The Paycheck Protection Program (PPP) was established toward the beginning of the pandemic in 2020 as part of the CARES Act. Since it was started, changes have come through that may impact our drivers, so let’s dive into an announcement by the U.S. Department of the Treasury and assess what it means.
Here’s what you need to know:
- The Small Business Administration (SBA) is now accepting and processing updated PPP applications from sole proprietors – that means drivers and couriers!
- Sign up with our recommended PPP partner here!
- Loans are now based on gross earnings vs net – a big benefit to gig workers!
- The deadline for the program overall is May 31 – it was recently extended by Congress
What is the PPP Announcement and What Does it Mean for Drivers?
The announcement refers to revisions to the loan amount calculation and eligibility. According to the announcement:
“On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) was enacted, extending the authority to make PPP loans through March 31, 2021, revising certain PPP requirements, and permitting second draw PPP loans.”
The long and the short of it is that this removes some restrictions that were in place. Namely, it will no longer restrict these funds from business owners who have non-financial fraud felony convictions. It also alleviates the restrictions originally put in place to prevent business owners who are delinquent or in default on their federal student loans from being eligible.
Note: The deadline to apply for PPP loans is now May 31, thanks to an extension from the government.
Some who have already received a PPP loan may be eligible for what they call a “Second Draw PPP Loan” with the same terms as the first.
Both First Draw and Second Draw PPP Loans are eligible for forgiveness if the borrowers use the funds as directed during the 8- to 24-week covered period following the disbursement of funds:
“Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan; the loan proceeds are spent on payroll costs and other eligible expenses; and at least 60 percent of the proceeds are spent on payroll costs.”
Rideshare drivers are able to apply for and obtain these loans, as well as be eligible for full forgiveness instead of having to pay them back. Bear in mind, however, if drivers do not use the funds as directed, they may be subject to repayment.
How Much Can Drivers Apply for?
Drivers who file using Schedule C for their taxes are eligible to apply for the PPP loan program. The amount you can apply for will vary from person to person.
Wondering how much you qualify for? Check out this PPP calculator from Home Unemployed here.
There is a general calculation you can use to estimate what you might qualify for. That calculation is 2.5x average monthly payroll, capped at $100,000 in annual earnings.
If you are a Schedule C business owner, you’ll take your earnings from your Schedule C.
Originally, when PPP was first developed, you’d take your earnings from line 31 on your Schedule C form for taxes. You’d take that number, divide by 12 (to get monthly earnings) and multiply by 2.5 to reach the 2.5x average monthly earnings.
With this new guidance, you’d be able to use your gross receipts (line 7) instead of your net income. This is big for gig workers! Gross receipts are usually higher than net income, making this PPP round even better for gig workers.
The wording in the updated announcement states:
“…If a Schedule C filer elects to use gross income to calculate its loan amount on a First Draw PPP Loan and the borrower reported more than $150,000 in gross income on the Schedule C that was used to calculate the borrower’s loan amount, the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification.”
Until we hear official wording and get better guidance on the changes, it’s impossible to say if these rules will apply retroactively to those who already applied for and received PPP loans using their net income instead of their gross receipts as the loan program originally intended. Also bear in mind, if your Line 7 is over $150k, it is probably best to continue to use Net Profit, especially if it is a First Draw loan because it is at a higher risk of being audited.
What Can Drivers/Couriers Spend the Money On?
The name of the program is the Paycheck Protection Program, so the obvious answer is paying yourself for lost wages. Generally speaking, the easiest thing for drivers and couriers to spend the money on is to simply pay themselves.
It’s possible you could put some of it toward operating expenses. In the case of drivers and couriers, that could mean obtaining PPE, car maintenance and upkeep, car washes, and the like. The official guidance on what you can spend it on is still up for debate at this moment.
However, since the majority of drivers will just be using the money to pay themselves (as opposed to employees under your business), and won’t be eligible for loans over $50,000, you would not have to provide evidence to your bank of how you used the money.
Of course, that being said, a best practice would be to receive the loan into a business checking account and then pay yourself from that into your personal account so there would be a trail if anyone were ever to come asking what the money was used for. You could point to your business account and then your personal account and show that you gave yourself a paycheck using the money from the loan.
What is the PPP Program?
The PPP Program is a loan program…but the debt can be forgiven in some instances. To apply for a PPP loan, you’ll need to go through a bank. Typically, you’ll want to use the bank you do your business through. If you don’t have a specific business account, you might consider using your personal banking institution to apply for the loan.
For more information on the steps to take to apply, check out our video: Should Lyft & Uber Drivers Apply For The PPP Loan Round 2?
Business owners and self-employed people. There are limits to the number of employees you can have to qualify, but overall, most small business owners and self-employed people are eligible to apply.
First Draw and Second Draw
First Draw refers to the first time you get a PPP loan. Even if you haven’t gotten one prior to this moment, if you’re going to receive a PPP loan, that will be considered your First Draw PPP loan. You’ll have to prove need for it—typically citing economic uncertainty.
Second Draw you will need to prove a 25% drop in gross receipts and once again prove need for receiving the loan. Before being able to do a Second Draw PPP loan, you’ll need to have used up all of the First Draw over a minimum of 8 weeks.
The 25% drop in gross receipts would be comparing, for example, Q1 in 2020 to Q1 in 2021. You’d have to show a drop of at least 25% quarter to quarter from the previous year in order to qualify for the Second Draw.
Not sure if you qualify for the second draw of PPP? Use this second draw PPP calculator from Home Unemployed here.
What is the deadline to apply? For a First Draw PPP loan, the deadline is May 31st. So, if you haven’t taken out the loan for the first time yet, you’ll want to do that sooner rather than later. Keep in mind that you cannot get the Second Draw PPP loan until at least 8 weeks after you receive the money from the First Draw.
Before you are required to pay back the loan—with interest—you have 10 months to apply for forgiveness.
There are various levels of forgiveness, anywhere from full forgiveness to partial to no forgiveness. Whether or not your loan will be forgiven depends on how you used the money.
As discussed above, with the majority of drivers using the money to pay themselves, and requesting loans under the $150,000 threshold, it will be easier to get this forgiven. The current process is about a one page document and if you received less than $150,000, you won’t have to provide documentation on how you used it. We cannot guarantee it, but it’s a good probability that drivers and couriers will have full forgiveness on your PPP loans.
For more information all about PPP loans and the current changes, check out this YouTube video produced by Jamie Trull, a CPA who goes through the PPP process in a significant amount of detail.
PPP vs Unemployment
What happens if you’ve been receiving unemployment and want to get a PPP loan? The rule of thumb is that you cannot double dip. You cannot receive the PPP loan at the same time you’re making money on unemployment.
There are a couple of ways to do this. The first would be to go off of unemployment for the 8 weeks or so that you’re paying yourself via a PPP loan. Then you could go back on unemployment after that if you need to.
The second option is to claim your PPP loan earnings on your unemployment for those 8 weeks or so and receive less and possibly no unemployment earnings during that time period.
No matter which option you choose, keep a record of when you received the PPP loan and when you were receiving unemployment. It may be that you’ll need to prove you weren’t double dipping at some point in the next few years. Keeping good documentation is the best way to do this.
Take a look at our video on receiving unemployment, EIDL and the PPP loan here: Can I receive unemployment or the EIDL loan and the PPP loan round 2?
We’ll be updating this article as we learn more and hear from drivers who have successfully applied for and received the PPP, so bookmark this article and stay tuned!
Drivers, do you now qualify for a PPP loan? Did you before?
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