Ask The Expert: Small Business COVID-19 PPP Loans and Taxes
Coronavirus continues to impact small businesses. To help sustain small businesses, the Small Business Administration has launched a second draw of the Payment Protection Program (PPP) loans. Are you thinking about applying for the second round? Already applied? Or, do you have questions about filing your small business taxes from the first round of loans received?
Join us February 8-15, to get your questions answered by Roderick (Rod) Johnson (RoderickJ614381), SBDC Project Officer of the Small Business Administration (SBA), a lending specialist and AARP Expert, Felicia Brown (@FeeBrown). Take advantage of this special program and learn how to navigate the tax implications to help you prosper in 2021
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A business owner must go to their local bank to apply. 60% of the money must be used for payroll and 40% used for gas, water, electric, rent/lease, interest on a commercial mortgage, PPE, property damage your insurance company does not cover due to rioting, looting and disturbances, software used for accounting, payroll services, inventory control, internet and business cell phone and landlines.
The EIDL loan goes up to $150K. You use the money for the same business expenses mentioned above without the restrictions of PPP. Go to SBA.Gov/PPP and get all the information on PPP. Sign up for SBA.GOV/Updates and put in your zip code so that you receive all the money you need for your business and the sources to get it from.
@RoderickJ614381 for our listeners who may new small business owners, can you talk more about the EIDL and where to look for state and local grants and more about the Federal Reserve's Main Street Bank program?
You need your bank statements, 941 statements, schedule C statements, cancelled checks, invoices and receipts, 1099 statement and complete the 3508S form if you loan is less than $150K. Again go to sba.gov/ppp.
For first draw you need your 941 if you have employees. If you do not have employees, you need your schedule C or 1099. The formula is 2.5X your average monthly payroll or of your schedule C income. Work with your local Small Business Development Center, Score, Women's Business Center for free assistance.
The prior post mentioned what to do. Once you have your documentation, submit it to the bank. The bank has 60 days to make a decision and then the SBA has 90 days to make a decision on the forgiveness. So give it six months before you find out. Please do not call your bank or the SBA every week asking if we have an answer yet.
Finding money for a start-up business is tough just because of the nature of the business being a start-up. 80% of small businesses fail within the first 5 years.
Having said that, a new business/business owner must be willing to put in their own cash, borrow from family and friends, or find investors. Banks generally do not like to lend to start-up businesses because of the high risk of failure.
However, if you work with Score, WBC, VBOC or an SBDC, they will walk you through how to build a business plan with great projections. Then you can apply with an SBA approved Preferred Lender who might take a chance on lending to a start-up business.
There seems to be questions about tax penalties. What tax penalties are you talking about with PPP? Either you get the loan 100% forgiven or you do not. If not you have a 2 or 5 year loan at 1% you have to pay back to the bank.
Frankly, I am not sure where the tax questions regarding EIDL or PPP are coming from? If you are a business owner, you pay the expenses associated with running your business using PPP money, EIDL money or cash flow generated from your business. With most businesses showing a loss during this pandemic, from a tax standpoint you will not be paying taxes because of the loss.