Lending Library

Considering small business financing? Whether you're looking for a small business loan, a business line of credit, equity financing, or another form of financing, the process is smoother when you have your ducks in a row before you start.

Why are you applying for small business financing?

Before beginning your application, work through the following questions:

• Why do you need financing?

  There are a multiple reasons to apply for small business financing, and knowing clearly your intent with the funds  can help a finance manager match you to the right product. Are you seeking financing to make repairs, to acquire much-needed equipment, to help your business bridge the gap between billing and invoice? Be sure you know how you'll use the money or credit you're requesting. While you may be able to manage with existing cash flow, a boost in funds could pay for your expansion or act as a just-in-case cushion. Remember, it's always better to apply for financing before you need it, and the terms you qualify for may also be more appealing if you apply while cashflow is strong. 

• How will the capital be used?   

  Lenders will want to know specifics. Are you investing in new equipment? Hiring more employees? Expanding or upgrading your office space? Don’t leave anything out. Specify what the funds will be used for—if you're applying for an equipment loan, state the type of equipment, the dollar amount, even the model and the brand, if you have that information. You’ll also want to articulate why you need these improvements and how will this investments will contribute to the growth of  your business. 

• When do you want/need the funds?

  Don’t wait for a crisis to apply for  small business financing of any kind. Look ahead and plan for growth and protection from potential crises.

• How much will you need?

  This is where you’ll really need to get into the details. Predict what you'll spend by doing research and getting quotes whenever possible. If you’re looking for funding to expand, it may be difficult to know if your financial forecasting is accurate. Take a big-picture view of everything you believe you'll need, then use the financial records you already have and apply this information to your future plans to give you a better idea of what you'll need to borrow.

• What's your ideal repayment schedule?

  There should be two parts to your answer: What is your preferred repayment plan? What happens if Repayment Plan A falls through? What if your sales are worse than projected—what’s your Plan B?

• How healthy is your personal/business credit?

  Your personal credit is just as important as your small businesses’s credit—especially if you’re a startup. If your business is young, lenders will want to see your personal credit as well. And, depending on the lender and the type/amount of loan or financing you're looking for, lenders will likely want to see your personal credit even if you’ve been in business for years. Lenders want to get an overall picture of your credit health. While your personal credit score may seem irrelevant, lenders view it as a great way to determine how you'll run your business

• What are the qualifications/capabilities of your management team?

  You've assembled an amazing team. Make sure you know their qualifications—this collective "resume" can be impressive to lenders.

Your 6-Item Small Business Financing Checklist

Next, it's time to gather the documents you'll need. Having these documents with you when you apply for small business financing can simplify—and speed up—the process.

1. Income Tax Returns from Previous Three Years.

Lenders will definitely want to see your tax returns—business and personal. BTW, the more profitable your small business appears on your tax returns, the easier it can be to obtain small business financing. So if you're planning in advance for a loan or other financing down the line, be sure you consider deductions carefully, particularly if they make your business seem not-so-profitable.

2. Financial Statements and Projected Financial Statements.

Balance sheet, assets, liabilities and net worth—be sure you have your financial statements available. Ensure they're accurate. Lenders will do a numbers crunch, and if you’ve manipulated anything in any way, discrepancies will raise a red flag. Tell it straight. Do your due diligence with the projected financial statements as well. 

3. Personal and Business Bank Statements.

Most lenders want to see both personal and business bank statements. Be prepared to explain any periods where you were low on cash or went negative.

4. Business License and Registration.

Hate paper records? Your business license and registration are probably online if you haven’t kept a physical copy handy.

5. Articles of Incorporation.

Are you incorporated? Have an LLC? Grab those legal documents! 

6. Your Business Plan.

Make sure you write and edit your business plan. Find other experts and professionals to read through it and find holes before lenders find them. You want to make sure you’ve covered everything that lenders could possibly ask. 

