Restaurant Owners and 1099 Workers Can Still Apply for the Paycheck Protection Program

Written by Aaron Wise
Friday, April 10, 2020 at 09:40am CDT

Today marks the end of the first full week since many restaurants completed their applications to the Paycheck Protection Program (PPP) by the U.S. Small Business Administration (SBA). Starting today, self-employed and independent contractors may also apply directly.

PPP is a direct cash incentive to help restaurant and small business owners maintain payroll during the coronavirus crisis. So far, a few restaurant owners have received funds, although many are still waiting.

Friday, April 3rd was the first day for business owners to apply for a new “forgivable loan,” a loan that business owners do not have to repay as long as they spend the money on qualified payroll, rent or utility expenses. Starting today, according to the U.S. Treasury, “independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.”

Mix of Emotions

“I’m a small restaurant in Virginia waiting even to apply with Wells Fargo,” tweeted one restaurateur. “They are limited to $10B but sold out instantly, and I could never apply. Crazy! And I’m out of luck with my bank!”

Applicants should not become too frustrated however. Various restaurants across the country are successfully receiving PPP funds. “My mom just got approval for the PPP loan for the restaurant,” said Basturma Jones yesterday. In Hawaii, another restaurant chain owner received funds within three days of applying.

“We got approved for our PPP loan today. This gives us a glimmer of hope…we need to get back to business!” said restaurateur Monroe Marie.

Although this article is not legal or tax advice, there are a few things which are publicly known about how to expedite your own application.

Is It a Loan, or Free Money?

Part of the $2 trillion CARES Act stimulus package recently signed into law on March 27, 2020, there is no ambiguity regarding the government’s intention. As stated on the SBA website, “the Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.”

Although technically a loan, SBA will forgive the loan entirely if all employees are kept on the payroll for eight weeks. The forgiveness amount will be reduced for any salary or layoffs during the eight week period.

The loan does not require a personal guarantee from business owners. Restaurants are explicitly qualified to apply. The maximum cash amount is 2.5X average monthly payroll, up to $10 million. To be forgiven, the amount needs to be spent within eight weeks on payroll, rent, mortgage interest, or utilities.

The only major bank successfully processing applications as of April 3rd was Bank of America, which earned a congratulatory tweet from President Trump. During the course of this week, however, dozens of additional banks have opened their application windows.

More PPP Details

Who can apply? All businesses with 500 or fewer employees can apply, including sole proprietorships, self-employed individuals and independent contractors. Yes, 1099 workers may apply directly beginning today.

How much money can you receive? The maximum forgivable PPP loan equals 2.5X average monthly payroll cost over the past twelve months, including sales rep commissions as well as insurance premiums. The maximum loan amount is $10 million. Annualized salary calculations are capped at $100,000 per person.

Funds are provided by the government in the form of a loan that will be fully forgiven when used for payroll costs, interest on mortgages, rent or utilities during the eight week period following receipt of funds. Loan payments will also be deferred for six months in all cases. No collateral or personal guarantees are required. Neither the government nor lenders may charge small businesses any fees during the loan process.

How to Apply

You must apply directly with your bank. Unlike the COVID-19 Economic Injury Disaster Loan (EIDL), which was launched in March before the PPP became available, applicants may not apply directly with the SBA. The process will vary at each lending institution.

The U.S. Treasury has released updated guidance on its website and provided a sample application (only two pages long!). SBA has also released a sample application and its own guidance. Here is a link to Bank of America’s application.

Call your bank as soon as possible to ask if they are still accepting applications. Again, the first day to apply for PPP was Friday, April 3.

To help speed up the process, ask your lender if they would accept the U.S. Treasury or SBA application forms, or whether they require a separate form. Prepare any supplementary documentation to prove your payroll expenses, which should include evidence for at least the fourth quarter of 2019 plus the first quarter of 2020.

Photo by Harold Mendoza on Unsplash