I’ve been writing freelance for over ten years. But I don’t own an LLC, or any other official business entity and I don’t maintain the most meticulously crafted books which is why I didn’t believe I’d be suitable to receive a PPP (Paycheck Protection Program) federal loan Rhode island residents can apply here.
It turns out that I was right, and you could be too.
The deadline for applying to the latest phase of financing is 8 August and 8th, so If you’re a freelancer that could benefit from an increase in income due to the recession caused by the pandemic Here’s what you should know to swiftly make your application.
It is not my job to be a financial consultant I’m not a financial advisor, so my suggestions may not be applicable to every freelancer, but this is what I found out when I was navigating my way through PPP applications by myself.
A lot of freelancers are considered sole proprietors
If you’re a self-employed person who submitted a Schedule C with your 2019 tax return in the sense that you’re the sole owner of a small-scale business regardless of whether you’ve been incorporated. You’re therefore entitled to these funds that were set aside to pay for the cost of payroll as “owner compensation” counts as an expense for payroll.
For freelancers, the income from freelancing is entirely owner’s compensation. It means you could earn 10 weeks of earnings in the form of your tax return for 2019, as an installment loan, and 8 weeks’ worth of it could be forgiven which means you won’t need to repay it ever.
You may require an “alternative lender’
The first obstacle that freelancers face when applying for the PPP credit is working out an appropriate lender. A majority of banks will only accept applications from clients who have business accounts. If you have an account for a company checking account, great: Look up “PPP” + “[your bank’s name]” and you’ll get information on the application process and probably a phone number to speak with a representative at the bank who will assist you with applying. If, as I do not have a company checking account, you’ll need to apply for the process of an “alternative lender.”
There is a list of lenders who have been recognized through the Small Business Administration (SBA) on the U.S. Chamber of Commerce website.
Each has a different process for applying however here’s a suggestion you can apply to multiple lenders simultaneously, which can increase the chance of approval. Be sure to cancel any pending applications once you have approval. You will only be granted only one PPP loan.
I made an application with two of these lenders. BlueVine denied me while Kabbage was able to approve my application. However, I’ve heard of several freelancers that were approved by BlueVine, some of them were denied by Kabbage So, try several and see what is the best fit for your needs.
Be sure to have your documents in order
You’ll require a copy of your 1040 Schedule C for 2019 to determine the loan amount and to submit alongside your application for verification of your earnings as well as freelancer status.
Additionally, you’ll need any 1099s you’ve received from companies that made payments to the freelancer as an individual contractor. You’ll also need an account statement from your bank in February or an invoice, or any other document to prove your freelance business was operational prior to Feb. 15, 2020, along with front and back duplicates of your driver’s license or any other ID issued by the state.
To determine the loan amount, find line 31 on your 1040. This is the net earnings you earn from freelance work. However, if you were in the negative the previous year and this figure is negative, you will not be eligible to receive PPP loans. If the amount is higher than $100,000, then reduce it to $100,000 that’s the maximum amount. Divide the amount by twelve to calculate the average monthly cost of your payroll.
If you are a freelancer without subcontractors or employees, your earnings from freelance work is your salary. If you have subcontractors or employees your calculations may differ. The lender you are applying to They may request this average monthly cost, and then determine your loan amount for you, however, if they require you to enter all the loan amounts you’re applying for then that would be the monthly average multiplied by 2.5. Thus: [total from line 31 12 + 2.5.
Secure any remaining information
A question regarding my business’s starting date was the one point in which I got confused because, since I have never incorporated my business, it’s just me. After chatting with other freelancers, I mentioned the date of January 1st, which was the first year in which I earned a large portion of my earnings from freelance work. It was the reason I started this business.
The application might request your NAICS number which is the name you use to describe the classification for the kind of business you own. This code can be found on your 1040 right under your Social Security Number (line B).
In the document section, the application could require evidence to prove the existence of your business on 2/15/20 which is the date that marks the beginning of the time period that is eligible to receive PPP funding. The application I submitted provided documents for incorporation as an example of what can be included, and I assumed that this meant I’d not be able to work for PPP funding as a freelancer who does not have an LLC as well as an S Corp.
However, when I spoke to a Kabbage customer service rep on via phone, the representative advised me that I could utilize any invoice that was issued prior to 2/15/20. To ensure my safety I chose to use the most recent invoice I had, which was prior to the date.
The entire process took just an entire week which included a few days of study. It took approximately 24 hours to get the initial approval. Once I uploaded my invoice, the loan was accepted and processed the following day. This was the day that my PPP Funds were in my account within five days of that and now I can rest more easily, not worrying that I’ll have fewer freelance projects during the outbreak could put me in debt.