Once you've collected everything, it's time to apply. Get started here and see all of your small business loan options in one place, 

The Paycheck Protection Program (PPP) effectively kept the small business economy afloat over the last 15 months, pumping nearly $800 billion into an estimated 12 million businesses across the US. But the PPP loan money ran out just a month after the program’s deadline was extended in March, and those crucially important potentially forgivable loans are no longer available to help small businesses.

Recent months have still not been easy, even with the lifting of restrictions. While many businesses are reopening, the costs of reopening are making for anything but business-as-usual. Supply chains are broken, staffing is tremendously difficult, and this is not the dream reopening business owners had hoped for during the long slog of COVID-19 closures. 

PPP is no longer available, but other forms of loans, microloans, grants, and debt relief are available to your small business. Most of these are administered by the government agency US Small Business Administration, and many are COVID-19 relief programs that offer loan forgiveness or other cost-cutting accommodations that take into account the current economic challenges. Let’s look at some PPP alternatives that could still offer your small business economic aid for any loss of revenue you’ve suffered under COVID-19. 

COVID-19 EIDL

The COVID-19 Economic Injury Disaster Loan (EIDL) “provides economic relief to small businesses and nonprofit organizations that are currently experiencing a temporary loss of revenue” because of the pandemic, according to the SBA. EIDLs had existed before COVID-19, but the program was recently bolstered to provide more economic help for small businesses. Traditionally providing loans of up to $150,000, EIDLs can now potentially triple in size to $500,000, and your first repayment date won’t be for another 18 months. While interest is charged on these loans, it’s a low fixed rate of 3.75% for businesses and 2.75% for nonprofits.

Other relief funds in the EIDL program may be available if you’ve already applied for an EIDL. The Targeted EIDL Advance Grant provides up to $10,000 to businesses with 300 or fewer employees, that can show a 30% loss in revenue for any 2-month period of the pandemic, and are located in a low-income community (you can use this map to determine your community’s status). Similarly, the Supplemental Targeted Advance could provide an additional $5,000 that does not have to be paid back, but it’s only for businesses with 10 or fewer employees.

Other SBA Loans

• SBA Express Loan - The quickest, easiest, and most flexible of these loans, and the SBA responds to SBA Express Loan applications within 36 hours. The funds can be used on working capital, a line of credit, or a commercial real estate loan.
• 7(a) Loans and Microloans - These SBA loans are primarily intended for purchases involving real estate but can also be used for working capital, refinancing debt, or buying furniture and supplies.
• SBA 504 Loan - The SBA 504 Loan is intended to finance large projects that create additional jobs. Funds are meant to finance purchasing or constructing buildings and buying or modernizing facilities. 

Shuttered Venue Operators Grant

This program has worked out pretty well, and most of the fund is still waiting to be awarded. According to the SBA’s mid-July figures, only $5 billion of the total has been awarded, though the SBA has received nearly $12 billion requested in applications. The funds may start to disappear fast.

Restaurant Revitalization Fund

It’s a reminder that as helpful as government relief programs can be, they can still be thwarted by legislative uncertainty. Private lenders may offer less confusion and red tape, and an online lending marketplace can help you find the right small business loan.

Online Small Business Loans

There are a number of factors you may want to consider before taking out a loan. Consider your business’s creditworthiness, whether you’ll be willing to offer collateral, and what your specific plans are for the loan. And do be ready to dig up and present a fair amount of bookkeeping documentation. But you may find other COVID-19 relief for your small business—and maybe without the headaches of previous loan programs.

In 1962, Dun and Bradstreet—a credit company—established the Data Universal Numbering System (DUNS). This unique numbering system links more than 280 million businesses worldwide. 

A DUNS number is a 9-digit identifier that can be assigned to all business types within all industries. Corporations, sole proprietors, nonprofits, and government offices can all use DUNS numbers. 

Learn more about a DUNS number—and how it can help your business. 

Why do I need a DUNS number?

