I screwed up my disaster loan application, but it’s going to be OK. At least that’s what small business counselor Heidi Melancon tells me. Don’t freak out. The Small Business Administration will get in touch and work it all out, she says. Federal loan officers are apparently more compassionate and flexible than you might think.
You’ve probably heard for weeks that federal help is coming by way of the absolutely bananas CARES Act, a $2 trillion relief package designed to backstop the American economy during the coronavirus pandemic. The bill is a bailout aimed at a wide spectrum of American businesses, including independent contractors who are small businesses unto themselves. The challenge is many people who fit that description aren’t necessarily hip to government accounting and loans for things like “operating capital” or “payroll.” They might not know what collateral is — it’s something you give a bank so they know you’ll pay the loan back — or what a 1099 contractor is — if you work for a living and don’t have a boss: you.
This is all understandably intimidating, and not just for some of the creative types who fall outside traditional business sectors. I run a newsroom. I’m not an accountant. Did I mention I screwed up my disaster loan application? And I spend a lot of time scouring municipal budgets.
“Accounting is a very intimidating subject for a majority of business owners,” Melancon says. She runs the Small Business Development Center housed at UL, which helps tiny shops of all kinds navigate business financials. “We always run away from what we’re not comfortable with,” she adds.
Before we go any further, allow me to suggest that you take a deep breath. You got this. It’s boring. But you got this.
So what’s the most important thing I need to know?
Every day there’s a new resource bubbling up for gig workers, artists and other freelancers. It’s generally a good idea to familiarize yourself with what’s out there. For example, here’s a list of creative resources collected by Acadiana Center for the Arts and another by the Lafayette Economic Development Authority. But for our purposes, we’re going to focus on three programs: unemployment insurance and the SBA’s Payroll Protection Program and emergency Economic Injury Disaster Loans.
The U.S. government’s response to COVID-19 extends benefits to contractors — generally people who aren’t on a regular payroll — through each of these programs. That means most freelancers, gig economy workers, musicians, artists and other professional weirdos can get government help. Note: You don’t necessarily have to show that you’ve lost money.
Stop what you’re doing and apply for unemployment benefits
While usually reserved for folks who are employed – i.e. report payments on W-2 — the federal government changed the rules to allow freelancers to get unemployment benefits. Everyone who loses income because of the outbreak can apply to receive weekly checks of up to $600 through the Louisiana Workforce Commission, which manages the federal program in the state. Contractors are eligible for that expanded portion. Here are some key things to keep in mind:
- Payments will begin Monday, April 13
- The checks will come for 16 weeks or until July 31, whichever comes first
- Work requirements and waiting periods have been waived
- If you filed an initial claim by March 29, checks will be backdated to that week
- File a claim as soon as you start losing money, and continue filing certifications each week
- Most of the language on the site hasn’t been updated. So it’ll look foreign to most freelancers. Fill it out to the best of your ability
- If you already applied and were denied, hang on
Many freelancers I’ve talked to filed before the ink was dry on the CARES Act and complained that they were denied unemployment. That’s because the state had not yet received federal cash. Gov. Edwards noted this week that the taps will start flowing on Monday. And, yes, the website is overrun. More than 25,000 people have filed initial claims in Lafayette metro alone. State officials are recommending you file in the wee hours of the night when traffic is down. That shouldn’t be too difficult for you night owl honky tonkers.
Am I small business? Can I get a loan?
Yes. There are two basic “loan” programs available for freelancers: the Payroll Protection Program, which was created for the pandemic, and the Economic Injury Disaster Loan program, an existing program that was expanded to meet the outbreak. There is some overlap in what they do, but for most freelancers, you’re going to choose one or the other based on your needs.
One key thing to know about both programs: You don’t need to show actual income loss to qualify for them. Both bailouts were designed with the idea in mind that the bottom could drop out for business owners further down the line.
