Stimulus package: Small business owner loans, self-employed unemployment benefits, 401k penalties waived and more in coronavirus relief CARES Act

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At a whopping 57 million, self-employed people make up a huge piece of the country’s economic puzzle. But during a global pandemic, when business starts drying up, those who work for themselves are among the most vulnerable.

Take the example of a freelance photographer who makes a living taking photos for corporate events, professional portfolios, or marketing materials. With social distancing and entire states on lockdown, group gatherings are a thing of the past, and headshots are not likely to be topping most companies’ to-do lists. While a larger company may be able to shoulder the financial burden of an idle workforce by dipping into reserves, that’s not often true when you work for yourself.

If your business is already taking a hit, it’s good to know your options—including what’s in the stimulus package and how to protect your assets and livelihood during this crisis.

How many self-employed people can collect unemployment benefits

Usually most self-employed people or independent contractors aren’t eligible for unemployment except in some cases in which someone has set up business as an S-corp. But things have changed. On Friday, President Trump signed into law the $2 trillion stimulus package, the Coronavirus Aid, Relief and Economic Securities Act (CARES), that includes expanding unemployment insurance to self-employed workers and independent contractors. The bill extends unemployment benefits for 13 more weeks and also includes an additional $600 a week on top of state unemployment benefits for up to four months. The rate of state pay may be less for self-employed, independent contractors, and freelance workers.

Not everyone who is self-employed will qualify for unemployment, but it does make it an option for many more people. Also eligible for unemployment: anyone who becomes sick and is ordered to be quarantined.

To apply for unemployment benefits, visit your state’s unemployment website. The information you will need includes your Social Security number, your driver’s license or state ID, and Social Security numbers of any dependents you are claiming.

Related: 5 things you need to know about unemployment benefits in the coronavirus stimulus package

How to get a small-business loan from the U.S. government

Taking on more debt as a bridge to a better financial future might make sense, but it pays to be cautious, says Michael Morton, a financial adviser with Morton Financial in Harvard, Mass. “What will you do if you borrow some money to make it through a month, but your situation doesn’t change in a month and you need more? The worst thing you can do is risk your future for a short-term situation,” he says. Ask yourself tough questions about how you would pay back a loan and whether your business can rebound, he says.

That being said, there are a lot of low and no-interest loans popping up right now. Check with your bank and credit union to see what they’re offering. The American Banking Association is keeping a list of programs being made available by banks around the country.

A line of credit also might be smart to put in place even if you don’t need the cash now. And unlike a term loan, you have to repay only what you draw from the line. “Don’t use the loan if you don’t have to, and don’t use it to buy consumer items. But if you need it to keep your business afloat, you’ll appreciate having ‘money in the bank,’” says Tara Unverzagt, a certified financial planner and founder of South Bay Financial Partners in Torrance, Calif.

Many counties, cities, and states are offering their own financial help programs. The National Governors Association has a list of websites to find resources by state. Also check your local Small Business Development Center for potential programs.

Finally, the CARES Act includes $349 billion for the U.S. Small Business Administration (SBA) to guarantee loans through its 7(a) loan program. The SBA is also offering Economic Injury Disaster Loans for qualifying small businesses. These are low-interest loans with terms potentially as long as 30 years for small businesses and nonprofits. You can apply for an SBA loan through its site. Be prepared to provide the following information:

Tax Information Authorization (IRS Form 4506T), completed and signed by each principal or owner
Recent federal income tax returns
Personal Financial Statement (SBA Form 413)
Schedule of Liabilities listing all fixed debts (SBA Form 2202)
You may also need to provide profit and loss statements, recent tax returns, and balance sheets.

How to drum up more business

It’s understandable that you might be feeling discouraged—even panicked—about the future. But there are things you can do to try to drum up more business and protect your finances.

Network, network, network: “The worst thing you can do right now is stop communicating,” says Chris Russell, a certified financial planner and founder of Tempus Pecunia in San Diego. “Talk to your clients, talk to your audience. Put out the word on Facebook that you’re still open for business.” Put a banner on your website to let people know you’re still up and running and any changes you’ve made to make your business more applicable in light of COVID-19. Reach out to folks in your industry since many are putting together sites like this one with opportunities and resources for freelance artists.
Offer free advice: Obviously, the ideal would be to get paid for your work, but offering free advice or services to people in need is a good way to stay busy, keep your name out in the world, expose yourself to a larger audience, and hopefully earn some goodwill in the future when business picks up again.
Improve your business: When you’re self-employed, you usually don’t have much time to spend on fine-tuning your business. Now is a good time to make changes. Think about ways to operate more efficiently. Review your marketing materials and see what needs updating. Think about your technology and social media accounts. And consider the future and what updates you’ll need to make to your business to address the new way of life after a pandemic, Morton says. Although cutting your expenses is important, Unverzagt warns not to cut things that can make you money like marketing tools and essential staff.
Get a side gig: Consider a side hustle like online tutoring or making deliveries. Or take an aspect of your own business and shape it into something people need now. “Advertise locally and drum up some extra cash for things people are craving during this time of being shut in and distanced from others,” Morton says.

How to handle your student loans

The U.S. Department of Education is allowing those with a federal student loan to suspend paying their loans for 60 days without accruing interest. Whether you suspend your loan or not, all loans will also have a 0% interest rate for at least 60 days. To suspend your loan, you’ll have to call your loan provider. To find your provider, log into your My Federal Student Aid account.

A better option might be to switch to an income-based repayment plan. These plans are based on a percentage of your discretionary income. You’ll pay more interest over the life of the loan, but if your income has taken a big hit, it can help your monthly payments be a lot more manageable.

If you have a private student loan, that doesn’t mean you’re out of luck. Many private lenders are mirroring the federal student loan offers. Reach out to your provider to see what it can do for you.

How to handle your emergency fund and retirement accounts

This is an emergency, so yes, break glass on your emergency fund. That doesn’t mean you have to tap your emergency fund today, Morton says, but it’s fine to access those funds once you’ve made some big cuts to your expenses. As for your retirement accounts, though, “if you have enough cash flow and liquidity to meet your needs, they should be off-limits,” Russell says.

The government’s coronavirus stimulus package includes a provision that waives the 10% early withdrawal penalty for up to $100,000 for COVID-19 hardships. But if that doesn’t happen, taking that 10% hit isn’t a good idea. “Find a low-interest loan or borrow from your 401(k) instead, especially if you have to pay income taxes on the distribution too. Otherwise, you end up with so little for the trouble,” Unverzagt says.

Correction: An earlier version of this article misstated the size of the SBA loan program. It is $349 billion.