How your LLC can get free government money during Covid-19
Many self-employed workers have set up an LLC (Limited Liability Company) to deflect exposure to debt while creating easier tax and accounting practices. Another benefit is easy access to government money that will not have to be paid back provided you continue your payroll.
Benefits of Paycheck Protection Program (PPP) for LLCs:
- Loans that are 2.5 times their monthly payroll costs
- Loans do not have to be repaid if you use at least 60% of it for payroll
- Ideal for companies who have some work coming in but the ability to replace lost revenue sources
- Great for paying sub-contractors to bridge the gap
- Health insurance costs are in the calculation of the PPP loan
- Use a portion to cover rent and utility bills
For example, if your LLC is set up to draft monthly payments to your personal account, the IRS will require a Schedule C to demonstrate 2019 income. Visit the PPP Loan calculator on the SBA.gov website to find out how much you can may be entitled to receiving: CLICK HERE
And because setting up an LLC involved separating your personal and business bank accounts, demonstrating consistent and legitimate income to the IRS allows for specific financial benefits during the Covid-19 epidemic. Although technically a loan from the government, the CARES Act created the Paycheck Protection Program (PPP) and expanded benefits for those sustaining a loss of business during these times.
Because each state adheres to different regulations and rules for setting up an LLC, you should check your own state’s policies to see if your situation will benefit from the PPP and how your business can whether the economic storm devastating many small businesses.
The loan payment does come with some strings attached to it despite being a lump-sum check. The loan will be forgiven only if the LLC can demonstrate the money was used for payroll costs and other minor expenses. Otherwise, the government has the right to demand repayment of the loan with an additional 1% interest. You have 5 years to make this repayment.
The advantages of an LLC include:
- Flexibility for adding/removing partners, managers and members
- Easy profit distribution practices
- Reduced exposure to Internal Revenue Service (IRS) audits
- Branded company credit cards, bank accounts and business licenses
- Cohesion in marketing and advertising of services
- Payroll flexibility with monthly payments to personal bank accounts
Finally, it is of crucial importance that those LLCs who receive the PPP loan apply for forgiveness. To apply for forgiveness of your Paycheck Protection Program (PPP) loan, an LLC must complete an application or submit through the process of the Lender servicing your loan.
Where to apply for your Paycheck Protection Program (PPP) loan:
Call your local bank (although many have stopped taking applications)