In this 5-minute read:
- NEW UPDATE 8/2021! SBA PPP Direct Forgiveness Portal announced
- How are PPP loans calculated for beauticians?
- What can beauticians spend their PPP loans on to maintain forgiveness?
- How can beauticians apply for PPP loan forgiveness?
URGENT PPP FORGIVENESS UPDATE: On July 28, 2021, the SBA announced big news (for most PPP borrowers). The SBA has established an online PPP forgiveness platform called the SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.
With the renewal of the Paycheck Protection Program in early 2021, many more small businesses have had the opportunity to apply for and receive COVID-19 stimulus funding to help keep operations going.
Beauticians, hairstylists, cosmetologists, nail technicians, and more are among those business owners, independent contractors and self-employed individuals who can apply for the PPP loan, but know what exactly you can spend your loans on if you fall into that category can be confusing.
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How are PPP loans calculated for beauticians, cosmetologists, independent nail techs, aestheticians, etc.?
Before we dive into the nitty-gritty details of everything that you can or should use your PPP loans, it can be helpful to know how your maximum loan amount is calculated. This is something that you should have done (or will do) in the application process.
If you are self-employed and have no employees, the way you calculate your PPP loans might look a little different than a traditional brick-and-mortar beauty business that has employees.
If you’re a sole proprietor, independent contractor, or self-employed individual, you’ll use this method to calculate your max loan amount:
- You’ll need your 2019 or 2020 IRS Form 1040 Schedule C, and from there you can now choose to use either line 31 for your net profit or line 7 for your gross profit. (If you haven’t finished filing your taxes for 2020, and chose to use that year to calculate your loan amount, fill out your 2020 return to get the amount you need.) If that amount comes to more than $100,000, reduce it to $100,000
- Calculate your average monthly profit by taking the number you acquired above and dividing it by 12
- Multiply your average monthly profit by 2.5—this number cannot exceed $20,833
- If you acquired the Economic Injury Disaster Loan, add any outstanding amount of this loan made between January 31, 2020 and April 3, 2020 that you wish to refinance. (Don’t add any EIDL advance you received, because that doesn’t have to be repaid)
Understanding this calculation will tell you how much you can receive for the PPP loan, which will help you plan out what to spend the loan on, especially if you want it to be forgiven.
If you need help deciding whether to use your net or gross income to calculate your max loan amount, you basically want to choose the option that gets you the biggest loan. Read more about gross vs. net income for Schedule C PPP applicants.
What can beauticians spend their PPP loans on and maintain forgiveness?
There is a list of approved expenses for the PPP loan in order to qualify for loan forgiveness (which is the whole point of the PPP), and that list is essentially the same for all business owners, but your costs may vary from another business owner depending on your actual operational expenses.
First, it’s important to know that in order to receive loan forgiveness, you must use at least 60% of your loan on payroll costs. For self-employed individuals, that can be your own income, including wages, commissions, or tips that you may receive. In theory, you could use 100% of the loan on payroll costs during the 8-to-24-week covered period, and this is perfectly legal for independent contractors, sole proprietors, and self-employed individuals without employees, but there are other approved business expenses that the loan can help with if you need to.
Mortgage, rent, utilities
The SBA knows there is overhead to running a business, which is why you have the option of using part of the PPP loan to pay for things like mortgage, rent, or utilities. For many beauticians, you may be renting booth space or an entire salon. Or maybe you run a salon out of your home. Any space that you rent or lease that you can claim as a deduction on your taxes is a permissible expense for the PPP loan.
Interest on debt payments
If you are paying interest on any debt obligations that you acquired prior to February 15, 2020, you can use the PPP loan to help with those costs. Maybe you are financing some expensive equipment for your salon or have a business credit card or loan that you pay interest on. Those are all eligible expenses.
Any payments for business software or cloud computing services that facilitate your salon’s business operations such as product or service delivery, the processing of payrolls or payments, sales and billing functions, or accounting or tracking inventory, supplies, and expenses qualifies as an eligible expense. If you use software to process your customer payments or for customers to order beauty products from you, you could use your PPP loan to help pay for those applications.
Covered supplier costs can include the supply of goods that are essential to your business operations. These costs must also be associated with a contract or purchase order that was in effect before your covered loan period. Maybe you have orders for the products or disposable supplies that you use.
With COVID-19 still very prevalent, the SBA amended approved expenses to cover costs associated with adhering to state and local guidelines for keeping staff and employees safe. Costs that can be included here are PPE expenses or other expenses that helped maintain social distancing guidelines (air pressure ventilation system, physical barrier like a sneeze guard, expansion of business space, and more).
The riots and public disturbances across the U.S. in 2020 caused significant damages to many businesses. If your salon was damaged during this time and the costs could not be covered by insurance, you can use a portion of your PPP loan to help cover those costs.
As you plan for and start to spend your PPP funds, be sure to keep good records on where these funds go so that you can receive loan forgiveness.
You might also like:
- View our PPP FAQs
How can beauticians apply for PPP loan forgiveness?
To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.
If the above doesn’t apply to you, you’ll need to apply for forgiveness through your lender after you’ve spent your PPP funds. You must apply within 10 months of the last day of your selected covered period to receive loan forgiveness.
Your lender can provide you with the necessary form for your PPP loan forgiveness application. From there, you’ll want to acquire all of the documentation you need to show where your proceeds went. Return all of the documentation to your lender and they will process your application with the SBA. For independent contractors, sole proprietors without employees, and self-employed individuals who basically use all their PPP funds to “pay themselves,” this process is very simple.
All communication for the forgiveness application and decision will come through your lender, so stay in touch with them. They will inform you when a decision has been made.
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