Real estate brokers: can you benefit from a PPP loan? And how much can you borrow?

Real estate brokers, are you looking to find out what help you are entitled to during the COVID-19 crisis?

If you are an independent contractor, you may feel that the Paycheck Protection Program (PPP) and Economic Disaster Loan Program (EIDL) do not apply to you. But you can qualify for these programs even if you don’t have any employees.

The PPP is particularly attractive because it provides loan forgiveness if you spend the funds on staff costs and other permitted uses within the first eight weeks of receiving them.

How to calculate your PPP loan amount

The calculation of the amount you are entitled to as an independent contractor has a formula. Here is the simplified three-step process:

Go to your Schedule C (Form 1040) and find your net profit on line 31. Since the cap is $100,000, if your net profit exceeds this amount, you must reduce it to $100,000.

Calculate your average monthly salary cost and multiply this number by 2.5. The result is the amount of PPP loan funding you are eligible for.

Here is an example of the PPP loan calculation in action. Let’s say you have a regular, ongoing sole proprietorship with no employees, and your business has been in operation for at least a full year. Your net profit for 2019 was $230,000. Your calculation would look like this:

Total net profit: $230,000
$100,000 ceiling adjustment: $(130,000)
Applicable total net profit: $100,000
Average monthly payroll: $8,333.33
Maximum loan (2.5x average monthly payroll): $20,833

Please note that if your Schedule C business suffered a loss before the COVID-19 pandemic and you had no employees, you will not be considered to have a salary for this calculation. Therefore, it will be more difficult for you to represent that the pandemic itself has had a negative impact on your business. In this case, we recommend that you consult the EIDL program instead.

PPP and EIDL Restrictions

By May 4, the SBA had closed EIDL applications to deal with the previous backlog of applications. On May 4, the SBA opened EIDL applications to agribusinesses, suggesting they will likely reopen applications to everyone else who qualifies. Applying for EIDL does not limit your ability to also apply for PPP if you are eligible for both.

However, if you get the $10,000 advance from EIDL, you cannot use it for salary costs and must instead use it for other business expense obligations.

The PPP also comes with usage restrictions. The SBA requires that at least 75% of the PPP loan be spent on payroll, while the remaining 25% can be spent on expenses such as utilities, rent, mortgage interest, and other debt obligations.

To further ensure cancellation of PPP loans, it is important to keep detailed records so that you can track where the funds have gone. We recommend placing the PPP loan funds in a separate bank account for easy tracking.

Economic uncertainty or good faith certification

Finally, and very importantly, the SBA advises that before applying for a PPP loan, borrowers should consider whether their potential access to other sources of liquidity ultimately makes a PPP loan unnecessary to support their ongoing operations. Borrowers must certify in good faith that the PPP loan is needed and must document these needs when filing the application.

Need help with your application?

To identify which program(s) you are eligible for, work with your attorney and an accountant like Wipfli. We can help you determine which program would be best for your business, as well as determine the appropriate loan amount.

Dannelle Lewis is a senior manager in tax practice at Wipfli. James Lockhart is a partner in the firm and is the regional construction, real estate and hospitality practice leader for the Minnesota region. Both Lewis and Lockhart work out of Wipfli’s Minneapolis office. You can reach Lewis at [email protected] and Lockhart at [email protected].

Kristan F. Talley