SBA Loans for Musicians

SBA Loans for Musicians

With COVID-19 cancelling concerts everywhere, it’s helpful to know your options for SBA Loans for Musicians. If you missed the June 30 deadline for the Paycheck Protection Program (PPP), it has just been extended until August 8. We previously wrote about the PPP here.

The SBA still has $130 Billion available for PPP loans. Those “loans” could be forgiven entirely, when you spend the money on qualified expenses, such as payroll. If you are a self-employed musician, take a closer look at the PPP. If you have Schedule C self-employment income (1099), you are an eligible small business!

The PPP was designed to support small businesses, to help them keep employees on the payroll and off unemployment. So, if you are already collecting Unemployment Benefits, you may lose them temporarily if you receive the PPP.

PPP and Unemployment

The extra $600 a week in unemployment is set to expire at the end of July. If you can time it right, you could collect unemployment through the end of the month, then switch to the PPP for 8 weeks starting August, once you receive that loan. You could pay yourself the full “average monthly earnings” as calculated in your PPP application, rather than the reduced Unemployment Benefits. That’s the benefit in applying for the PPP. The eligible period for spending the PPP has been increased from 8 weeks to 24 weeks. However, it might be preferable to pay yourself over 8 weeks, if that would allow you to resume or start unemployment benefits.

Under the Pandemic Unemployment Assistance (PUA) program, states are providing up to 39 weeks of unemployment benefits. Generally, this will run through the end of December. There is some discussion in Washington to extend the extra $600 a week (or maybe $450). We will have to wait and see what happens! For now, it might be best to assume these programs expire as scheduled, and plan accordingly.

EIDL and the PPP

For musicians who previously accepted the EIDL (Economic Injury Disaster Loan), you can still potentially do the PPP. The EIDL advance ($1,000 for individuals) would reduce the forgivable amount of the PPP loan, but you can just repay that $1,000 and close out the PPP loan. Here are instructions on applying for the PPP if you already took the EIDL.

SBA Loans for musicians are offering an important life jacket during this difficult time. I really want to get back to making music and miss it terribly. Until that is possible, we need to avail ourselves of any and all resources to stay afloat and keep paying the bills. If you want financial planning specific to musicians, I am accepting new clients this summer and we can help you with the issues you are facing today.

Paycheck Protection Program for Musicians

Paycheck Protection Program for Musicians

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.

PPP Overview

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:

  1. Apply for the loan at your bank using Model Application (link below).
  2. Spend the loan in the following eight weeks on payroll, benefits, and rent.
  3. 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.

Unemployment Benefits for Musicians

Unemployment Benefits for Musicians

With the Coronavirus causing cancellations of concerts, schools, church services, and other gigs, many of you are wondering about unemployment benefits for musicians. Are you eligible?

Unemployment insurance is provided at the state level and each state has its own eligibility, rules, and application process. To find the link for your own state, visit the US Department of Labor website here. This site includes any new rules or benefits offered because of the COVID-19 crisis.

If you are a W-2 musician (an “employee”) you are generally eligible for benefits if you have lost work due to Coronavirus. You don’t have to be a full-time employee or work exclusively for just one employer. Even if your lay-off is temporary, and you are not permanently “fired”, you may still be eligible for benefits. Please check your state rules and verify before assuming you aren’t eligible. And know that filing for benefits doesn’t cost your employer. They already paid premiums to the state for this insurance.

Here in Texas, the state will need your past five quarters of earnings and will base your benefit on the first 4 of 5 quarters. Benefits range from $69 to $521 a week, depending on your past wages. You should apply as soon as possible to avoid missing any weeks of benefits. There is often a lag of three or so weeks until you receive your first payment.

Self-Employed?

The bigger challenge for musicians is that many of us are 1099 or “Independent Contractors”. If you are self-employed, you are generally not going to be eligible for unemployment benefits. Minnesota offers benefits to the self-employed, but only if you paid into the program in advance. So, you need to check your own state rules to verify.

This brings up an important point. Many ensembles incorrectly classify musicians as Independent Contractors, when they should be Employees. Some musicians point out that they have more tax deductions as an Independent Contractor. That’s true. However, you miss out on two big advantages as a Employee. First is Unemployment Benefits, which you don’t get as a 1099. Second is that an employer has to pay 7.65% towards your Social Security and Medicare taxes. This cuts in half the Self-Employment tax that you would pay as a 1099. That’s like a 7.65% raise by going from 1099 to W-2.

The Lancaster Symphony Case set a legal precedent that orchestra musicians are employees. It’s time for orchestras to stop classifying musicians as Independent Contractors. That would allow more Unemployment Benefits for working musicians.

Stay healthy. I hope this will pass soon so we can all get back to performing, teaching, and sharing our love of music. Don’t be afraid to ask about Unemployment Benefits for Musicians. Yes, it can be a pain to apply and meet all the ongoing eligibility requirements. But if you are out of work, don’t delay in getting the benefits you deserve.

UPDATE April 3, 2020: The CARES Act passed last week is expanding Federal unemployment coverage to include self-employed individuals. While this benefit is supposedly available immediately, the states are still working on how to actually do this. Here in Texas, there are presently no instructions or process to apply for unemployment benefits for self-employed, “gig economy” workers. But this should be available soon. We will have to see how they will calculate your income and benefits, it will be interesting!