The COVID-19 pandemic has been devastating for the United States economy. No one has been hit harder than small business owners. More than 100,000 small businesses have permanently shut down as a result of the pandemic. Among these are restaurants, food production, farms, construction, and more.
The good news is that independent contractors in the construction industry are eligible for disaster relief loans. These business loans for independent contractors are available under several government programs begun under former Pres. Trump.
Small business owners have had to face up to the kind of disaster they never thought they would face. It has been an extraordinarily stressful period. Small business loans for independent contractors and others may provide what they need to survive.
What Are Disaster Relief Loans?
In early 2020, Pres. Trump announced the passing of the CARES Act. This included the Paycheck Protection Program, which was designed to protect small businesses from closing their doors during the pandemic’s economic downturn. The second coronavirus aid package, passed in Dec. 2020, included $284 billion in additional funding for PPP loans for small businesses.
The PPP gives small businesses up to eight weeks of funds to pay expenses and benefits. The intent was to protect jobs and prioritize small businesses, self-employed workers, and independent contractors.
These loans were at first only available for certain businesses, such as those with less than 500 employees who met other criteria. Now, they are available for self-employed individuals, independent contractors, and sole proprietors.
PPP loans for independent contractors listed above cover up to $100,000 in the following:
- Payroll and benefits
- Mortgage interest
- Business software
- Cost of materials
- Measures spent to protect employees against COVID-19
- Property damage from recent civil unrest
Similarly, PPP loans for the self-employed and contractors may cover salary losses, though you can apply for 2.5 times your average payroll amount in a year, up to $100,000. Forgiveness is available for these loans if you use the funds for payroll and operations in the first 24 weeks.
Heavy Equipment Financing Options
Most businesses have the option under standard small business loans to have their equipment financed. This applies to standard office equipment like desks, copiers, file cabinets, and so on. But construction companies need something a little different, which is where heavy equipment financing comes in.
These loans help you pay for the construction equipment you need without putting up cash upfront. This equipment is expensive, but small businesses don’t have the time to wait around for funding. A loan makes it possible for you to finance the purchase immediately to get more projects done.
Heavy Equipment Financing Calculations
Calculating the financing you are likely to receive for your business is a long and detailed process. Grants for independent contractors generally qualify based on three points: credit score, revenue, and down payment.
If you have a poor credit score or sluggish cash flow, a lender will likely want to see some down payment before they agree to an independent contractor loan for COVID.
Interest rates for heavy equipment are generally much lower since these are considered low-risk loans. However, these depend on the lender you choose. They are unlikely to be much lower than 8 percent, though they may be higher if you have poor credit or a low cash flow. These are all essential things to know before applying for EIDL for independent contractors.
Applying For Equipment Financing With Bad Credit
Unfortunately, some business owners may have bad credit. The good news is that there are options even if your credit score isn’t stellar. So, what should you know about applying for equipment financing with bad credit?
The bottom line is: yes, you are more likely to be approved for a loan if your credit is good. That said, you have a better chance of getting a heavy equipment loan than other loans with a bad credit score. The reason for this is pretty simple — if you default on the loan, the equipment itself can be seized by the lender and liquidated.
You have a better chance of being approved if you can either prove that you have incoming revenue or if you can put down a down payment. Bear in mind that bad credit will probably mean you will pay higher interest rates.
In short, having bad credit is not a death sentence for your hopes of getting a PPP loan for an independent contractor. You still have options, including spending time rebuilding credit before applying.
How To Apply
Before you apply for a disaster relief loan, you should know whether you are likely to qualify. The IRS views independent contractors as sole proprietors for these loans.
You will need to present several documents to the IRS to prove that you require financing and have a steady stream of income to pay the loan back. These documents generally include tax returns for your business and your household and expense reports, bank statements, and vendor invoices.
You can either apply directly through your bank or an online lender. Where you apply will affect not only what documentation you need to supply but also your loan amount and interest rates.
As you prepare to apply for a loan, make sure that your business’ bookkeeping is up-to-date, including everything you need from your most recent tax returns as well as any other financial records. These may include:
- Federal tax information
- Payroll information
- Employee 1099 records
- Profit and loss statements, vendor invoices, expense reports
- Bank statements
The most significant thing you will need to show is that the change in your financial status was due directly to the coronavirus pandemic instead of other factors.
Surviving Difficult Times
Business owners and independent contractors have spent the last year wondering if their business could survive the economic downturn of the COVID-19 pandemic. It is vital to make sure you are prepared for any disasters that could come your way.
Although it is never possible to prepare perfectly, you can take measures to improve your chances. An SBA disaster loan, especially SBA loans for the self-employed during COVID-19, can help you protect your business both now and in the future. To learn more about SBA grants, visit our blog.