Why the PPP Loan is Good for Artists

Paddy Johnson of of VVrkshop and Hannah Cole of Sunlight Tax

This Q & A between Paddy Johnson of VVrkshop and ArtFCity and tax expert Hannah Cole on the Payroll Protection Program loan (PPP loan) explains how it can help artists. You don’t have to run an incorporated business to qualify. This money is a stimulus for you. ⁠⁠

Paddy and Hannah talk about loan terms, and our take home message: this is a forgivable loan that could help you. For many people, that could mean more time in the studio, a new body of work, or simply some extra peace of mind. Read the Q & A. Look into the loan if you haven't already. It's an easier application than almost any grant you'll apply for and might be more money too. ⁠⁠

PJ: What types of professions in the arts qualify for a PPP loan? 

HC: Absolutely everyone. There is no restriction.

If you are in a food or hospitality profession (look at the 6-digit code, called a NAICS code, in box B on the upper right corner of your Schedule C) with a NAICS code beginning with the digits “72” then you get special access to a bigger PPP loan (3.5 times your monthly income versus 2.5 times your monthly income for everyone else. This was meant to help the ailing restaurant and hospitality industries). But the PPP loan is meant for all professions.

PJ: Do I need to be running payroll?

HC: No. You don’t. This issue is confusing people. You are eligible for a PPP forgivable loan as long as you have “gross income” on line 7 of your Schedule C. As of the changes made in President Biden’s recent stimulus bill, you don’t even need to have a profit. 

PJ: Is the PPP loan forgivable? 

HC: Yes! In fact, it is designed to be 100% forgivable in most circumstances. This means that the loans are designed to turn into grants for almost everyone, so long as you spend the money on eligible expenses. Good news: this is really easy to do as a sole proprietor.

PJ: How much money are artists eligible for?

HC: You can receive up to 20.83% of your annual Gross Income. Loans are capped at $20,833 for sole proprietors without employees.

PJ: Can artists qualify for a PPP loan if they are receiving unemployment checks? 

HC: They can qualify. But receiving PPP money will likely reduce or eliminate their unemployment payments. You can re-apply for unemployment once your PPP money has run out, though. If you are depending on unemployment, you might not be a good fit for a PPP loan. Individual cases may vary, but if you made less than $25,000 on your Schedule C (“gross income” on line 7), then you are probably better off sticking to unemployment.

PJ: What is the difference between gross income and net income? In January loans were given out only for net. 

HC: The rules on this have changed. The current rule is that you may apply with “gross income” (line 7 of your Schedule C), instead of “net income.” Gross income is your income before taking out expenses. Net income is your profit after you subtract expenses. This change is great news because it gets you a bigger loan amount. 

PJ: Where can artists get a PPP loan? Are there better places to get PPP loans? (I had a poor experience with Chase and ultimately went through Newtek, which is an SBA lender.)

HC: You apply for a PPP loan through your bank. The big banks have demonstrably favored larger businesses and white men in this process. For this reason, Congress gave special access to funding to community-based lenders such as local credit unions. That’s because these institutions have a better history of supporting women-owned and BIPOC-owned businesses. There are also so-called “Fintech” companies that have been pretty helpful and streamlined getting PPP loan applications processed for Schedule C-filers, such as PayPal, QuickBooks, and Square. 

PJ: Where can artists find their Schedule C? Relatedly, there are five million places on a tax return that note gross and net income. How do artists know where to find the right one? 

HC: If you have freelance income, you have a Schedule C. Schedule C is part of your personal income tax return. It says Schedule C “Profit or Loss from Business Activities” at the top. Gross income is on line 7 of your Schedule C.

PJ: Do artists who have made more money in 2020 than 2019 qualify for a PPP loan? 

HC: Yes, they qualify if this is their first PPP loan. So long as you had gross income (line 7 on your Schedule C) in either 2019 or 2020, you are eligible. You don’t even need to have had a profit. If you are applying for a second round of PPP funding (i.e., you already got a first PPP loan), then you need to show that your income dropped by at least 25% in 2020 vs 2019. So the scenario in this question would then disqualify you from a second loan.

PJ: Is the loan taxable? 

HC: Nope! Loans aren't taxable as income (because they aren't income - you have to pay them back). And the bills have made it clear that the forgiven PPP loans, aka grants, are not to be included in taxable income. Normally a forgiven loan would be taxable income, but the PPP is special.

PJ: When can artists apply for loan forgiveness? 

HC: You apply once your funds are used up. You can apply for forgiveness any time between using up your funds and the maturity date of the loan. If you don’t apply for forgiveness by 10 months after the last day of your covered period, then you will need to begin paying it back.

PJ: How do artists track their spending so they don’t owe money they can’t pay back to the government? 

HC: I recommend that you open a separate bank account and deposit your PPP loan into that. That way, you transfer funds to your personal account as “owner compensation” at the approved amounts, and it easily documents these transfers for forgiveness.

PJ: How do artists calculate the approved payment amounts? 

HC: Presuming your loan was for the right amount, to begin with, making 10 equal transfers of 1/10th the loan amount from your specially-opened new PPP bank account into your personal account should do it. But please check with your bank for their latest guidance. 

PJ: Can the terms of loan forgiveness change? 

HC: I suppose it is possible. There have been a few rule changes so far, but generally, they have trended towards simplifying the process for freelancers, giving them better access to funding, and created more generous loans. 

PJ: Should artists apply for a PPP loan? 

HC: Yes. Except for people with small amounts of freelance income who are depending on unemployment. For most others, it's a great idea and will help you.