EIDL and PPP2: 2021 Edition, Part I

Disclaimer: This article does not constitute professional financial, tax, or legal advice, and neither the author nor the American Translators Association (ATA) assumes any warranty, implied or expressed, for the accuracy or applicability of any information contained therein. It should not be relied on to make financial or other decisions affecting your business or personal situation. Before taking any financial, tax, or legal decisions, please always consult a professional adviser, e.g., your lender or CPA, to establish whether any specific program will suit your particular circumstances.

This post is Part I of an edited and updated version of an article that appeared in the ATA Chronicle Online in January 2021. Click here for Part II.

 

What You Need to Know about the Small Business Administration’s “Second Draw” of Its Paycheck Protection Program

The Small Business Administration (SBA) rolled out the “Second Draw” of its Payment Protection Program (aka “PPP2”) earlier in 2021 and more recently revised the Economic Injury Disaster Loan (EIDL) program, so now is a good time to take a look at the various federal financial support programs that are potentially interesting as sources of pandemic-related funding for freelance translators and interpreters, as well as LLCs and S-Corps owned by translators and interpreters. These include two different types of PPP loans, the EIDL program, and Pandemic Unemployment Assistance (PUA).

EIDL Program Loans

Let’s start this guidance on EIDL with good news for existing PPP borrowers who also took out an EIDL program loan. The previous rule was that the $1k “Advance” that all EIDL applicants received had to be offset against the PPP loan amount. That rule has now been abandoned, including for new PPP loans, so there is no longer any link between PPP and EIDL loans.

Most of the information in ATA’s 2020 guide continues to apply to EIDL program loans. However, there are a few differences that you should note before considering whether to apply under the new round of EIDL. The new legislation set aside $20 billion to reopen the $10k EIDL forgivable grant program. Applicants who meet the following criteria are first in line for the $10k EIDL grant:

• located in a census tract area that is eligible for a New Markets Tax Credit (See map of these areas)
• suffered a more than 30% reduction in revenue during an eight-week period between February 3, 2020, and December 31, 2020, compared with the same eight-week period in 2019
• fewer than 300 employees

If you do not meet all of these criteria, you will still be able to apply for the new EIDL grants, but you will not have priority.

If you are an existing EIDL borrower, remember that the loan amount you received is not taxable, but the Advance you received constitutes taxable income. You must therefore include it in your 2020 income tax return (line 6 if you file a Schedule C).

In March 2021, the SBA announced a policy change, effective April 6, 2021, that increases EIDL loan limits up to 24 months of economic injury, and also raises the maximum loan amount to $500,000. What this means is that existing EIDL borrowers may be eligible to receive additional loan funds although, given the higher amounts involved, it is unlikely that freelance translators and interpreters will be eligible to receive loan amounts running into six figures. If you do decide to apply for a higher loan amount, please remember that, for loan amounts above $25,000, the SBA requires a security interest in your business assets (a general security agreement and a UCC filing, which has the potential to affect your credit rating). See more details.

Another change that will be of more immediate relevance for all EIDL borrowers is the SBA’s decision in March 2021 to extend the first payment due date for all EIDL loans until 2022. If you received your EIDL loan in 2020, the first payment due date has been extended to 24 months after the date of your EIDL note. For loans received in 2021, the first payment due date will now be 18 months from the date of the note. Loan interest continues to accrue during the deferment period, and any loan increase you apply for will not further extend your first payment due date.

Pandemic Unemployment Assistance (PUA)

The PUA program was extended to September 4, 2021, by the new American Rescue Plan Act of 2021. PUA, which provides unemployment benefits to persons who do not normally qualify for these benefits, is likely to be potentially attractive to interpreters who are unable to work because of COVID-19, rather than translators. That’s because translators will normally be able to work from home. The basic information about PUA contained in ATA’s 2020 guide still applies. Progress in rolling out the extended program differs from state to state, so please contact your state’s labor department or other relevant authorities if you think you might qualify.

