The government wanted to get stimulus money to as many people as possible. They simplified the process, and then some FinTech companies like Womply and Blue Acorn made it even easier.
Is it really that complicated? How do you find the information that banks and the Small Business Administration are looking for?
If you want to get your second draw loan forgiven, you may have to do a little more book keeping work than you thought. However, it’s not that difficult. We’ll walk through all that. In the article below we’ll look at:
- Why the SBA is looking for reduction of revenue documentation
- The three types of documentation the SBA will accept
- When you can use just your tax records as documentation
- How to use financial statements as documentation
- How to use bank records as documentation
- What happens when you’ve provided your documents?
But first, a disclaimer:
The information in this article is based on my research. This is for informational purposes only and is NOT financial or tax advice. For one’s individual personal situation, small business owners should seek out advice from a CPA or financial adviser who is deeply familiar with how the Paycheck Protection Program works with your particular business type.
This article is geared towards self employed individuals.
This particular website is geared towards independent contractors in the gig economy. It’s especially meant to help those who deliver for companies like Grubhub, Doordash, Uber Eats, Instacart and a number of smaller delivery outfits. Much of this also applies to rideshare drivers such as with Uber and Lyft.
Ultimately, this article is for the person who works as a sole proprietor. It’s for someone who is in business for themselves who files their business taxes as part of their individual tax return.
If you run a corporation, or your business provides employee compensation for others than yourself, documentation requirements are much more complex than this article will cover. Your maximum loan amount is likely much higher, you have other business expenses that may qualify, and the reporting and payment receipts requirements may be very different for you.
For most self employed individuals and gig workers, the PPP loan amount AND the loan forgiveness amount are both based on what they call owner compensation replacement. The CARES Act originally set that at 2.5 times your net profit, and the Biden administration later amended it to be 2.5 times gross receipts.
For most sole proprietors, PPP funds are considered owner compensation replacement, which is considered a payroll cost. That means that payroll expenses and other eligible expenses aren’t a factor as much as they are for a business with payroll.
This information relates to SECOND draw PPP loans.
You don’t typically need as much documentation for your forgiveness application on first draw PPP loans. The first set of loans didn’t have the reduction of revenue requirement. Typically your IRS form Schedule C for 2019 and 2020 are sufficient.
For first and second draw loans, most self employed individuals will use the same form 3508S to apply for forgiveness. It’s a fairly straight forward form.
All of this to say, getting full loan forgiveness is a simpler process for the first PPP loan you received. This article is to help people know what they need to prove their reduction of income for the second loan.
Why do you need reduction of income documentation to get your second draw PPP loan forgiven?
You may not have even heard of the reduction of income requirement. Some Fintech companies and lenders were trying to get so many applications pushed through https://loan-on.com/payday-loans-sd/ that they quit mentioning that requirement.