Here’s information on the Paycheck Protection Program for musicians (PPP): what it is, who is eligible, how to apply.
As part of the $2 Trillion Coronavirus Stimulus Package, $349 Billion will fund loans to small businesses. These loans are designed to keep employees on the payroll and off unemployment. The loans are forgivable. The government doesn’t want you to pay them back, as long as you spend the money to pay employee salaries and benefits for two months. It’s called the Paycheck Protection Program.
But you’re a musician, not a business, right? Hold on, if you are self-employed, you may be eligible, even if you are the only “employee”. You don’t have to be incorporated or have a bricks and mortar store to be a business. The rules are quite broad. We will give you an overview of the program and then explain how you can apply as a musician. Applying for the PPP is straightforward using a two-page application.
Before we get into the PPP: apply for unemployment benefits if you are unemployed, even temporarily. The CARES Act added unemployment coverage for self-employed and independent contractors, for the first time ever. Benefits will be increased $600 a week on top of usual unemployment amounts, for the next four months. If you are concerned that Coronavirus closures might keep you unemployed for more than 8 weeks, unemployment might be the better option than the PPP. States are not yet taking applications for unemployment benefits for Independent Contractors. Hopefully that will be online in a few days. If you aren’t unemployed, impacted and still open for business, read on.
The Paycheck Protection Program is a loan to businesses under 500 employees. The Small Business Administration (SBA) guarantees the loans, which will be provided through 1700 Banks and Credit Unions. Your bank is probably already an SBA lender. Technically, the PPP is a 2-year loan at 0.50% interest. Payments are not required for six months. If you spend the loan on allowable expenses within 8 weeks, then the loan will be forgiven. You also have to keep the same number of employees and not reduce payroll during this period. The loan forgiveness will be non-taxable. Steps:
- Apply for the loan at your bank using Model Application (link below).
- Spend the loan in the following eight weeks on payroll, benefits, and rent.
- Apply for loan forgiveness and document that the funds were spent as intended.
You must state on the application that your business was impacted by the Coronavirus and you need this money to meet payroll and expenses. This is easy. Concerts were cancelled. Music lessons are a non-essential business and were required to close in your area due to the shelter in place rules.
Loan Amount and Application
The application provides instructions to calculate your loan amount. You are eligible to borrow 2.5 months of payroll, up to $10 million. Payroll includes gross pay plus taxes. Salary eligible for loan forgiveness is capped to $100,000 per person annually.
Then over the next eight weeks, you can spend the loan on payroll, payroll taxes, employee benefits, including health insurance premiums, retirement plan contributions, and sick leave or vacation. You can also spend the money on rent or mortgage interest for your business property (if you have a studio, for example). Non-payroll expenses cannot exceed 25% of the total.
Eligible businesses includes corporations and LLCs, but also includes non-profit organizations, sole proprietors, and those who are self-employed or independent contractors. Many businesses can apply for the loan starting on April 3, 2020, and Independent Contractors can apply starting April 10. The program will close once the $349 Billion is gone. Don’t delay!
Here is the required application for the Paycheck Protection Program. Your bank may have additional paperwork for the loan. The SBA is paying all the application or service fees for the loan, so it costs you nothing. Amazingly, the Federal government is pushing cash so fast into the economy that neither banks nor state unemployment departments are prepared. In fact, the final rules from the SBA are not expected until around April 13. So, it’s grab the cash now and figure out the details later! I guess desperate times call for desperate measures.
Musicians, you are a business and you have absolutely been impacted by the Coronavirus, resulting in loss of income. If eligible, take the time to apply for this benefit. It’s a two page application with two pages of instructions which could replace two months of income for you and your employees.
Employee Retention Credit
If you own a business with multiple employees, such as a music school, band, etc., you should also know about the Employee Retention Credit. It’s another part of the CARES Act. To qualify, you must have either been temporarily closed down due to local regulations or have your gross receipts fall by 50% this quarter versus last year. For business owners with lower income or part time workers, it may be better to use the Employee Retention Credit rather than the PPP. You have to choose one or the other: if you take the PPP you are ineligible for the Employee Retention Credit.
The Employee Retention Credit is for 50% of income per employee up to $10,000 a year. So the maximum credit is $5,000 per employee for 2020. Now if your employees will make less than $5,000 in 2.5 months but more than $10,000 for the rest of the year, you would be better off with the ERC versus the PPP. The ERC is not available to self-employed individuals and will apply to income from March 12, 2020 to the end of the year. Full details and eligiblity here on the IRS Website.
I know these are difficult times and musicians are hurting. Many lenders, mortgage companies, and credit cards, are allowing people to delay their payments. There is federal aid coming and expanded unemployment benefits. If you have questions on the Payroll Protection Program for musicians, please feel free to send me an email.