There are many uses for a DUNS number that prove its value. Because there is no cost to requesting a DUNS number, you may want to acquire one now so you have it when the need arises. A few examples of when you will need a DUNS number include:

• If your business wants to pursue government contracts and federal work. 
• If your business is applying for grants through the federal government (especially the US Office of Management and Budget, or OMB).
• If you plan to expand your business globally—and especially if you plan to work with national governments. Some United Nations offices require DUNS numbers when submitting contracts. 

Many American business owners use an Employer Identification Number (EIN) from the IRS as an identifier. While an EIN is useful, it is limited to the United States. A DUNS number can be shared globally, providing greater value as your organization expands. Furthermore, an EIN only identifies the business owner, while a DUNS number identifies the business as a whole.  

How do I get a DUNS number?

You can request a DUNS number from the Dun and Bradstreet Corporation. There is currently no cost to request a number, and the company prides itself on its ability to deliver numbers to companies quickly. You can receive your number in about 30 business days, but the company offers some options to expedite the process. 

If you work for an organization that might already have a moniker, you can use the DUNS number lookup to see if your business is already registered. You can also look up other companies to see if they have registered as well. 

Can I use my DUNS number instead of my Social Security number?

A DUNS number is not a replacement for an EIN or Social Security number (SSN) for lending and application purposes. When you apply for a business credit card or loan, you will need to provide your EIN and possibly your SSN because a business cannot apply for credit, but a business owner—or authorized treasurer—can. 

DUNS numbers serve as supplemental identifiers. To prove your identity, you will need to share additional information. 

Learn when to use your DUNS number.

If you are still unsure whether you need a DUNS number, talk with a business consultant who specializes in your field. They can provide advice as to whether you could benefit from acquiring a DUNS number. 

Because acquiring a DUNS number is free, you may benefit from requesting now—in case you ever need it in the future.

There are multiple financing options for your business. You can seek out short term loans and microloans if you need a small influx of cash quickly, or you can take out large-scale loans to expand and scale your business. Each loan option comes with its own terms and restrictions on the money. 

Another loan option that is particularly popular in real estate is the hard money loan.

What is a hard money loan?

Hard money loans are short-term loans where lenders use collateral like property to back the loan. If the borrower is unable to repay the lender, they can seize and sell the collateral.

You can work with money lenders to secure the funds you need with a short-term payback period. Learn more about these loans and the lenders who issue them. 

Hard money loans are based on collateral.

Hard money lenders don’t look at the credit of the applicant. Instead, they are more interested in the property the applicant is borrowing against. The financial provider wants to ensure the collateral is worth the risk of lending before they approve the loan.

If the borrower can’t pay back the loan, the lender can seize the property. For example, in real estate investments, if a property is built over a sinkhole or lacks any real value, then the lender is unlikely to issue the loan.

Hard money loans are most frequently used by home flippers who want to take worn or damaged property and improve it for a profit. In this case, the land has potential and maybe even a structure built on it.

The home flipper will renovate the property and resell it—typically within a year or two. This is what makes the risk of the hard money loan worth it: the borrower gets the loan to purchase and flip the property while netting the difference when they resell it, and the lender knows that they’ll retain the property if the loan is not repaid.

You can also find people in need of hard money loans outside of the real estate field. These are often considered short-term bridge loans and require substantial collateral to secure the loan.

Do hard money lenders require a down payment?

Hard money lenders typically require a small down payment. This up-front payment is considered their “buy-in” to the loan and ensures they have personal financial assets at stake, too. The down payment or buy-in adds more accountability to the borrower and helps mitigate loan delinquency, which lowers the risk to lenders. 

For example, lenders may require real estate investors to put in 10% to 50% of the property value for a down payment. The amount required will typically depend on the riskiness of the property. 

Some hard money lenders will issue a loan without a down payment, but they might charge other fees or have stricter restrictions to ensure borrowers pay the money back. 

What do hard money lenders charge?

Hard money loans are considered riskier than traditional loans, which is why they are more expensive. Borrowers can expect to pay interest rates of 10–15%, depending on the lender.

