to contact me.