April 10th Update: Banks and other financial institutions started taking Paycheck Protection Program (PPP) loan applications from independent workers today. See this article for more details.
Congress passed and the president signed the massive Coronavirus Aid, Relief and Economic Security Act (CARES Act) economic stimulus package last week.
The legislation contains a number of provisions aimed at helping independent workers (the self-employed, freelancers, gig workers, etc.) weather the economic storm caused by the coronavirus pandemic.
Below is our take on the legislation's programs we think will be most useful for independent workers (self-employed, freelancers, gig workers, etc).
However, the final rules and details on how the various programs will work are still being worked out by the state and federal agencies tasked with administering them. Because of this, things may change.
Cash Payments for Individuals
Independent workers, like all Americans, will be eligible for the general cash payments approved by this bill. Individuals earning less than $75,000 (based on their most recent annual tax filing) can expect a one-time cash payment of $1,200. Married couples would each receive a check and families get $500 per child.
The payments phase down above an income of $75,000 for individuals and $150,000 for couples and individuals making more than $99,000 and couples making more than $198,000 are not eligible for any payment.
Unemployment Insurance Now Covers Independent Workers
In what we consider to be a major government benefits breakthrough, under the CARES Act independent workers can apply for and receive unemployment insurance payments.
Under the Act, states will still continue to administer and pay unemployment to people who qualify. The amount varies by state, as does the length of time people can claim it (the national average is about $385 per week and most states cover 26 weeks).
The CARES Act adds $600 per week on top of whatever base amount a worker receives from the state. The additional payments last for 4 months.
So if you're an independent worker and you've lost business, you should consider applying for unemployment insurance from your state.
Having said that, state unemployment systems are not set up for independent worker applications. They're also overwhelmed already due to the huge numbers of people applying. Because of this, some states may be unable to process unemployment claims from independent workers for a few weeks (or more).
See our previous article on this topic for more details.
Economic Injury Disaster Loans (EIDL) and Grants
The Economic Injury Disaster Loans and Emergency Economic Injury Grants program provides SBA loans and grants to small businesses and most independent workers who have lost business due to the pandemic.
You apply directly to the SBA on their website and within 3 days you're supposed to get a $10,000 advance on your loan. This $10,000 advance is a grant and does not need to be paid back, even if you are turned down for the loan.
You can borrow up to $2 million via this program, although obviously few independent workers could qualify for this amount. The loan can be used to pay for most business expenses.
Qualifying for the loan is based on the borrower's credit score. The SBA has not to our knowledge announced what the minimum passing score is.
We recommend applying for EIDL loans as soon as possible.
The act provides $10 billion for grants under this program. We estimate that as many as 20 million small businesses and independent workers could quality. So although most probably won't apply, the program could still run out of money.
For more information and details, see the SBA's site and this document from the Senate Small Business Committee.
Paycheck Protection Program (PPP) Loans
The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.
If all employees are kept on the payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.
Most independent workers are eligible for PPP loans. However, the process and related rules are complex and you have to apply to a bank or financial institution that provides SBA 7(a) loans and these institutions are planning on accepting applications starting this Friday.
Again, see the Senate Small Business Committee document for more details on PPP loans.
An excellent resource on the CARES Act for independent workers is MBO Partners guide to the CARES ACT. It nicely explains the ACT and how independent workers can benefit from its provisions. We highly recommend it.
