Corporations and LLCs are eligible to receive a PPP loan if they meet certain criteria. We will break down everything you need to know.
All You Need To Know About Taking A PPP Loan As An LLC
Is your business currently registered as a Limited Liability Corporation (LLC)? If yes, it is high time that you start updating yourself on the new Paycheck Program Protection (PPP) terms governing LLCs if you are seeking for funding to grow your business enterprise.
Here are some key things that you should know about the Paycheck Protection Program …
1. The most ideal way to register for the PPP may change depending on how your business is classified by the IRS
A Limited Liability Corporation (LLC) is a hybrid entity whose tax obligations can be filed with the IRS either as a corporation or as a single entity such as a partnership or a sole proprietorship.
If you are looking to apply for a PPP loan, you must first indicate how your LLC is classified by the IRS since this classification will affect how your loan is calculated. When applying for a PPP loan, your LLC can either fill the part for tax obligations as:
– A single-member LLC which is classified by the IRS as a sole proprietorship
– Multi-member LLC which is classified by the IRS as a partnership
– Multi-member LLC which is classified by the IRS as an S or C corporation
Starting your own LLC
A Guide To Applying For A PPP Loan As A Single-Member LLC
Single-member LLCs are usually classified by the IRS as sole proprietorships. This means that when applying for a PPP loan, you should fill out your forms as a sole proprietor.
How To Calculate Your PPP Loan Amount As A Single-Member LLC
The potential loan amount that you may receive as a single-member LLC will be based on the following factors:
– Your net income in 2019 which is recorded in line 31 of your 2019 Schedule C
– Any payroll expenses that you may have incurred
To find out your monthly payroll expense number, identify your monthly payroll expenses (they will be zero if you are not running payroll), next, add your monthly net income for the year 2019. Lastly, multiply this amount by 2.5 to identify your loan amount.
NOTE: Just like employee earnings, your net annual income is usually capped at $100,000 which translates to a maximum net monthly income of $8333.33.
How To Determine The Total Loan Amount That Can Be Forgiven If You Are A Single-Member LLC
If you are seeking to get part of your PPP debt forgiven, you are entitled to receive up to 8 weeks of the net weekly income that you earned in 2019. To find out your net weekly income, simply take your annual net income and divide this amount by 52. The amount of PPP debt that your company can be forgiven is usually reported on Line 9 of the Schedule A Worksheet on the debt forgiveness application.
A Guide On How To Apply For A PPP Loan As A Multi-Member LLC (Partnership)
If the LLC applying for a PPP loan has multiple members, your loan application papers need to be filed as a partnership. However, if the multi-member LLC has filed Form 2553 with the IRS, then the PPP loan application papers can be filed as an S corporation.
In the past, LLCs that were considered as partnerships by the IRS could only apply for this type of loan to cater for payroll expenses. This meant that if you were one of the owners of a partnership LLC who is paid through personal shares (not payroll) then you could not be compensated through the loan amount disbursed through the Paycheck Protection Program.
However, on May 14th, there was an Interim Final Rule was passed allowing owners of partnership LLCs to get compensated with PPP loans based on the net income that they receive. As it is, partnership LLCs can now apply for PPP loans based on the net income of each member as contained in their K-1 Schedule.
How To Calculate Your PPP Loan Amount As A Multi-Member (Partnership) LLC
To find out how much loan each partner can get under the PPP loan program, first take the 2019 annual net income of each partner as recorded in Box 14 of their Schedule K-1 and then subtract any Section 179 expense deductions. Next, multiply the figure that you get by 0.9235 so as to deduct the “employer” share of self-employment tax. Lastly, divide the figure that you get by 12 in order to find out the monthly amount that each partner can receive under this loan program.
How To Determine The Total Loan Amount That Can Be Forgiven If You Are A Single-Member LLC
Just like single-member LLCs, partnership LLCs are entitled to receive 8 weeks’ worth of debt forgiveness under the PPP loan program. However, in the case of partnership LLCs, you should the 2019 annual net income that you use should be the figure after you deduct the “employer” share of self-employment tax. Next, you should divide this net annual income by 52 to get the total weekly forgivable loan amount. Finally, multiply the weekly forgivable loan amount by 8 to find out the total loan PPP loan amount that you can be forgiven as a partnership LLC.
A Guide On How To Apply For A PPP Loan As A Multi-Member LLC (S corporation)
This is the last type of filing that you can make as an LLC. For a company to become an S corporation, you need to first file Form 2553 with the IRS. Unlike sole proprietorship LLCs and partnership LLCs, if you are an owner of an S corporation LLC who is paid through personal shares, then you cannot be paid through a PPP loan.
For S corporations, PPP loans only apply to those being paid through the payroll.
How To Calculate Your PPP Loan Amount As A Multi-Member LLC (S corporation)
The PPP loan amount that you can receive as the owner of an S corporation is usually equal to your average monthly payroll costs which should then be multiplied by 2.5.
How To Determine The Total Loan Amount That Can Be Forgiven If You Are A Multi-Member LLC (S corporation)
If you are paid through the payroll as an S corporation owner, you can apply for a PPP loan or dent forgiveness based on the amounts contained in the payroll. As long as there is a current and valid payroll, the payroll payments made to the owners of the corporation using PPP loans are eligible for debt forgiveness.
However, note that owners of the S corporation cannot pay themselves more than they were paid in 2019.