The interest rate might also depend on how much your hard money lender is willing to give you. Most lenders look at the loan-to-value ratio (LTV) when issuing funds. They will typically issue 65–75% of a property’s current value. This limit is another reason why borrowers need to be ready for a down payment: lenders won’t cover the full cost of the property. 

Some hard money lenders don’t use the LTV model and instead look at the after-repair value (ARV). This number is the estimated value of the property after it has been flipped. If your lender calculates your loan based on ARV, you will likely get more money. However, this loan is riskier. There is no guarantee that the home will have that market value when the renovations are complete. As a result, these interest rates are typically much higher, close to 18% with extra points added. 

For example, let’s say a flipper wants to buy a property that is listed at $200,000. Using the LTV model, their loan would be around $150,000, which means the flipper needs to bring in $50,000 of their own money plus funds for renovations.

If the lender uses the ARV model, they might place the flipped value of the house at $300,000. This method brings the loan up to $225,000. The borrower now has more money to work with but must cover these extra funds through the resale.

Who are hard money lenders?

Banks typically don’t offer hard money services, which means real estate professionals and other entrepreneurs who need hard money loans will need to turn to private investors. Hard money lenders are often individuals who support business owners or private companies specializing in hard money lending. 

Hard money loans are known for being fast. While it might take up to 30 days to get a traditional loan through a bank, hard money loans can get approved within a few days. This speed allows real estate investors to move quickly when a property hits the market. Traditional banks don’t have enough time to evaluate the level of risk that comes with a property, which is why they don’t get involved in hard money systems. 

Are hard money loans worth it? 

Working with a hard money lender may be your best bet if you run your business in a competitive real estate market. If you have a solid down payment already, you can take steps to build it up and flip it. However, if this is your first foray into real estate, a hard money loan might be too expensive or risky for your needs. 

Shop around to understand the costs of different hard money lenders that you want to work with. This can help you set an investment and renovation budget to start flipping homes for profit. 

Consider other loan options before you borrow.

While a hard money loan might seem like a strong real estate option, other funding options are available if you operate in another industry. At Lendio, we match borrowers with all kinds of loan types, from startup funding to large-scale loans. Visit our online lending center to learn more and to find a financial provider that can help you. 

Trade credit, sometimes called trade finance or supplier financing, is an extremely common form of exchange between businesses. Famously, Walmart relies heavily on trade credit. But it isn’t only large corporations that utilize this form of agreement between suppliers and buyers—trade credits are extremely common for small businesses, as well.

In fact, according to the World Trade Organization (WTO), an astounding 80% to 90% of all global trade relies on trade finance.

Therefore, trade credits will likely be involved in some way regarding your small business, and you should understand how this system works.

What is trade credit?

A trade credit is a business-to-business exchange where one business provides goods on credit to another, i.e. no cash is paid up front. In turn, the recipient of the goods promises to pay for the goods on a predetermined time frame.

Trade credits operate on the same basic idea as running up a tab at a bar or grocery store over time, which was common in years gone by. Importantly, though, a trade credit is a very formalized agreement between businesses, not a business and a customer.

In essence, trade credits are like financing with 0% interest—the buyer’s assets increase without the initial expenditure of capital. Depending on the size of your operation and your suppliers, a trade credit agreement might look a lot like a financing application from a bank, but they are often more informal. Typically, trade credit repayments take the form of invoices.

Trade credit definition.

A trade credit is the loan of goods or services from a supplier business to a buyer business. The buyer agrees to pay for the goods or services at a later date.

Trade credits in the international supply chain.

Trade credits are essential for businesses across the globe. Even if your business doesn’t have trade credit agreements, some organizations in your supply chain most likely do.

“International supply chain arrangements have globalized trade finance along with production,” the WTO notes. “Sophisticated supply-chain financing operations—including for small- and medium-size companies—have become crucial to trade.”

What is a trade credit example?

