What You Should Be Doing Now to Get Ready for New Round of PPP Loan Funding

PLANO, TX – Before the first round of funding ran out last week, Ebby Halliday agent Jason Bell had become the resident expert on Small Business Administration loans for friends and fellow agents who understandably had more questions than answers when applying for coronavirus relief.

“It was a jumbled mess,” Bell says. In early April, the Plano Willow Bend agent began following stimulus package legislation and reading the loan qualifications for the new Paycheck Protection Program and revised Economic Injury Disaster Loans. He wanted to get his application and documentation ready by the time that independent contractors could apply starting April 10, a week after non-1099 workers could apply.

“I told a lot of fellow agents to get their applications ready, too, and apply,” says Bell, who like many lost listings when sellers pulled their homes off the market. “The worst thing they can say is no.”

He, like many 1099 workers, read through the fine print of SBA’s coronavirus relief programs looking for clarification on how independent contractors qualify, for how much, and whether their loan would be forgiven. Bell consulted his CPA and even a family member who works for an SBA-approved lender, trying to clear up ambiguities but they, too, had no definite answers on how the federal government defined “payroll costs” and “costs incurred and payments made” for independent contractors.

“I think the biggest issue is banks didn’t know how to treat 1099 workers,” Bell says. “They were looking to the SBA for guidance on how to qualify someone for this loan, so they delayed. I saw that some banks even took down their online portals until they got more direction.”

The SBA soon clarified that self-employed recipients may use the loan for “owner compensation replacement,” calculated on eight weeks’ net profits reported on your 2019 Form 1040 Schedule C, Line 31.

Even though the program ran out of money in the middle of last week, the bank approved Bell’s PPP loan last weekend and said its funds have been allocated. The lender is required to make the disbursement within 10 days of loan approval; The borrower’s eight weeks to spend the funds begins once the loan is dispersed.

There’s still one big ambiguity, Bell says.

“I’m still not sure how much of the money I receive I’ll have to pay back,” he says. “I’ll pay myself [the allotted owner compensation replacement] with 80 percent and put 20 percent away in case the government calls and says I owe that money.”

Any portion of a PPP loan that isn’t forgiven must be repaid over two years – after a six-month deferral period – at an interest rate of 1 percent.

Action Steps to Take Now

Experts say now is the time to get your application in order so you’re ready when funding is approved, possibly this week.

Step one — Determine your eligibility.

To be eligible for an Economic Injury Disaster Loan, you need to be able to clearly establish that the claimed economic injury is substantial and is a direct result of the declared COVID-19 disaster, says Omar Contreras of Schwabe, Williamson & Wyatt. Substantial economic injury generally means a decrease in income from operations or working capital resulting in the business’s inability to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.

For Paycheck Protection Program loans, the language isn’t as specific. But for the most part, real estate professionals qualify for SBA coronavirus relief programs if their business has been negatively impacted by COVID-19, especially if they’ve been prohibited from hosting open houses, had listings canceled, or can show a significant decrease in pay.

Step two — Find a lender.

Many participating banks and lending institutions require customers to not only have an existing relationship with them, but also have a business checking account or credit card.

Bell emphasized how important it is to have a relationship with a bank. “In our business, everything’s about relationships,” he says. “I think the ones who will be successful in getting loans are those who have a relationship with their bank.”

Step three — Begin gathering what information is required and filling out your application.