Smart Tax Planning

The Paycheck Protection Program has run out of money – meet the entrepreneurs left in the cold

Key Points
  • The $349 billion small business forgivable loan program ran out of funding on Thursday. There were 1.6 loans extended as of April 16
  • Independent contractors and self-employed people were at a disadvantage, as they couldn’t apply until April 10 and Treasury didn’t issue application guidance until April 14.
  • Prepare for next time in case the pot is refilled. Gather documents, get in touch with your accountant and consider checking in with your local bank so that you can get in line.
Chris Myers, a Baltimore-based photographer, has applied for a PPP loan
Chris Myers | Chris Myers Photography

Chris Myers applied for a forgivable loan from the federal government. He's running his business as if the additional lifeline may not be on its way.

"I'm just cobbling enough work together to try covering my studio rent and a little bit of incidentals," said the Baltimore-based photographer. Hospitals and colleges are his usual clients, and he's expanded into taking more freelance photojournalism work with local magazines.

"Hopefully, I don't beat up my bank account too much – 90% to 95% of business is gone right now, so I'm just keeping the lights on," Myers said.

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Myers is among the millions of entrepreneurs who applied for a slice of the $349 billion Paycheck Protection Program or PPP. It's been five days since he's applied, and he's still not sure whether he'll receive funding.

The first-come, first-served forgivable loan program dried up on Thursday, April 16 with many small-business owners still uncertain about where they stand.

Some 1.6 million loans were extended as of Thursday, according to Treasury. Three out of 4 loans were for $150,000 and less.

"People are waiting for money," said Michael Maksymiw, partner at Marcum in West Hartford, Connecticut. "They're trying to get this money and pay employees so they can buy groceries and function."

Main Street left with more questions after PPP funding runs out
Main Street left with more questions after PPP funding runs out

Self-employed people and independent contractors like Myers were at a disadvantage from the beginning, accountants said. For starters, they were only able to apply for the program as of April 10 – a full week after it opened to small businesses.

"This was first-come, first-served and you had all these businesses going into the queue with no banks set up to take the applications" said Eric Hjerpe, CPA at Hjerpe & Tennison in Bloomington, Illinois.

"Independent contractors got screwed on the back end; they go to the back of the line automatically," he said.

Here's where things went sideways for independent contractors and how they should proceed.

A late start

Temporary closed signage is seen at a store in Manhattan borough following the outbreak of coronavirus disease (COVID-19), in New York, March 15, 2020.
Jeenah Moon | Reuters

Myers applied for the loan via online lender Kabbage on Monday, April 13, submitting his 2019 income tax return.

Treasury didn't release guidance on what indie contractors would need to apply for funding until April 14.

These applicants are supposed to submit Schedule C from their 2019 income tax return and the supporting Form 1099-MISCs that show compensation they received, as well as bank statements.

The new guidance, as well as on-going changes for calculating the loan amount, left entrepreneurs and their accountants scrambling to pull the documents together.

Confusion over the PPP program
Confusion over the PPP program

"We have a lot of people who are self-employed and who were left holding the bag," said Dan Herron, CPA and principal at Elemental Wealth Advisors in San Luis Obispo, California. "We got the guidance three days ago and the money's dried up."

Early birds who submitted paperwork too soon run the risk of having their application sent back to them with requests for more data, said Hjerpe.

Further, funding and approval is up to each individual bank. 

"Some clients were funded on the same day of approval and others were funded four days later," said Maksymiw.

Accountants report that some banks — particularly community and local lenders – were more responsive to applicants, versus those who went to large national banks.

Reopening the window

Carlina Teteris

Ultimately, it's up to Congress whether to pour money back into the program.

Here's what to do in the meantime so that you're ready if there's a second round of funding.

  • Round up your documents. The paperwork you'll want to have ready includes your tax returns for 2019, including Schedule C, Forms 1099-MISC that detail compensation received and a book of record that establishes you're self-employed and in operation on or around Feb. 15, 2020.
  • Contact your bookkeeper or payroll provider for employees' paperwork. This would include Forms 941 and 940, which show Social Security and Medicare taxes withheld and payments toward unemployment, respectively.
  • Don't go it alone. Bankers are rushed, and a neat package of documents prepared by your accountant can help smooth the application process.
  • Get to know your community bank representative. "The local relationship with your local banker really shines," said Herron. "At a large national bank, you're just a number."