Trade credits have been hyped as one of the secrets to the success of Walmart, which continues to vie with Amazon for the title of world’s biggest retailer. Many of the products available on the shelves of your local Walmart store are procured without money up front.

“Walmart is no different from other large retailers,” points out financing expert Marco Terry. “Most large retailers are known for paying invoices in 30 to 90 days. Large companies operate this way during the course of their normal business.”

Walmart, which would have no problem getting financing in any form, must see a lot of intrinsic value in trade credits—the corporation uses up to 4 times more in trade credits than any short-term external financing.  

What are the advantages and disadvantages of trade credit?

Walmart probably sees a lot of benefit in trade credits because trade credits heavily advantage the buyer. This favorable condition exists because trade credits basically function as an interest-free loan. Walmart (or any other retailer chain) can start selling products before it has to pay for them.

Small businesses can take advantage of this, too. If you can work out a trade agreement with a supplier, you can begin making sales before spending money on inventory.

A disadvantage of trade credit is the risk involved—even though you don’t have to pay upfront, your business will still have to pay the supplier at some point. If you don’t have the money when the invoice is due, your company could face a dangerous cash crunch. If you don’t pay, you risk ruining your supplier relationship; not paying off trade credits can also damage your business’ credit score.

If you are on the supplier side of a trade credit, an advantage is that trade credits encourage repeat business. Trade credits allow you to do business with companies that might not have the up-front capital to buy from you before making sales.

If you offer trade credit, you basically become a lender, which involves inherent risks. This is why the supplier is at less of an advantage in a trade credit agreement than a buyer.

Make an educated assessment of the situation before offering trade credits. For example, is it worth waiting 30 days for payment if it means your product is placed on the shelves of a popular retailer? 

What are the types of trade credit?

The different types of trade credits are defined by invoice periods. On your invoice, it will typically say “net,” followed by the number of days when payment is due after the invoice date. The most common trade credit type is “net 30,” meaning repayment is due 30 days after the invoice date.

Trade agreements also occur with 45-day, 60-day, 90-day, and even 120-day payment periods. You should typically expect to repay in 30 to 45 days, though.  

What is bank credit and trade credit?

Bank credit and trade credit are different ways to understand financing available to your business. Bank credit is the total amount of money a business or individual can borrow from a bank. Bank credit includes credit cards, mortgages, and business lines of credit.

The value of trade credit, on the other hand, is connected to the value of goods or services being offered from a supplier to a buyer. Additionally, trade credit is available from suppliers instead of a bank.

Seller credit

A seller credit, or owner financing, is related to the sale of a business. The seller of a business can opt to sell all or some of a business like a trade credit—the new owner of the business can get started immediately and then repay the credit back over time. For the seller, it can allow you to get an overall better price for your business, but you assume the risk of the buyer defaulting. Seller credits are also common in home sales and function similarly to seller credits in the sale of a business. 

What makes a lending marketplace different from applying through a bank or a single lender? Excellent question. There’s a lot to love about lending marketplaces and the way they’re changing the borrowing experience. Here are 5 things every business owner should know about a business lending marketplace. 

1. You Can Compare Options

You would never book a flight by visiting one airline’s website and saying, “I guess this must be the going rate to Orlando.” Comparing options is a vital part of the process and ensures that you can find a flight that matches the price you want to pay and your scheduling needs. 

A lending marketplace works the same way… but for business loans. The idea that you should have to pick a single lender and roll the dice on the terms you qualify for is, quite frankly, a little outdated. And it doesn’t usually work in the borrower’s favor. With a lending marketplace, you can compare multiple loan offers to ensure you’re choosing the right loan option for your needs. Through a lending marketplace, you can compare the interest rates, loan terms, loan size, and speed of capital of different offers to ensure you feel confident when you apply for a specific loan. 

2. It Gives You Flexibility

When you have multiple financing options, it can open up new ways to attack a specific problem. If you’re looking for financing to cover a large inventory order, for example, you may want a short term loan that gives you the capital fast so you can quickly repay the loan and move onto the next opportunity. Or you may find that opening a line of credit will allow you to make repeated inventory purchases. 