Economic Injury Disaster Loan
The EIDL — TIL it’s pronounced “idle” — is a long-term loan program directly managed by the SBA. Here’s a link to the application, which is actually pretty easy to fill out. EIDL has been around for a while, and it’s generally designed to loan small businesses — reminder: you — some money when a disaster strikes. The added coronavirus wrinkle is a $10,000 “advance” that, in effect, is a grant. Even if you don’t qualify for a loan, you might qualify for the advance, which you don’t have to pay back. This is the application I screwed up by entering my expenses in the wrong field. And Melancon says mistakes aren’t a big deal. SBA loan officers will walk you through what you need.
“They’re going to be understanding. Not everyone is a business-oriented person,” Melancon says. “This was pure chaos for a lot of business owners.”
Hey, that makes me feel much better!
The terms on EIDL loans are really generous. You have 30 years to pay it back at 3.75% interest. That works out to pretty manageable monthly payments. If you qualified for a $30,000 loan and the $10,000 advance, you’d have 30 years to pay back a $20,000 loan. Using this nifty loan calculator, that monthly payment works out to $92.62. (Hint: select “business” on the “loan type” drop down menu.) Here are some key things to keep in mind:
- EIDL allows for a pretty broad range of covered expenses
- No payment is required in the first year
- No collateral for loans up to $25,000
- Applications can be turned in through December 2020
The bottom line is it can’t hurt to apply for the loan. Melancon thinks it’s a no-brainer for most freelancers.
“If you don’t need it after all, you could pay it back,” she says. “Why would you want to lock yourself out of opportunities?”
Payroll Protection Program
The PPP was created primarily to keep people employed and making money. But freelancers working for themselves are eligible to apply, too. (There’s something sort of meta going on here: You’re an employer paying to keep yourself employed.) Some or all of the loan can be forgiven — yes, that means you don’t have to pay it back — but only if it’s used for payroll — in this case, you — and some select expenses.
Unlike the EIDL, the PPP is processed directly through banks. The application is available here, but generally speaking a loan officer at a bank is the person you want to talk to about how to apply. The program puts it on the bank to sort out who gets loans and, to some extent, what the eligibility criteria are. That means some banks might loan you the money and others won’t. And no, you don’t have to work with the bank that has your checking account — although some do require that applicants already do business with them — but it doesn’t hurt to work with someone who already knows your financial profile.
How much you can get from the PPP is determined by your average monthly income from 2019. The program is designed to patch businesses through the eight-week period that the economy will be in a medically induced coma. If you want the loan to be forgiven, it’s got to be spent over those eight weeks. Here are some things to keep in mind:
- Most loans can be forgiven
- Interest is capped at 1%
- Applications are open through June 30
- No collateral required
- You’ve got two years to pay it back
Banks have rolled out application calculators on their own, which can be a little confusing. And the paperwork might be a little more onerous than what’s required by the EIDL. That’s not to say it’s not going to work for freelancers, as the PPP will likely perform better for contractors missing out on larger sums of money.
“The PPP is going to require payroll records, and freelancers may not have a lot of money on their Schedule C,” Melancon says. Schedule C is the income statement, including expenses, that you file with your taxes. Does that mean you shouldn’t apply for the PP? Not necessarily, it’s a good idea to learn more about it before applying. “What looks right [for you] could be different for the next person,” Melancon adds.
So which program is best for me?
Well, here’s the copout answer: it really depends. The best-case scenario for anyone going through this is to work out the available options with an accountant. Of course, a lot of freelancers and gig workers don’t have the scratch laying around to pay for professional services like that. That’s where Melancon and SBDC come in. They’ve fielded 300 calls since the pandemic started canceling gigs, and in many cases the SBDC is able to connect folks without accountants and business advisers with folks who do that work pro bono. In other words, it doesn’t hurt to reach out for help. Lafayette, Melancon says, is rich with people who are ready and willing to walk you through the dull, thorny briarpatch that is government loan programs.
Can I apply for all of it?
The short answer is yes, but it can get a little tricky. Melancon’s advice is to be transparent. Unemployment insurance will probably want to know that you’ve got a loan from the federal government because the rules are set up to keep you from double-dipping. “I think it’s going to flush out,” Melancon says.