As part of our on-going series on what photographers and other creatives can do to secure their finances during this unprecedented period in our economic history, we checked in with experts to get their guidance on how to navigate the most important aspects of the CARES Act.
The coronavirus pandemic is wreaking havoc on the U.S. economy and workers are taking the brunt of the impact. More than 6.6 million people filed for unemployment benefits last week alone—a new record that more than doubled the previous week. Like workers in other “non-essential” creative industries, professional photographers—many of whom are self-employed or small business owners—are among those out of work.
A practical guide for professional photographers—freelancers, employees and small business owners—who need financial assistance during the coronavirus shutdown.
A silver lining can be found in the CARES Act, the latest federal relief package designed to provide financial assistance to workers and employers in this time of great need. At nearly 900 pages long, the CARES Act is cumbersome and complex. There are a few provisions in particular, however, that freelancers and small business owners should key on.
“The Act itself is a beast,” says Kristen Roberts, a San Diego attorney and small business specialist. “Nothing like this has ever been attempted or passed, not even during the market crash in 1929 and resulting depression during the 30s.”
Small business owners and solopreneurs should think of the CARES Act as offering two distinct benefits: aid for businesses and aid for individuals. Many professional photographers will qualify for both.
“The bill itself is comprised of two major parts,” Roberts says. “Division A is for businesses needing cash up front to continue operating. This is in the form of a loan through the Small Business Administration that may be forgiven based on certain qualifications and uses of the money. Division B primarily addresses individual and family relief in the form of a tax credit. In short, qualifying individuals will receive a max rebate of $1,200 and families will receive a max rebate of $2,400 with an additional $500 for each qualifying child.”
Roberts says many small business owners and solopreneurs are unsure what programs are best for them.
“Before the CARES Act was passed,” she explains, “unincorporated businesses were concerned that they would be left out in the cold. The Act was drafted to include every kind of business, including sole proprietorships and independent contractors. The SBA has been granted sweeping authority to grant loans (called Economic Injury Disaster Loans, or EIDLs) for up to $2 million dollars at incredibly low interest rates: 3.75% for for-profits and 2.75% for non-profits. They can be paid back over a period of 30 years and the initial payment is deferred an entire year from the loan's grant.”
“The CARES Act went further,” Roberts continues, “and provided additional options to businesses. Loans requested under $200,000 can be granted without a personal guarantee (no real estate required as collateral), and borrowers can get an emergency $10,000 cash grant advance that can be entirely forgiven if used to continue payroll, mortgage or lease payments, paid leave, or repaying obligations that cannot otherwise be paid because of loss in revenue due to the pandemic.”
“In case it isn't already clear,” she says, “businesses should apply for these loans now, as the CARES Act text specifically states that all businesses are presumed to have been affected by COVID-19. There are likely to be millions of businesses applying for relief, so receiving the money could take a substantial amount of time.”
Pandemic Unemployment Assistance For Freelancers
In addition to small business loans and individual rebate checks, the CARES Act includes provisions to significantly enhance unemployment insurance benefits at the state level—Pandemic Unemployment Assistance that New York Senator Chuck Schumer called “unemployment on steroids.” It’s this beefed up unemployment insurance that is going to be the first line of defense for freelancers and individuals who have been laid off or whose incomes have taken a hit due to the pandemic’s far-reaching impact.
“Let me break this down,” says New York CPA and freelance business specialist Jonathan Medows. “It’s not a one-size-fits-all answer, but essentially if you're a sole proprietor, file for unemployment. The issue is that owners of S corporations, which a lot of small businesses are, I'm not sure that unemployment will extend there. Because traditionally states have been reluctant to give unemployment to owners of S corporations. The Act itself, while extended to self-employed, doesn't mention owners of S corporations. So there's a question mark as to whether owners of S corporations are eligible. I would still encourage people to apply though. Be honest, don't lie, but I'm just not certain. It's an ambiguity. But they are giving it away now. Excuse the crude language, but they're giving it away. So that's what I would do. If you're a freelancer, go for unemployment.”
The average U.S. worker earns $1,000 per week and typical state-level unemployment insurance replaces approximately 40-45% of that. If a worker in California earns $1,100 per week, for instance, the maximum state unemployment benefit would typically be $450 per week. But with the added $600 of Pandemic Unemployment Assistance, the UI now provides a total of $1,050—just $50 short of the worker’s original paycheck. In many states unemployment insurance now extends to a maximum of 39 weeks, nearly nine months.
Even though federal and state governments are prioritizing the relief, access to benefits is already becoming an issue as millions enter the ranks of the unemployed every week. Because the benefits are accessed at the state level (even though they are temporarily subsidized by the federal government) state systems are being overwhelmed by the sudden onslaught of exponentially more applicants. Illinois, for instance, is requesting applicants to file on a specific schedule: those with last names starting with letters A-M on Tuesdays, Thursdays and Sundays while those in N-Z are filing on Mondays, Wednesdays and Fridays. Applications are typically made online or over the phone. Find links to every state’s unemployment office here: https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/Find-Unemployment-Benefits.aspx
When it comes to unemployment benefits, consider health issues too.
“Keep in mind,” says attorney Roberts, “unemployment is different than paid sick leave/disability pay if you or a family member becomes ill with the virus. You should not apply for unemployment if you are sick or a family member is sick and you are required to take a leave of absence as a result. In this situation you should apply for disability if you are sick or possibly paid sick leave if you are an employee of your own business.”
