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SBA Disaster Loan Application | Paycheck Protection Program

Published on: December 10 2022 by Jason Wardrop

SBA Disaster Loan Application | Paycheck Protection Program

SBA Disaster Loan Application | Paycheck Protection Program

All right, welcome back to the channel everyone today
I get got again a special guest Jeff McMullin a CPA and also my father-in-law Jeff. Thanks so much for being on my pleasure
Thanks for letting me be on here
yeah, so you might have seen a few videos in the past that we've done on the PPP loan and
How that really works and so we've got a lot of questions in the comments on those previous videos
So I just want to kind of just hit really quick what we're gonna be covering in this video
We've got a lot of your questions
So we're going to tok about what the purpose of the loan is how the loan amount is determined
For each business individually or if you're self-employed
how it works if you have employees if you don't have employees and what type of documentation you're going to need, so
Those are kind of just a highlight of what we're going to cover in this video
And then I've got a list of all of your other questions as well. So
Let's start at the top there. So Jeff tell us what is the general purpose of this loan?
Well, I think it'd be helpful for
Understand what the general purpose is that'll help answer a lot of options that you're getting on this
the primary purpose of this Lo and was intended to allow employers to pay khloe's and
Tim you paying them and keep them on the payroll
and so when you look at from a self-employment perspective
It's a matter of replacing that income which the wise would have had at
We not incur this downturn and so you need to add it in those terms
and so if for example
You've got a situation where you weren't in having any available income to you
In other words all of your expenses exceeded your revenues
Then you're not eligible to replace anything because you're not replacing anything at that point. So those who have got losses, for example
Unfortunately, they can't go out and apply for this loan as a self-employed individual. So unless you've got next year for those
Okay. How's the loan amount determined?
So for those people who are self-employed
Independent contractors it is most likely going to be determined determined based upon
What's referred to it as your self-employment income is found on Schedule?
se of your tax return and what flows into the sky s-see of your tax return is going to be
income from your sole proprietorship that is typically reported on Schedule C of your business income that might be coming to you as a
partner in a partnership
That doesn't also reported as self-employment income
income from farm and agricultural activities that are reported on Schedule F of your tax return and perhaps all you do is receive a
1099 as an independent contract and you don't have any business expenses that income also gets reported as self-employment income
subject to self-employment tax so I
We believe are under the impression that in order to determine the amount of the loan
they will look at the amount of your self-employment income for an entire year for a 12-month period
divide that by 12 to come up with a monthly average and multiply that by two and a half in order to
Determine the maximum amount of your loan
What documentation is likely needed to obtain?
The loan and then after that it will be what documentation is like we needed to apply for forgiveness
Let's start with obtaining a loan and then we'll hit the forgiveness aspect of things
And so really the only thing they're going to ask for in order to give you the loan or determine the loan amount is going
to be some proof of what that
monthly average employment income is
So we here again if you've got your tax returns done for
2019 you can look at that 12 months for you and it'll come right off of those tax returns
if you don't have your tax returns done, then you'll need to look to your accounting system and you can look to the
12-month period and indie standing in the group
2019 or you can also
look for the 12-month period ending in March of
2020 to look at your gross revenues less your business expenses to determine what your income is from the
Operations that you're conducting that are a business but once again are going to be subjected to yourself employment income so you'll need at least
Some accounting records or your tax returns in order to apply for that loan to in order to substantiate
the fact that you do have something
That two and a half five average favorable amount or income amount can add up to a loan amount
Gotcha, and then as far as like the forgiveness side of things right and so they'll the banks will likely do most of their scrutiny
Of your information when you apply for forgiveness now
once you've gotten that loan you have eight weeks in which to spend those funds and prove that you spent it on things that
Would typically be considered
compensation to you
So what I am suggesting to people, is that if possible
they take those loan funds and put them into a separate bank account separate from where their
normal business expenses are paid out of or separate from their personal bank account so that when they
Look eight weeks down the road
They can say okay now I can see how that money
Came to me and I can see how it was spent and as you need to spend it on
items
Then you move it from that bank account and either into your personal bank account or into your general
business bank account and you've got a good record of when those funds were moved and then you look to those other bank accounts say
What were those funds spent on and here again is to simply just replace the amount of funds that would have been available to you
Had you been paying yourself as an employee
So as you here, we've got what if I have what if I employ individuals other than myself
Well, if you have if you're a sole proprietor and you have employees or you are a partnership and you have employees and you are
not taking a salary, but maybe perhaps
taking drawers out of that business
Periodically you will apply for that loan in the name of your business
