The SBA creates a score based on the type of business you operate. If your business type has a score that meets a certain level, you may be able to bypass the documentation process.
This website focuses a lot on the Gig economy. While there are a lot of similarities between rideshare and delivery, this is one where the two may be on opposite ends of the COVID Revenue Reduction Score.
There was a dramatic drop in rideshare business when the pandemic hit. Uber and Lyft drivers are more likely to have a score that allows them to bypass the whole documentation process.
At the same time, delivery business took off like gangbusters. Doordash, Uber Eats, Instacart, Grubhub and others had their business explode. As a result, delivery contractors may not meet that COVID Revenue Reduction Score.
Whether you can use that score depends on where you have to file for forgiveness. If your financial institution handles its own forgiveness applications, you will likely have to provide the documentation no matter what. If your lender uses the SBA portal, the score will determine whether you need to provide documentation.
You say you earned less in 2020. The SBA wants you to prove it. You can do that one of three ways.
- Tax returns will work in some situations
- Financial statements showing quarterly earnings and expenses
- Bank records
What they don’t ask for
One thing you’ll notice: The SBA isn’t asking for records of your payments to yourself. They are not asking for you to prove that you paid yourself a paycheck from one bank account to another or anything like that.
They don’t ask for independent contractor spending or cancelled checks in the time period from the beginning to the end of the covered period, because that was never a requirement for loan forgiveness in the first place.
My theory is that these are people https://tennesseepaydayloans.org/cities/waynesboro/ who tend to work with traditional small businesses. They are used to working with companies with payroll and may not understand how it’s different for a sole proprietorship.
I have to wonder if situations like this are part of why the SBA created their forgiveness portal in the first place, to make sure people didn’t get bogged down with requests for information that was never required in the first place.
When will tax records be enough to document your reduction of income?
When you applied for your Paycheck Protection Program loan, you likely had to upload some tax information. As a self employed person or sole proprietor, you would have provided your Schedule C that showed your earnings and expenses for your business.
In most situations, your Schedule C will not be enough. That is because the requirement is based on quarterly earnings, and your Schedule C only reports numbers for the entire year.
If your total business earnings for the entire year in 2020 were at least 25% less than your 2019 business revenue, you can simply submit your Schedule C’s for both years.
It makes sense when you think about it. If you made 75% or less for the entire year in 2020 than in 2019, then at least one quarter of the year had to be a 25% revenue loss or greater.
How to use financial statements as documentation of a 25% revenue reduction.
You can provide a profit and loss statement to show your quarterly earnings for each year to document your quarterly totals.
A profit and loss statement is a standard report provided by most bookkeeping programs. Programs such as Hurdlr, Quickbooks or Quickbooks Self Employed will let you choose the dates and create a P L (Profit and Loss) report.