In 2020, when forgivable federal loans became available through the Paycheck Protection Program and the CARES Act, it was a big relief for small businesses that got ravaged as a result of the COVID-19 pandemic. You’ve probably heard about this program, but did you know that these loans can also apply to your small business, even though you don’t operate out of a storefront or have employees?
It’s true. As independent contractors, drivers can qualify. And, if you do qualify and get the loan, you can apply to have it forgiven when the term of the loan is over as long as you follow the government guidelines.
Employers who own a small business with employees must prove they spent the loan money on payroll, rent, and other expenses directly related to being an employer. For drivers, it can be much easier. We’ll explain how.
First, though, a heads up: There’s a lot to digest and it’s pretty serious stuff.
You’ll fill out two applications: one for the loan, and at a later date, another for loan forgiveness. This is standard; first, you tell them why you need the loan, then you’ll prove to them how you spent the money on eligible expenses. Make sure to fill out both applications carefully so you don’t add to the wait time or cause confusion.
Also, pay attention to the regulations. You’ll have to retain your records for a certain time period and comply with some other requirements. Here’s an article in National Law Review that lists many of the legal considerations you’ll want to be aware of.
In this article, we’ll give you all the latest information on the PPP loan program. We hope it will help you decide if you want to participate, and if so, to apply in the way that will benefit you the most.
Here’s what we’ll cover:
- What the PPP loan program is
- How to apply
- How much money you might get
- The maximum loan amount for drivers
- How drivers can receive loan forgiveness
- How to apply for loan forgiveness
- The possibility of a second draw
Before we go any further, jot these essential dates down: The application period for the PPP loan was extended in early January 2021 to cover the period of lost income through March 31, 2021.
What the PPP loan program is
When COVID-19 was declared a pandemic in March 2020, U.S. government officials were faced with a crisis of catastrophic proportions. A national emergency was declared, and ensuing stay-at-home orders were issued by governors in most states.
This was necessary to keep COVID-19 contained—but it devastated small businesses. Many were forced to close down temporarily, and in some cases permanently. Millions of small business owners, including independent contractors and gig workers, were in desperate need of help.
In response to the needs of workers throughout the nation, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Among other provisions, the legislation included first-time opportunities for independent contractors to collect unemployment benefits. It also offered loans that allowed small businesses to keep their workers paid, even though the businesses weren’t allowed to be open so employees could do their jobs.
If you’re wondering what a PPP loan entails, here are some points to remember:
- As a sole proprietor, you can apply for a PPP loan—but only if you’re not receiving unemployment. You can’t do both because it’s double-dipping, and you’ll get nailed hard for it.
- There’s no need for complicated small business accounting when you’re a sole proprietor. Keep accurate records, but a simple bookkeeping system should suffice.
- You can get relief through the PPP by getting a loan that covers just your lost income. That way, you won’t have to be concerned with complications when it comes time to apply to have the loan forgiven.
If you’re wondering how you’d qualify for a PPP loan when you don’t have employees, don’t sweat it. Because of a concept developed by the Small Business Administration (SBA) called owner compensation replacement, self-employed individuals such as independent contractors and gig workers are allowed to claim a portion of their loan to make up for lost income due to COVID-19.
Here’s how it works:
- You receive money as your own employee.
- You get owner compensation replacement.
- You choose the amount of time the loan will cover: between eight and twenty-four weeks, as long as the period ends by March 31, 2021.
- You calculate the amount of the loan based on your 2019 Schedule C: Profit or Loss from Business (Sole Proprietorship).
- At the end of the loan period, you apply for loan forgiveness.
Although the original PPP expired at the end of 2020, an extension was signed into law on December 27, 2020 as part of the Consolidated Appropriations Act. Under the extension, all independent contractors became eligible to either apply for a PPP loan for the first time, or to get a second round of assistance in mid-January.
How to apply
The SBA administers the PPP through lending institutions such as banks, savings and loans, and credit unions. Once you’ve chosen a lender, a representative will help you through the application process and let you know if you qualify. Here are some tips to help you find the best lender for you:
- Stay small. Whatever lender you choose, try to find one that’s headquartered in your neighborhood or town, rather than a megabank. Doing so will ensure that you’ll receive more personalized service.