And reflects the amount of the payroll and the average monthly payroll of all of your employees and then add to that
The amount that you would typically take out in a draw over an annual period and figure out the monthly average of that now
The law is not real clear on this as to whether or not you can include that amount
In with all of your employees when your appliance without loan
I'm under the impression that it will be easier for you to get that loan
If you're just applying for about one loan now if your bank tells you no
You can't include your share of that in in that calculation
then you just simply apply for that law and using the employees wages and
Then you separately apply for the loan as a setup employee independent contractor
Okay, perfect so someone else says what if they have not felt the impacts
of
everything that's going on yet, but it may
Curb, they may feel some type of impact down the road
So that you're again
The purpose of the lawn is to get money into the hands of the businesses that have been impacted by this
But many of us are in a situation where we've had ongoing business up until now and we don't know how long this
Downturn is going to occur. It may drag on for awhile
We hope it doesn't but we don't know what the impact is going to be on us
and so the idea is to go ahead play for the low and get those funds and
then if those funds are needed and are used then you can apply for
Forgiveness of that loan to prove that those funds were used for those intended purposes
we are not certain how this whole loan forgiveness process is going to work and how closely the
Banks and the SBA will look to see if we have been negatively impacted by what's going on here
And if not, we antikipate that those loans may not be forgiven, but we don't know that for sure
But if those funds are obtained and are spent on typical compensation type items
Then we antikipate those loans can be forgiven. All right, so here's another question
asking if they're an owner of business they have employees, but then they maybe they've got a separate business where
You know, they're a 1099 contractor that they have income
Asking about you know to have the dual
Application for both of that both sides of the loan. So basically like doubling up on the loan programs here
So we may find ourself in situations where individuals are treated as employees
And in fact at the end of year, they receive a w-2 from their employer
Now these same individuals may also own that employer. You're an owner employee
and so if you are an owner and an employee in other words
You have either an LLC the files as an S corporation a business entity that pays you as wages
then that business entity can apply for a loan based upon the amount of wages that it has paid you and
so from that angle the business is the plan for the loan and
Receiving those proceeds and must spend that loan appropriately now that same individual may also have a side business in
which they are generating income as a sole proprietor or is a partner in another business and
That income is not included in those W edges that they received from their employer
That income
Can be eligible to be included in a loan application
and so that loan application would take that income that would typically be
Reported on an individual's tax return either on a form scheduled fee or on a form k1 coming through a self-employment
or farming activity and those types of sources and ultimately show up and be taxed as
self-employment income unscheduled se of the tax return and
That income
Then you look at the annual average of the monthly average of that income to determine how much you loan can be applied for there
so
individuals may be both an employee of one entity and also be self-employed in another operation and
So two loans can be obtained at that point one is an individual and then one is a business owner
So basically you just submit two applications same bank, but then they just be two separate applications, right?
Right. Now keep in mind. You can't double up on the amount of income that is being included in these loan applications
So if you're being paid through a business as an employee
You report that in the wages and base the loans off of that. However
if you are an owner and in addition to wages and take distributions or drawers out of that business those
distributions and drawers are not
included in that calculation because you've already
Included your wages in there and those district the drawers are just basically considered business earnings
Separate and apart from what you are doing for performing services
The overall intent of the loan is to have funds available to individuals who are performing
services and working and earning a wage
Not for people that are just making money off of other people's efforts
Gotcha. So anyway
I think these are most of your guys's questions that we've gone through all the comments
If you do have further questions, you're like man. I wish this was explaining them. We're clear
We left something out drop a comment down below
We'll do our best to get back to that
but Jeff any other things that you feel like
We maybe need a hit that we we missed so far
You know, we we've covered quite a bit
We recognize there's a lot of questions associated with this whole application process
But I think just getting down to the general reasons for the loan itself is to keep money flowing through the economy
Associated with what people would otherwise be earning in the form of a paycheck
And that's where this goes to so it's not there to replace
Rental income it's not there to replace
dividend and
Gain, income from selling stoks and bonds and marketable securities is to replace income associated with individual
services rendering as employees or for themselves
Okay. Awesome. Well, once again, thank you Jeff for jumping on here. I know I've had a lot of comments to me personally
They're very grateful that you've been able to jump on three times now be able to share your wisdom with us also. Thank you
so much and
Everyone. Thank you for so much for watching and we will see you in the comments
All right now a great day