Being able to compare financing opportunities gives you the flexibility to tackle your business challenges in different ways so you can find the strategic path with the highest payoff. 

3. It Saves You Time and Effort

With a loan marketplace, you apply via a single application to compare multiple offers. That’s a heck of a lot better than the typical 25-hour bank application that only gives you a shot at… one loan option. 

What’s more, loan marketplaces typically prioritize your time and make that application short and sweet. We can only speak for ourselves here, but we’ve edited the process down to a single 15-minute application that can unlock offers from 75+ lenders. If you average that out, it means you spend about 12 seconds/lender on the application.

4. You Can Rely on Expert Guidance

When you apply through Lendio, we pair you with a team of experts to guide your application through the process. These experts can answer your questions, help you understand the pros and cons of different loan types, and be there to guide you through each step— from putting your documents together to submitting them for underwriting.

5. You Can Find Funding That Matches the Speed You Need

For some business owners, their first question is, “How fast can I get a loan?” For others, it’s, “How big of a loan can I get?” The beauty of a lending marketplace is that you can choose the option that best fits what matters to you. Need financing in 24 hours? Yup, there’s an option for that. Don’t mind waiting if it means you can secure a lower interest rate? We have an option for you, too. 

A lending marketplace puts you in the driver's seat for your financing experience. Ready for an experience that’s tailored just to you? Apply now. 

Not sure how to choose the right lending marketplace? Check out our tips.

UPDATE: The PPP loan application period ended May 31, 2021. Apply for the Employee Retention Credit today through Lendio.

Over the past year, the SBA has rolled out a series of updates and adjustments to better serve the self-employed who need/want a Paycheck Protection Program (PPP) loan. Here’s everything you need to know: 

How Can You Apply for PPP If You’re Self-Employed?

You can apply for PPP via any lender participating in PPP whether or not they are your primary bank. Online applications make it easy and accessible, in addition to limiting exposure with an in-person application. To apply for a PPP loan online, you’ll need to calculate your payroll costs and gather the required documentation to complete the application successfully. 

For full instructions for how to apply online, consult our Step-by-Step Guide to Applying for a PPP loan. 

Who Can Qualify for a Self-Employed PPP Loan?

To qualify for a PPP loan, self-employed individuals must meet the following criteria: 

• You were in operation as of February 15, 2020
• You are an independent contractor, sole proprietor, or other qualifying business classification with self-employment income
• In 2020, you filed a Schedule C or Form 1040
• Your primary place of residence is the United States
• You meet other program requirements 

How Much Money Can You Get?

You can qualify for 2.5 times your monthly payroll costs— based on either your net profit or gross income during the calculation period. 

In March 2021, the SBA released new guidance allowing the self-employed to choose whether they want to calculate their PPP loans based on net profit or gross income. Previously, calculations were limited to net profit, which limited the funds you could access if you’re in the habit of maximizing tax deductions. 

If you have additional employees on your payroll, their payroll can be used to calculate payroll numbers. You cannot include 1099 workers in your payroll calculations, as they are entitled to apply for their own PPP loans. 

How Can You Calculate Payroll Expenses If You’re Self-Employed?

There are 2 different methods for calculating your PPP loan depending on whether you employ other people. 

How to Calculate a PPP Loan If You’re Self-Employed and Have No Employees

• Retrieve your Schedule C from either 2019 or 2020. If you’re using 2020 to calculate your payroll costs and have not yet filed your 2020 return, you can fill out your 2020 Schedule C and calculate the value.
• Choose the number you’ll use to calculate payroll. This will either be gross income (found on line 7 of the Schedule C) or net profit (found on line 31 of the Schedule C). If the amount is greater than $100,000/year, reduce to $100,000/year. If neither number is greater than $0, you do not qualify for a PPP loan. 
• Take that number and divide by 12 to calculate your monthly payroll costs. 
• Multiply the monthly total by 2.5.

