I hadn’t previously written about the Paycheck Protection Program (PPP) for content creators because of unclear guidance from the IRS. That’s changed a bit now, so let’s dive into it. This is only relevant to US-based creators.
What’s the PPP?
The PPP is a federal program helping companies cover their payroll costs during quarantine/lockdown due to COVID-19. It’s disbursed as a loan with potential for getting part or all of the loan forgiven. The basic loan portion must be repaid over 2 years and has an insanely low 1% interest rate.
The funds are disbursed on a first come, first served basis.
Why are you only writing about this now?
Previously, it was unclear whether someone who is an owner/operator (owns and runs the business) could get their personal payroll costs forgiven. After all, it’s not like you’re firing yourself. And a single member firm is how most content creators operate. If they do have people they work with, those workers are generally contractors and not on payroll.
You were always eligible to get the loan, but it was a question of whether it’d be forgiven. I’m sure there are plenty of broadcasters who could use the loan, but on average it’s not an industry hit as hard as restaurants or other forms of entertainment. Even if it’s a low interest rate there’s little reason to take out a loan if you don’t need the funds!
However, with the new forgiveness application they released on May 15th, it looks as though it’s definitively ok for an owner/operator to get their payroll costs forgiven.
What’s the max I could borrow?
I’m going to assume you’re the only employee in your business. Given that, the max you could borrow is your annual payroll cost up to $100k, divided by 12 to get monthly, and then multiplied by 2.5. Just use this calculator.
Example 1: You pay yourself/have net earnings of $40k annually.
$40,000/12 * 2.5 = $8,333.33 is your maximum loan amount.
Example 2: You pay yourself/have net earnings of $250k annually.
$100,000/12 * 2.5 = $20,833
Again, remember this is PAYROLL costs. If you split out some of your pay as an employee of your S-Corporation, you’d do it based on that cost.
What can be forgiven?
If you’re just claiming the amount you’d pay in payroll then 100% of the loan amount can be forgiven.
If you’re using it for other expenses as well then you may be limited in your forgiveness. Since that’s not as likely a scenario for content creators I’d ask your tax professional if it applies to you.
How does this relate to content creators?
You’re self-employed and should be eligible for the PPP. However, one thing you must do is certify you’re receiving the funds because you need the funds. This depends on individual circumstances, but many content creators aren’t in a position where this is needed.
That need bit also depends on your primary platform. Twitch has seen huge viewership growth during the quarantine. While fewer people are tipping/subbing because they’re earning less overall, the impact hasn’t been dramatic. YouTube is a different story. There the support is primarily ad-based. From what I’ve seen, YouTube CPM has dipped 50% or more. You could likely argue that qualifies as need.
Sponsorships vary so much creator to creator both in terms of who the sponsor is and how relevant it is to the overall revenue picture that I’m not including those considerations as a broad statement in this article.
Here’s the direct language from the program: The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; I understand that if the funds are knowingly used for unauthorized purposes, the Federal Government may hold me legally liable such as for charges of fraud. As explained above, not more than 25 percent of loan proceeds may be used for non-payroll costs.
My take is to err on the side of caution. Do you truly need these funds? Will you risk not being able to pay your bills (that you were previously paying with business income) without it? If so, then you have a strong argument for applying. If you don’t fit that model, then I wouldn’t take money that others desperately need during a time of crisis. After all, those are the people who support you in good times.
Quick Q&A
- Do I have to have an LLC and make an S-corp election to receive PPP funds?
- Nope. Net earnings from a sole proprietorship also count.
- Does my bank accept PPP applications?
- You’d need to contact your bank! A lot of them, but not all, are processing PPP loans.
- By when do I need to apply?
- June 30th, 2020.
- How do I apply for forgiveness?
- Complete the application I link below and send it to your lender.
- If not all of the loan is forgiven, when do I have to start making payments?
- Six months after you receive the loan.
- Can I apply for this more than once?
- Nope. One and done, at least for now.
- How does this interact with the EIDL?
- Any amount you got as an EIDL grant is subtracted from the amount you’re eligible to get forgiven under PPP.
- What documentation do I need to apply for the PPP?
- Where can I learn more about the PPP?
Conclusion
If your business is struggling because of COVID-19 you may want to apply for the PPP. While content creators have some unique considerations when it comes to PPP forgiveness the new guidance seems to indicate you would be eligible for forgiveness, which could make this extremely valuable. However, I’d only apply for it if you’re truly feeling as though your business is suffering. You don’t want to invite an audit or, frankly, take funds from businesses that might need it to survive.
You don’t have to figure this out alone. This is what we do—help streamers make great money and business decisions. If that sounds interesting to you reach out to me or schedule some time for a free consult. You can check out what I do here.
