The Cares Act

On March 27, the CARES Act was signed by President Trump. The CARES Act can help keep people employed while businesses are struggling with a significant loss of revenue. Typically, in these scenarios, the self-employed, especially sole proprietors are overlooked. I am pleased to say that the CARES Act provides for them as well.

Here is a summary of the framework:

  • The government will guarantee loans made by local banks.

  • The amount of the loan is determined by your average monthly “payroll” times 2.5.

  • A majority of the loan can be forgiven based on what you spend on “payroll,” rent, utilities, and mortgage interest for the eight-week (8) period after the loan starts.

  • Any portion not forgiven will be a 10-year loan at an interest rate of no higher than 4 percent.

  • The loans do not need to be personally guaranteed or collateral required.

You can use this loan for any of the following:

  • Payroll costs.

  • Health insurance.

  • Mortgage interest for your business.

  • Rent for your business.

  • Utilities.

  • Interest due on any obligation incurred from February 15 to June 30, 2020.

“Payroll” means both your standard payroll or, if you are a sole proprietor, your average monthly net income.

Small business owners or a sole proprietorship go to your local bank to apply. The loan requirements are:

  • You were in operation on February 15, 2020.

  • You had employees for whom you paid “payroll” and taxes or paid independent contractors, as reported on Form 1099-MISC.

If you don’t have a traditional payroll, you will need to determine your average monthly net income earnings from your Schedule C then multiply that by 2.5. For example, if your anet income is $40,000, you should be able to get a loan for $40,000 / 12) * 2.5 = $8,333.

The Small Business Administration (SBA) will soon release more details on how to apply for the loans and which banks will participate. The loans are expected to be available by Friday, April 3. 2020. In the meantime, gather your paperwork together.

If you are a sole proprietor with a negative net income and thus cannot apply for the SBA Loan, there are options: Section 2102: Pandemic Unemployment Assistance allows self-employed people to apply for unemployment insurance. For more information go to the Illinois Department of Employment Security or your state-specific Unemployment Insurance program website.

While the above programs are certainly not perfect, it is a good start in providing much-needed support for sole proprietors, small businesses, and employees. There may be additional stimulus provided as the total economic damage of this pandemic becomes clear.


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