How to Calculate a PPP Loan if You’re Self-Employed and Have Additional Employees

• Choose whether you will use net profit (line 31) or gross income (line 7) on your Schedule C from 2019 or 2020—depending on which period you’re using to calculate payroll. 
  • You will then subtract the following from your net profit or gross income total. Add employee payroll from: line 14—employee benefit programs, line 19—pension and profit-sharing plans, and line 26—wage (less employee credits).
  • The maximum total for this step is $100,000/year. If greater than $100,000/year, reduce to $100,000. If the number is less than $0, set the amount to $0. 
• Calculate your gross wages and tips paid to employees who live principally in the US (line 5c, column 1). If the total for any employee is in excess of $100,000/year, reduce to $100,000. Add this number to the total from the previous step. If you have employees who live primarily outside of the US, subtract their wages.
• Add employer contributions from 2019 or 2020 to employee group insurance (line 14), retirement (line 19), and state/local taxes on employee compensation. 
• Divide the total amount by 12. 
• Multiply that number by 2.5.

If You Have an EIDL That Will Be Financed By the Loan

Whether or not you have employees, you must take an additional step of adding the outstanding amount of any Economic Injury Disaster Loan (EIDL) awarded between January 31, 2020, and April 3, 2020, which must be refinanced into your PPP loan, although if you only received an EIDL advance, you will not need to refinance the advance amount into your PPP loan. 

What Documents Do You Need to Apply for PPP If You’re Self-Employed?

To complete your PPP application, you will need the following documentation. We recommend gathering this information prior to starting the application. 

• • Copy of government-issued ID for all owners with 20%+ share in the business
  • Proof that you were in business as of February 15, 2020:
    • If you have W2 employees: IRS Form 941 from Q1 2020 or a third-party processing report from February 2020. 
    • If you do not have W2 employees: February 2020 bank statement or a customer invoice from February 2020
  • Tax documentation: 
    • Form 1040 with a Schedule C, or:
    • 1099

• If you have employees, you’ll need to provide proof of payroll costs. Choose one:

• • W2s and W3 for your employees
  • IRS Form 944
  • IRS Form 941 (all 4 quarters)
  • 3rd-Party Payroll Processing Report

Can You Use a PPP Loan to Pay Yourself?

Yes, you can use your PPP loan for payroll-related expenses, including paying yourself. To qualify for loan forgiveness, individual payroll amounts cannot exceed the calculation limits, meaning you can pay yourself a maximum of $8,333/month ($100,000/year) to be eligible for forgiveness. 

What Can You Use PPP For?

The allowed uses for PPP loans have been expanded. Due to high demands for the loan, it’s expected that you will still need to spend 60% of loan funds on payroll-related expenses, but you can now use the other 40% on a variety of uses. 

Payroll Costs

• Compensation in the form of salaries, wages, commissions or similar compensation up to $100,000
• Payment of cash tips or equivalent
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for dismissal or separation
• Payment of retirement benefits
• Group vision, dental, disability, or life insurance
• Payment of state or local taxes assessed on the compensation of employees

Other PPP Uses for the Self-Employed

• Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums
• Mortgage interest payments (but not prepayment or payment of the mortgage principal)
• Rent
• Utilities
• Interest on any other debt obligations incurred before February 15, 2020
• Refinancing an SBA EIDL received between January 31, 2020, and April 3, 2020
• Covered expenditures such as business software or cloud computing services that facilitate: business operations; product or service delivery; the processing, payment or tracking or payroll expenses, human resources, sales, and billing functions; accounting or tracking of supplies, inventory, records, or expenses
• Covered property damage costs
• Covered supplier costs
• Covered worker protection expenditures

What Documents Do the Self-Employed Need to Apply for a PPP Loan?

• 1040 Schedule C for 2019
• Your birth date
• A color copy of your Driver’s License (front and back)
• 1099-MISC, if you have them
• A voided check for your business bank account
• If you have 941 Quarterly Tax Filings (2019, 2020 Q1) or 944 Annual Tax Filings (2019), they should be submitted

You can visit our step-by-step guide on completing the PPP application for full instructions. 