- Be honest. Disclose all the details that are requested of you, and answer every question truthfully. Unless you actually do have a company with employees, make sure your lender knows you want to apply for the owner compensation replacement option.
- Fill out the application fully and correctly. Errors or omissions could delay the processing of your application, or possibly cause you to be disqualified.
- Bring documentation (or have it ready to upload), including your completed 2019 Schedule C and proof that you were in business as of February 15, 2020. Your weekly summary from your rideshare or delivery driving platform will suffice.
- Be meticulous about your accounting, and be sure to record your expenses during the loan period. Even if you’re not going to claim expenses, you’ll want to be ready in case you’re asked for documentation down the road. The Gridwise app can help you with this.
How much money you might get
The PPP loan is intended for one purpose and one purpose only: to provide you with income while you’re unable to work. The loan program was designed so you can use the proceeds to pay your basic business expenses in order to keep yourself afloat.
In order to qualify for a PPP loan, the maximum amount of annual net income for sole proprietors is $100,000. That would be a massive load of rideshare trips and delivery runs, so let’s use a more realistic number.
Say your Schedule C shows that your net profit in 2019 was $50,000.
Divide that by 12 — $50,000 ÷ 12 = $4,167
Now multiply that by 2.5 — $4,167 x 2.5 = $10,418.
This represents approximately 10 weeks of income for you. Plug in your own numbers, and see what you come up with.
The maximum loan amount for drivers
Because the PPP limits compensation to an annualized salary of $100,000, the maximum for sole proprietors or independent contractors with no employees is $20,833. The entire amount is automatically eligible for forgiveness as owner compensation replacement.
How drivers can receive loan forgiveness
As long as you don’t violate any provisions of the PPP program, your loan can be totally forgiven. In keeping with the program’s design, you must use the loan proceeds for your payroll—i.e., your income (per the owner compensation replacement option).
You probably won’t be asked for much more than proof of no work income during the duration of the loan. As noted earlier, you’ll need to submit an additional application for the loan to be forgiven.
How to apply for loan forgiveness
For those who are granted loans as self-employed individuals, applying for loan forgiveness is simple. You can find out more about it in this Forbes article, which discusses the new one-page loan forgiveness form recently developed by the Small Business Administration. Again, your lender can help you with the application, so be sure to ask any questions you might have.
Once you’ve completed the application for loan forgiveness, you’ll need to submit it to your lender (or upload it) by July 31, 2021. Make sure you comply with this and all the deadlines and other terms of the loan program, including tax liabilities. This National Law Review article can help you understand that aspect of getting a PPP loan.
Your lender should be able to fill you in on these and other details. Still, you’re totally responsible for knowing what you’re getting into and getting your forms in by the deadlines.
The possibility of a second draw
If you’ve already taken out a PPP loan, you can apply for a second round now. See your lender and get the process started so you can get your application in before the program runs out of money.
There have been a few updates to the program, so make sure your information is current by reading this article by the SBA.
What are you waiting for? Apply now!
Who doesn’t wish that the driving gig business would bounce back and be as robust as it once was? Well, it will probably be a while before that happens, and we want you to maintain a decent income in the meantime. Maybe the PPP loan is right for you; it’s certainly worth taking the time to apply. Visit your local banker for help with the process, fill in the application, and accept our wish for good luck.
Account for your costs – with Gridwise
Even if you’re not driving, Gridwise can still help you keep track of your expenses. You can create your own categories and enter each and every expense that’s related to doing business as a rideshare or delivery driver.
And, if you’re venturing out, you can automatically track your mileage and income when you link your driving and delivery apps to the Gridwise app. Just make sure you go online with the app every time you start a shift, and leave it on until you’re done driving for the day.
When it comes time to see how much you’re making (and spending), it will all come out in slick, easy-to-read graphs like these:
Stay in touch with news for drivers with articles on our blog, and entertaining insight from the Gridwise YouTube channel. Join us on Facebook for great gas card giveaways and a community of drivers who are as eager as you to swap ideas and survival strategies.
How can you get all this, plus awesome discounts and deals for drivers? Download the app now.
And remember… Gridwise always has your back.