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You Ask. Bev Answers: Does Your Business Need Employees to Qualify for a PPP loan?

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In a time of great uncertainty, a voice of knowledge and reassurance can make all the difference. Beverly Anderson, President of Global Consumer Solutions at Equifax, answers your questions based on her years of experience in the consumer finance industry. You can post a question for Bev on Equifax's Facebook page. Bev regrets that she cannot answer every question individually.

Question: Is the Paycheck Protection Program (PPP) only available for businesses with employees? What if I have an LLC and am unable to work due to the Covid-19 pandemic. Could I apply for a PPP loan?


There's a spot of good news for many self-employed individuals during the Coronavirus/Covid-19 pandemic: Even if you don't have employees, you can still use the Paycheck Protection Program to apply for a Small Business Association (SBA) loan that covers up to 2.5 times your monthly payroll costs. Assuming the loan is spent on payroll costs, mortgage interest, rent and utilities according to guidance provided by the SBA, it can be fully or partially forgiven.

It's important to understand, however, that the application requirements for sole proprietors are different than those for businesses with employees. When corporations apply for a PPP loan, they're required to disclose many details about their business, such as how much they contribute to their employees' health insurance premiums and retirement accounts. These don't apply to sole proprietorships.

There's also a different calculation method for an LLC with no employees than for other businesses, especially since PPP loans are primarily intended for payroll expenses. Instead of calculating the total payroll for employees, you report the earnings that you're taxed on.

For sole proprietors, this will generally equal the full amount of your net profit — even if you didn't distribute all of those funds to yourself as payroll. If your net profit was zero or less, you are likely not eligible for a PPP loan. Additionally, PPP loans don't apply to annual salaries over $100,000, so if your net earnings were above that, you'll have to cap them at $100,000.

You might also want to consider whether this type of loan is really your best option. Receiving a PPP loan may make you ineligible for certain state benefits, such as unemployment compensation, or other federal benefits available under the CARES Act.

When PPP loans were first announced, the initial allocation of funds was quickly depleted. But Congress passed a new round of funding, and applications are still being accepted until June 30th 2020. And while many banks have been slow to approve the loans because they either hit internal limits or needed time to catch up on processing the loans they had already approved, many other lenders have been able to approve PPP loans quickly.

If you do receive a PPP loan, be sure to carefully document how you spend the money in order to qualify for forgiveness. Your loan can only go towards certain expenses incurred over a 24-week period ending no later than December 31, 2020, and there are stipulations regarding how it can be spent. Even though sole proprietorships have very different expenses than other businesses, they are still required to use at least 60% of the forgiven amount toward payroll.

While the Paycheck Protection Program has provided a much-needed lifeline for many small businesses during the Covid-19 pandemic, it's important to understand what limitations come with your loan so that you can have it forgiven at the end of the spending period.

About Beverly:

Beverly Anderson is the President of Global Consumer Solutions at Equifax. She is responsible for the strategy, development, growth and profitability of direct and indirect businesses serving consumers with credit, identity and financial education products and services.

For more than three decades, Beverly has built businesses and delivered significant results in the financial services and payments industries. She drove consumer and small business strategies, product strategies, and enterprise growth and profitability strategies for First USA (now JPMorgan Chase), Fleet (now Bank of America) and American Express. Before joining Equifax, she was the Executive Vice President of Cards and Retail Services at Wells Fargo where she led consumer credit cards, co-branded cards, loyalty solutions, retail finance, digital payments and enablement capabilities. She has also held leadership roles managing auto loans, personal lines and loans, servicing, loan operations, collections and fraud operations.

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