Can You Get a PPP Second Draw?

Self-employed individuals can apply for a Second Draw on their PPP loan if you’ve experienced a revenue reduction of 25%+ due to the pandemic and you meet the other Second Draw qualifications. Learn more about how to qualify and apply for a PPP Second Draw. 

How Much Can a Self-Employed Individual Claim for Payroll Expenses?

The maximum amount for a PPP loan is 2.5 times your average monthly payroll costs. Income listed on a Schedule C in your personal tax return is the only payroll that can be used to calculate your PPP loan amount. If you’ve hired 1099 workers, they cannot be included in your PPP loan calculation and may apply for their own PPP loans. 

Do You Need to Take the Full Amount You Qualify For?

No, you may apply for a PPP loan that is smaller than the maximum you qualify for (2.5 times your monthly payroll costs). 

How Can You Get Your PPP Loan Forgiven?

The SBA has simplified loan forgiveness applications for PPP loans less than $50,000. This provision was specifically designed to support independent contractors and the self-employed. Loans that meet this threshold will not have to meet the employee retention requirements of larger loans, 

If your First Draw loan is $50,000 or less, you can not apply for forgiveness using the simplified Form 3508S. 

The SBA has not yet indicated whether or not this guidance will apply to PPP Second Draw loans. 

What If Your PPP Loan Is Not Forgiven?

If your loan forgiveness application is denied, you will be required to repay the loan. PPP comes with a 1% interest rate and a maximum loan term of 5 years. 

Is Loan Forgiveness Automatic?

No, you must apply for loan forgiveness through your lender. 

As you look to secure funding for your business, you may come across the concept of a lien. A lien gives creditors the legal right to claim your property if you fail to pay them back for a loan or purchase. Liens are most commonly found in mortgages, where lenders can take your house if you fail to meet your monthly payments. 

A lien isn’t necessarily a bad thing, but it can impact your credit and financing opportunities. Let’s dig deeper into a lien’s definition and what it means for your business.  

Is a lien bad?

A lien isn’t necessarily a bad thing to have. Many people take out voluntary liens when they accept mortgages or business loans. If you keep making payments related to this lien—proving to your lender that they will get their money back—then a lien isn’t something you need to worry about. 

However, there are instances when a lien can be bad. An outstanding lien can mean that you hold unpaid debts to various creditors or vendors. When this condition applies to a property, it could relate to your mortgage lender or the local government that collects property taxes. If you fail to pay these obligations, then your creditors have the right to seize your property or take legal action against you.  

What happens when you have a lien against you?

If you have an unpaid lien against you—or if you stop making payments on it—then the lienholder can step in and reclaim their assets. The person who issues the lien is known as a lienholder. For example, your bank might be your lienholder when issuing your mortgage.  

In theory, the bank or financial service provider can seize your business if you have outstanding liens. They can evict you and sell your property at auction. This action allows your lender to reclaim some of their lost funds, even if they sell your property below market value. 

However, not every lien against you can lead to foreclosure or seizure. Lenders often do whatever they can to get business owners to meet their financial goals. They will also take business owners to court in hopes of recouping the lost funds in cash rather than spending time selling off assets. Navigating the seizure of assets and the resale process is time-consuming for lienholders and can severely damage the credit of loan recipients.  

How do you get a lien removed?

You have a few options if you need a lien removed from a property or asset. First, you can pay off the debt. This option is the best if you took out a loan and created the lien. You might also need your lienholder to submit a release-of-lien form if you paid the lien holder before the lien was placed. This document needs to be notarized and will protect your accounts from going to collections. 

Most entrepreneurs have liens related to their business assets. If you make regular payments against your debt, you can grow your credit and keep your lienholders happy. The best way to avoid bad liens is to keep up with your repayment schedule as best as you can.