Grants and Forgivable Loans for Gig Workers

How to claim your money from the CARES Act

Last week Congress passed the CARES Act, a $2 trillion stimulus package that included several provisions designed to extend help to independent contractors and gig workers. In addition to $1,200 payments to individuals and the expansion of state unemployment benefits to include gig workers (check your state’s unemployment insurance website for details), the act introduced two ways for gig workers to get loans and up to $10,000 in grants. This post will cover two new programs: Economic Injury Disaster Loans and the Paycheck Protection Program.

Disclaimer: I am not a lawyer or accountant and this is not legal or financial advice

A quick overview: Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP)

Both of these programs are available to businesses with less than 500 employees and independent contractors. If you get a 1099 form for the income you earn, you qualify. Both benefits are designed to help businesses keep workers on the payroll. You are eligible if your business has been hurt by the COVID-19 pandemic, and seek to cover the costs of employee salaries and other employee-related expenses. For gig workers and independent contractors, the employee is YOU.

The EIDL program is a 30-year loan with an interest rate of 3.75% and also includes the option of applying for an advance of up to $10,000—this advance does not need to be paid back, even if you do not accept or get approved for a loan.

Guidance suggests advances can be deposited in three days. The EIDL application is fairly simple if you know how much money you made last year and your expenses. It takes about 20 minutes to complete online. If you are approved, the money will be deposited into your bank account. The Small Business Administration (SBA) administers this benefit and it is not clear what the criteria is for approval of an advance. What we do know is the money is first come, first served so there is good reason to apply as soon as you can. We’ll walk through how you can apply.

The EIDL is a loan program that is not forgivable, but the cash advance does not need to be paid back. You do not need to take the loan if you are approved

The Paycheck Protection Program (PPP) is administered by the Treasury department and is also available to independent contractors. The application process is more complicated and you need to apply for this loan at a bank that is an SBA lender. You can borrow up to 2.5x your monthly expenses for payroll, rent, mortgage and utilities. If you do not lay off any employees, the loan can be forgiven. As an independent contractor it would be difficult to fire yourself, so you can expect to have this loan forgiven if approved. To apply, you will need to find a bank that is participating and follow their application instructions. Applications for sole proprietors and independent contractors open on April 10th. You can see a sample application here. If you are interested in the PPP, consult with your bank to see if they are supporting it. Some banks may only accept applications from current clients. Banks are scrambling to understand these new programs with limited guidance.

It is possible to apply for both these programs, but they must be used for different expenses. You may use your PPP loan (which is forgivable) to refinance your EIDL loan.

How to apply for the EIDL program

Here we’ll walk you through how you can apply for an Economic Injury Disaster Loan (and the $10,000 advance that does not need to be paid back). Before you begin, some things to note:

• You’ll need to know your independent contractor earnings and expenses from January 31, 2019 through January 31, 2020. Have your Modified Adjusted Gross Income (MAGI) that you pay taxes on handy
• No collateral or personal guarantee is required
• The SBA will run a credit check, however, our understanding is that you do not need “good” credit to be approved. Bankruptcies are not a deal breaker

Let’s get started.

Visit the SBA application site. The first thing you’ll be asked is what type of business you are. Select “independent contractor.”

Next you’ll need to enter your business information and social security number. Your business legal name and your trade name are probably just your full legal name if you use gig apps.

Next you’ll need to input your gross revenue (what you earned as an independent contractor) from January 31, 2019 — January 31, 2020.

You’ll also need to input your expenses from your work as an independent contractor (gas, mileage, tolls, percent of your phone bill, rent, etc.).

Almost done!

Next, complete the business details section, including the date you started work as an independent contractor. For business activity, “Business Services” can be used as a catch-all if there is not a category that fits perfectly and select “None of the above” for Detailed Business Activity if nothing applies to you. Finally, you are self-employed as an independent contractor so the number of employees is one.

The application will ask you for information about the business owners. As an independent contractor who works with apps, you are the business owner. Therefore, you will input your information in this section.

Finally, don’t forget to click on checkbox for the $10,000 advance. Add your bank details for where you’d like the funds sent.

That’s it! We strongly encourage you to do your own research to decide which program is right for you. We are not lawyers or accountants, and cannot offer any advice. Be sure to consult your own trusted advisors. We hope you can take advantage of some of these programs to help bridge the gap in this difficult time.