31 May Success! How Two Guild Members Got Stimulus Loans
After the CARES Act was passed on April 24, we heard anecdotes and read news reports that freelancers, sole proprietors, and microbusinesses were stymied in applying for PPP loans. Additionally, rumors circulated that the Economic Injury Disaster Loan (EIDL) Program reduced the amount of funds small businesses could apply for. However, the subsequent $484 billion stimulus bill passed by Congress in late April allocated $310 billion to the PPP program and $60 billion to the EIDL program. That meant microbusinesses, sole proprietorships, and freelancers – in other words, businesses that represent graphic artists— had fresh hope for receiving a low cost, forgivable loan.
After the rocky rollout of the PPP program, we were worried that illustrators and designers would be discouraged from applying for federal stimulus loans. That fear was borne out by a survey we ran in April. The vast majority of respondents reported that they didn’t bother applying for either PPP or EIDL loans. The few who did hadn’t heard back on their application status. But the increase in funding for the programs in late April seems to have worked. We’ve heard from members who have received PPP or EIDL loans.
Here are two stories from Guild members who have received stimulus funding. We’re hopeful that their examples will encourage more people to apply for PPP loans. (We’re keeping their identities private so that they could freely discuss their economic conditions.)
Jane: A Sole Proprietor, Receiving EIDL and PPP Loans
Jane runs her own design business out of a small city in a Southern state. For her, 2019 had been a terrible year for business, and, after recently purchasing a home, her finances were strained. When the COVID-19 crisis hit and her state went into lockdown, she was gravely concerned; clients put work on hold or canceled projects, and work dried up. So she began to monitor the news for information about federal stimulus programs and turned to her BNI networking group for peer advice.
That networking group turned out to be a godsend. First, one member of the group was a banker who was also an approved lender, which happened to be where she had her business account. Second, another member of the group had already applied for a PPP loan. Those two BNI members shared their knowledge and experience with Jane and the group. She also conferred with her accountant to weigh the pros and cons of applying for a PPP loan, an EIDL loan, or Enhanced Unemployment Assistance. Jane settled on the PPP program, working with the banker in her networking group. Later, she also applied for an EIDL loan.
Applying for a PPP Loan
Applying for the PPP loan was difficult initially, even though her banker supplied her with a checklist and an Excel sheet to calculate her payroll. That was Jane’s first stumbling block. As a sole proprietor going through a tough year in 2019, she had received a limited amount of payroll after her yearly taxes were satisfied. Instead, she had taken distributions for the remainder of the year. The PPP program only considers payroll to calculate the amount of the loan. However, she was able to work with her CPA to calculate the correct payroll amount.
After hunting down the application on the SBA website (another hiccup – the application is a bit buried so follow this link), figuring out the payroll and filling out the application, Jane’s banker checked her documents. After that, she was able to easily submit the form to her lender’s dedicated server. That’s when the third hiccup happened: her paperwork was incomplete, and an email from her lender went into to her SPAM folder. Jane found out that the paperwork was missing a week later, when she called the lender to ask about the status of her loans. Although she hurriedly pulled together the missing information, she missed getting money from the first allocation of federal funding. However, her application was considered after Congress passed the April stimulus bill. In early May – about a month after she started the application process – she heard that she was approved for the loan.
Since her banker provided the proper checklists and PPP application, she was freed from having to hunt down the application on the SBA website. Figuring out the payroll and filling out the application, she submitted her paperwork to her banker. After that, she was able to submit the form to her lender’s dedicated server easily. That’s when the third hiccup happened: her paperwork was incomplete, and an email from her lender went into to her SPAM folder. Jane found out that the paperwork was missing a week later when she called the lender to ask about the status of her loans. Although she hurriedly pulled together the missing information, she missed getting money from the first allocation of federal funding. However, her application was considered after Congress passed the April stimulus bill. In early May – about a month after she started the application process – she was approved for the loan.
PPP loans are intended to cover 2.5 times the average monthly payroll costs, and 75% or more must be used for payroll within eight weeks. The remainder can be used to cover mortgage interest, rent, and utilities. With those restrictions in mind (and following her accountant’s advice), when the funds hit her account in late May, she transferred most of those funds as payroll into her personal bank account. She and her accountant were able to assign the proper amount to satisfy the tax requirements for the PPP loan.
Applying for an EIDL Loan
The EIDL loan application process was much simpler (but still challenging to find on the SBA website). Since the form was easy to understand, Jane didn’t work with her accountant on it. Afterward, she discovered she made an error on the applications and sent in a second, corrected application. (The form asks for total sales and the cost of goods which, as a service provider, she wasn’t sure how to calculate.) To her surprise, the first application form was accepted. In late April, she found out she was approved for a $20,000 loan and signed the closing documents after thoroughly reading the loan agreement. However, she’s wasn’t sure she’d receive the entire loan amount until after it’s finally approved (she’s since received it after signing the closing documents the week prior).
Jane also received an EIDL advance, which she didn’t expect. The EIDL application form ended with a checkbox asking if she would like to receive a forgivable $10,000 advance. She thought, “Why not” and checked it off. The advance was supposed to appear in her account within three days after applying; however, it took several weeks to arrive. She also later discovered that the advance was not the full $10,000 she had been told, but $1,000 per employee (up to $10,000).