PPP

The original “First Draw” of the Paycheck Protection Program in 2020 certainly appears to have been the most popular form of pandemic assistance sought after by ATA translators and interpreters, and nobody can deny that PPP ticks all the boxes, starting with a relatively straightforward application process requiring a modest amount of supporting documentation. Before the recent revision, the loan amount the SBA paid out was equal to ten weeks’ average net business profit before tax or payroll, and it turned into an outright grant if the money is spent on eligible expenditures (something that is unlikely to be a problem for freelance translators and interpreters, and translator/interpreter LLCs and S-Corps).

Finally, the new 2021 coronavirus stimulus package sets out in black and white that all the eligible expenditures covered by PPP loans (both First and Second Draw) will be deductible for tax purposes. Apparently, this had always been the lawmakers’ intention, but it was omitted in the wording of the 2020 CARES Act. No wonder that a lot of people are talking of “free money” in this context!

Provided that your business has been affected by the pandemic, you can apply to any existing SBA-approved lender, including federally insured credit unions or eligible non-bank lenders (e.g., fintechs). As was the case in 2020, it pays to shop around, and there is nothing preventing you from applying simultaneously to two or more lenders to improve your chances of being approved. But remember that the SBA will only approve you for one loan! Additionally, the principal place of residence for all persons for which a First or Second Draw PPP loan is being applied, must be the United States.

As in 2020, applicants for PPP loans (First and Second Draw) must attest that the current economic uncertainty makes the loan necessary to support their ongoing operations.

This PPP guidance is split into two parts: the first covering the new tranche of PPP now available to first-time borrowers, and the second covering the new PPP2 for borrowers who already benefited from the first round of PPP in 2020.

First Draw PPP applications

You can still benefit from the program if you didn’t apply for a PPP loan in 2020, or maybe didn’t qualify. The general requirements are essentially the same as described in ATA’s 2020 guide, so please refer to that publication for further information. Note that the 25% quarterly reduction requirement does not apply to First Draw PPP applications.

One specific condition that’s worth mentioning is that you must have been in business on or before February 2, 2020. You will have to complete and submit the relevant SBA Form 2483 or 2483-C (see below) or an online form provided by your lender. You will also have to provide 2019 or 2020 payroll (e.g., Schedule C) records, as detailed in Part 2 for Second Draw applicants. As each lender normally has slightly differing requirements for other required documentation (e.g., business registration documents, EIN documentation), please refer to the specific supporting documents requested by your lender.

The biggest change compared with 2020 is that, starting in March 2021, borrowers applying for PPP loans based on their Schedule C return can now base the loan amount on their gross income (Line 7), rather than their net profit (Line 31)—though note that any EIDL Advance already received has to be deducted from the Line 7 gross income. Applicants should use the new SBA form 2483-C to apply for PPP loans on this basis. The formula otherwise remains the same: gross income, divided by 12, multiplied by 2.5, not including any EIDL Advance you have received.

This new “Interim Final Rule” is designed to specifically help small businesses with little or any net profit, and translators and interpreters who might have been deterred from applying for a PPP loan under the old rules because of their modest net profit should redo the calculations based on their gross income and see whether it’s now worth their while to invest an hour or two in applying for a PPP loan.

Finally, legislation extending PPP to May 31, 2021, has now been passed, and the SBA expects to process loan applications received before May 31, 2021, by the end of June 2021. However, it is also possible that the program will run out of funds before the end of May, so if you are considering applying for a PPP loan (First or Second Draw), please don’t delay filing your application!

For a discussion of Second Draw PPP loans, please see Part II.

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About the Author

Robin Bonthrone, CT, MITI, is the owner of Premium Financial-Legal Translations, LLC, in Austin, Texas, and has been a full-time German>English financial-legal translator for more than 30 years, specializing in financial reporting, legislation, regulation, supervision, tax, and financial technology, among other subjects. He is an experienced financial translation trainer at translation conferences and workshops in Europe and the U.S., and also teaches in-house seminars and workshops at corporations and public institutions. He serves as the current president of the Austin Area Translators and Interpreters Association (AATIA), and is co-chair of the ISO Standards Committee at FIT, the International Federation of Translators. An ATA-certified German>English translator, Robin is a member of ATA’s Business Practices Education, Finance and Audit, Honors & Awards, Professional Development, and Standards Committees. Contact: rb@robinbonthrone.com