Hey friends and Etsy sellers, have you recently received a PPP loan for your Etsy business or small craft business? Are you a sole trader wondering how the hell you pay with your PPP loan money and use the money properly to make it forgivable? Then read on as I share some information I’ve learned about it.
Before I start, however, I would like to say that this is not legal advice and I am not an accountant, just an artist who shares knowledge. So do your own research and find out from your own accountants and financial advisors how to do what you need to do with your PPP loan in your individual situation.
Ok, to get started, many of us are operations on a woman (or a man)! We have no employees other than ourselves. Using the example of my own Etsy shop, I do everything myself from start to finish. I make my jewelry by hand, from scratch, from start to finish, all by myself. At the moment I have no employees or anyone else to help me, so I’m a one-woman business, also known as a sole proprietor with one employee, that employee is me!
But I don’t give myself a regular paycheck of how I would get it if I worked for someone else. When you are in business for yourself, you always hear that you should pay for yourself, but with operations as small as many of us, sometimes all the money goes into a pot and then the bills are paid from there. After all, the idea of sitting down and writing yourself a check every or every other week seems kind of silly, doesn’t it? If anything, checks are wasted, and checks are expensive!
Nowadays, I can buy 100% of my supplies to run my business online, so I literally don’t even have to issue checks for purchases. All of the supplies that are used for my business – jewelry like silver, wire, jewelry components and tools to gift boxes and shipping envelopes – all of these business purchases can be paid for directly from my shop PayPal account or directly from my bank account. Therefore, a large number of artists, artisans, and Etsy shopkeepers don’t even have formal business accounts.
So if you don’t have a formal business account, how do you “pay” yourself? When you have come this far and approved and received the PPP loan, you should already know most of the advantages and disadvantages of the loan. You have to spend 75% on the payroll, and the rest of the funds can be split between utilities, mortgage payments, and the like. One thing you cannot do is that the loan will not allow you to buy or use any equipment or supplies. It must be used as specified in the loan terms, and it is equally important that you can demonstrate that you have used it as you should, which means that you will need documentation.
Now remember, since you pay yourself, you can use your salary as you wish and get your equipment this way. I would like to buy a big stove with my PPP loan, but instead the money goes on my payroll and once I get that wage I can figure out how to buy or use my stove, however I do it. Make sense?
OK, now we come to it. The PPP loan has a term of eight weeks. Any remaining amount left after paying the pay slip is for the other special expenses I mentioned earlier. How do you document eight weeks of your own payroll for yourself? And how can you find out exactly how much of this loan money is used for your payroll?
When applying for the loan, you most likely had to provide your 2019 C income tax receipt, Plan C, which shows your net profit. Your schedule C line 31 was used to determine how much of a loan you would receive.
Simplified to a basic math problem, take the dollar amount from line 31 in your schedule C (your net income from 2019) and divide it by 52 (the number of weeks per year). Then multiply the answer you received by eight (the loan is supposed to cover eight weeks of payroll.) The amount of dollars you get in the end is your total payroll for the eight weeks. This is the exact amount you can pay yourself. If everything is done correctly, hopefully this part of your loan will be given to you. I don’t know if it makes a difference whether you pay weekly, biweekly, or two monthly payments, but I would make at least the two monthly payments and even better split it into biweekly or weekly payments.
Next, take your loan amount (the total dollar amount you got as a loan) and subtract your total wage amount (just got from the math problem we just ran into) and you will see how high yours is Balance is. It will be difficult here. Don’t go out and spend that money on supplies or business purchases. This money may only be spent on certain things like rent, utilities, and mortgage payments during the same eight-week period, and you must have complete documentation to prove this.
For clarification, the entire amount of the PPP loan may only be used for this period of eight weeks. So it’s an eight-week paycheck, with the rest of the funds being spent on the same eight weeks for other expenses such as utilities, rent, or mortgage interest.
If you can’t spend the remaining funds on that particular expense, there are two things you can do. You can return the remainder or use it as a loan with interest at 1% for 24 months.
Please note that you have to apply for a loan as this is not automatic. You must provide your lender with careful documentation to prove that you used the payroll money and other costs to grant the loan. Forgiveness is not guaranteed, so make sure you document everything and cross your T’s and puncture your I’s.
From what I’ve heard, in some cases, paying your salary slip (75% of total credit) can only be proven by submitting your Appendix C of your taxes for 2019, so you don’t have to explicitly present canceled checks to yourself wrote yourself and paid back into your account. It is a wise thing, however, not to deposit the loan money into your personal account, but to open a separate new online banking account, deposit the loan money there and then pay into the account in the form of deposits from the new account. This separate account helps to keep everything in order, avoid confusion and simplify documentation. Make sense?
Remember that you must provide documentation on how the rest of the money was spent in order to apply for this forgiveness.
However, I hope this information has been helpful to everyone in this situation. As I said earlier, please contact your accountant and / or your financial advisor or loan representative to learn how to handle your records as this information may not apply to everyone as all of our situations are exactly the same. Good luck!
Have a great week!
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