Paycheck Protection Program For Studios & Small Businesses
Photographers who run small businesses have additional concerns beyond their own health and income.
“If you have people working for you,” Medows says, “you want to go for the Paycheck Protection Program. Because essentially, as long as you hire your workers back, bottom line, some of that money will become free money. Most if not all that money will turn into free money. So if you have people on payroll, and you have the ability to bring them back, do that.”
“Essentially it's for people like me, you know?” he says. “I'm on the edge. You run a business, you have people, you don't want to let anyone go, business has definitely slowed down. I mean, heck, I'm a CPA, my biggest cash collections are supposed to be March and April. It's all deferred out to July and October now. So instead of cutting people they're saying you know what, we want to essentially bribe you to keep your people on payroll.”
The Paycheck Protection Program (PPP) is a special loan administered by the Small Business Administration that offers to reimburse employers for payroll paid during the coronavirus slowdown. Newly updated on April 2nd, PPP loans are available now through June 30th. The loans have a 1% interest rate and will be due in two years. Initial payment deferrals are available for six months, though interest will accrue during the deferment. No collateral is required and loan amounts are available up to 2.5 times the borrower’s average monthly payroll, capped at salaries of $100,000 per employee and a loan amount of up to $10 million in total. Neither the government nor lenders will charge any fees to process the loans.
PPP loans will be forgiven if proceeds are used for allowable expenses, including payroll costs, mortgage, rent and utilities. The amount of loan forgiveness will be reduced if the employer has fewer full-time employees when the loan comes due than on the date of the loan origination, and if an employee’s salary has been reduced by more than 25%. If by June 30, 2020 the employer eliminates any reduction in force enacted between February 15 and April 26, 2020, the amount of loan forgiveness will not be reduced.
Eligibility for the Paycheck Protection Program includes any business or non-profit of fewer than 500 full- or part-time employees that otherwise meets SBA size standards, as well as individuals who operate as a sole proprietor or independent contractor and even self-employed individuals. Necessary documents will vary by lender, but expect to include 2019 payroll reports; quarterly 940/941/944 documents; W2s; reports on paid vacation, parental, family, medical and sick leave; 1099s for independent contractors; group health benefit documentation and retirement benefit documentation for benefits paid by employers.
Information on the Paycheck Protection Program will be regularly updated at the U.S. Department of the Treasury website. https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
Small Business Loans And Other Options For Accessing Capital
The SBA offers several other loans and programs that small businesses may also consider, particularly if a business is structured such that replacing wages is not a primary concern.
“You say, Jonathan,” Medows continues, “let's suppose I'm an S Corporation. I can't do the PPP because I pay myself an absurdly low wage, and I can't go for unemployment because I need more money. What do I do? Then you go for these SBA small business loans. Which you have to pay back but at least you can get cash flow that way. Their rates are low and they're fairly loose on the loan terms. That's my advice from the get-go. Solo guys: unemployment. People with payroll: the Paycheck Protection Program. Anyone else in between, you need substantial cash flow, go for a Small Business Administration loan. The PPP loans are administered through your bank, so you need to reach out to the banks.”
While the options are plentiful, Medows says it is imperative business owners don’t “double dip” and apply for multiple loans to ameliorate the same crisis. Receiving an SBA economic disaster loan, for instance, would prohibit a business from receiving a PPP loan too—and vice versa.
“Here's another problem,” Medows explains. “You have to be very careful because if you go for one loan program you may be precluded from the others. So you have to be very, very careful what you pick. Always go for the free money first. That's my motto. But be very, very careful because some people are going to be so desperate for cash and they apply to two or three programs and they may unwittingly knock themselves out of one.”
Some photographers may be in a position where income has yet to dry up and they aren’t in dire straits. Perhaps they billed a lot in January and February but revenue is sure to take a hit later in the year. These pros may not yet be eligible for unemployment and may not qualify for a PPP loan. Instead, Medows suggests they rely on lines of credit and holding onto cash.
“You borrow the money,” he says. “I'll tell you what I did, and what I told my brother, an attorney. I literally drew down on my line of credit for my business because my concern is that the banks may reduce some of their cash flow. I have my doubts, because I think the federal government's gonna bribe them to give out money, but I just drew down on my line of credit and told my brother to do the same. I'd sit on my cash. I would draw down on any lines of credit I have and just sit on it. Worst-case scenario if I'm wrong, okay so you owe some interest, which is deductible. If not, okay I'm a genius. I would hoard the cash; go on your line of credit just to be on the safe side. The people who are going to survive are the ones that have cash. They're the ones that survive a crisis like this.”
“Overall,” adds Roberts, “the most important thing for small business owners and individuals to remember is, just because they don't think they qualify doesn't mean they don't. It's always a good idea to apply for relief rather than waiting until it's too late.”
About the author:
William Sawalich made his first darkroom print at age ten. He earned a Master's Degree from The Brooks Institute of Photography in Santa Barbara, California. Along with portraiture, still life and assignment photography, Sawalich is an avid writer. He has written hundreds of equipment reviews, how-to articles and profiles of world-class photographers. He heads up the photo department at Barlow Productions in St. Louis.
Kristen Roberts is the founder and Managing Attorney at Trestle Law in San Diego. Learn more about her services at trestlelaw.com.
Jonathan Medows is a New York CPA who specializes in helping freelance workers navigate taxes and other financial issues. Learn more about his services at cpaforfreelancers.com.