If you are self-employed, the logical way to determine which of these relief options is best for you is to compare the potential payout of each.
A good pace to start is comparing your weekly income to the unemployment benefit you’re eligible for in your state. If your weekly income isn’t more than the sum of your state’s unemployment payout plus the extra $600 in federal COVID-19 aid, applying for unemployment compensation is probably your simplest course.
Going the unemployment insurance route also means you can recover your lost income with no limitations on how you spend the money you receive.
If you can’t fully replace your income through unemployment insurance—and not just your income but also your ongoing self-employment expenses—Barnes says a forgivable loan through the Paycheck Protection Program is likely going to make more sense for you. Self-employment expenses might include rent, utilities, insurance, web hosting, etc.—all the fixed costs associated with running your business.
Barnes says almost every self-employed taxpayer whose business employs at least a few people will receive more money through a paycheck protection loan than from an unemployment claim.8 And financial planner Natalie Taylor told Business Insider that a PPP loan is “a great option if you make more than $50,000 annually.”9
A PPP loan also might be a good choice for you if you’ve set up your business as an S-Corp, C-Corp, or LLC, and pay yourself a relatively small wage to minimize payroll taxes. But, in this case, it’s best to consult your accountant. “The CARES Act is very clear about sole proprietorship and partnerships,” Barnes says, “but it’s not as clear about S-Corps and C-Corps.”
What is clear is that a loan through the Paycheck Protection Program can deliver relief to small businesses and the self-employed with relatively few strings.
“There has never been a program like PPP before, which has led to some operational kinks, but overall it's incredible for borrowers,” says Fundera’s Wood. “We're talking about 100% guaranteed loans, which really incentivizes lenders, and 1% interest rates.” She also points out that a PPP loan doesn't require usual qualifying criteria such as revenue, credit score, or time in business.
You down with PPP? Learn more and apply for a loan with this Guide to the Paycheck Protection Program.