Like the PPP loan, the EIDL loan came with specific requirements. Foremost, to prevent double-dipping, Jane can’t use the EIDL loan for the same purposes as the PPP loan. That means she can’t use the EIDL funds to cover her salary during the eight weeks after the PPP loan is received (and has been used up for her personal payroll). While Jane doesn’t have to repay the EIDL grant, she is required to pay back the loan. The terms are generous, as her interest rate is 3.75% and she has up to 30 years to repay the loan. She only needs to start repaying the loan after one year (in which interest does not accumulate during that time), and the minimum amount due each month is only $100. Lastly, she can write off the interest on the loan as a business expense.
There are, however, stipulations to the use of the loan. She is required to provide financial reports to the SBA to confirm the loan is used for the approved expenses. The EIDL advance, as well as the entire EIDL, are considered working capital loans and may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. These loans are not intended to replace lost sales, profits, or to pay for expansion and cannot be used to pay down long-term debt. They cannot be used to consolidate debt. (Read this blog post by Nav for more information.)
Anne: Owner of a Small Design Firm Owner and Marketing Consulting Firm, Receiving PPP Loans
Anne runs a small design studio in a major city. With less than five employees, her firm fits the micro-businesses profile of businesses that were largely shut out from the first round of PPP loans. She also runs a marketing consulting firm as a second business, and the two companies are structured very differently. The design firm is incorporated and has employees both on staff and as 1099 contract workers. The marketing firm is an LLC that outsources to 1099s and pays its owners via a draw (similar to the distribution which Jane used for her design business).
Similar to Jane, Anne began tracking news reports of COVID-19 related federal relief early. She’s also on email lists for small business resources and attended webinars about federal relief conducted by small business law firms. However, unlike Jane, Anne didn’t consider applying for an EIDL loan initially, opting to first pursue a few of her city’s small business grant opportunities. By the time she considered applying for an EIDL loan, the application process was closed to all except agricultural businesses, and it was not opened up again when Congress passed the April stimulus bill.
During that first round of funding only banks were processing PPP loans, and almost all of them were only accepting applications from existing business customers. Anne applied online for PPP loans for each of her businesses on the first day the application process opened. Her experience was similar to Jane’s in that she found the initial application form to be straightforward and easy to fill out, but the subsequent navigation to upload supporting documentation tricky. The uploading instructions were unclear, and like Jane, she received multiple messages that her application information was incomplete without clear requests about what else was needed.
Figuring out how to upload the right documents for her two companies was very different. The process for her design firm went fairly smoothly; the system allowed her to use her 2018 documents along with a 2019 Q1 payroll form, which she could easily upload to complete the application. However, the process for her marketing firm was far more confusing. That firm is registered as an LLC without employees, and she is paid from the marketing firm via an owner’s draw. The combination of those two factors meant that her information did not fit the standard categories designated by the application process, and the system offered her no guidance. She was caught in a frustrating loop of uploading what information she had, only to get general requests for more information in a form email that didn’t address her marketing business’s specific corporate structure. As Anne wasn’t able to reach anyone at her bank by phone, she finally resorted to outlining her specific issues in a Word document and uploading that.
Fortunately, (and like Jane), her business network came to her assistance. A member of one of her networking groups was married to someone who processed PPP forms for his job, and happened to work for her bank. He conveyed through his spouse that no one on staff at the bank was allowed to answer questions about the PPP application process by phone, but he made some suggestions that were helpful. He shared that the bank was mostly concerned with learning whether her business was profitable, so she could upload 2019 documents which were still in draft form since she didn’t have her 2019 tax return completed. He also revealed that the bank had initially had its employees rotate through the PPP applications to avoid bias, but realized that some people were having difficulty in completing their applications. To address this, the bank had just changed their process to dedicate staff to follow up with the same applications for difficult cases. Shortly after this conversation, Anne uploaded 2019 draft documents, and after complying with a secondary request for documentation that was more customized to her circumstances, immediately learned that that she had been accepted for a PPP loan. (Her design firm application had already been accepted.) Like Jane, her applications were funded in early May, after the April 24 stimulus bill was passed.
Advice for Designers and Illustrators: Apply, Apply Apply!
We asked Jane and Anne for what advice they want to give other creative businesses. With over a billion dollars still in the PPP coffer, they’re encouraging designers and illustrators to apply for a loan. (The EIDL program is now closed to all except agricultural businesses, although outstanding applications are still being processed.)
- If you haven’t done so yet, see if you qualify and apply for a PPP loan. Chances are you do. The program is intended for sole proprietors and freelancers with no employees, as well as the owners of small businesses.
- People with existing business accounts with an SBA-approved lender have an easier time getting a PPP loan. However, the second round of funding permitted credit unions and other SBA-approved microlenders to process PPP loans. SBA District Offices have a list of local lenders and resources for those without business accounts.
- The SBA also has local Small Business Development Centers, designed to provide guidance to entrepreneurs and small businesses. They can be a great resource for free business consulting or low cost training on a number of topics, including lending, financial management, and disaster recovery.
- If you have any questions about the application process or how to calculate your costs, get the advice of your accountant. Your peers and business colleagues are also a great information resource.
- If the application process or document upload process is difficult, keep trying. If you get a form letter saying some information is missing, resubmit it. And if you can’t figure out what information is missing, try submitting a document describing the problem you’re having.
- If you’re having difficulty meeting bills, let your creditors know. Call your credit card companies and loan companies. Most will let you defer payments, or will lower your minimum payment amounts to get you through a tough spot.
- Contact your clients and see who has projects they’ve been putting off but would like to get done during their own slow period.