PPP Loans for the Self Employed: How to Apply

Don’t let the “paycheck” in the name fool you into thinking you wouldn’t qualify for this forgivable loan. In fact, since you don’t have staff headcount, payroll, and benefits to calculate, your application process (for the loan and later for forgiveness) should be much simpler.

As of December 27, 2020, Congress has approved additional funds for the PPP. Fundbox is no longer accepting PPP applications, however, the SBA can help you find a PPP lender.

Even as a sole proprietor, the PPP loan can provide you with funds equivalent to your pre-pandemic gross earnings over 2.5 months (or 3.5 months if your business is in the food services or accommodations industry)—based on a comparative period from 2019 (or the first 2.5 months of 2020 if your business began in 2020).

You can also use a portion of this loan to cover some operational expenses for your business (like business-related rent, utilities, or interest payments on a mortgage or other business loans, and certain business-related supplies or repairs). However, if you want to qualify for loan forgiveness, these operational expenses can only account for up to 40% of your total loan amount.

How Much Can You Expect to Borrow?

For most independent contractors, calculating your PPP borrowing limit is a 3-step process:

Find line 7 (gross income) on your 2019 IRS Form 1040 Schedule C (If you haven’t filed yet for 2019, go ahead and fill it out). If the amount on Line 7 is over $100,000, write $100,000. Effective March 8, 2021, most lenders will now accept line 7 (gross income instead of line 31, net income, as previously required).
If line 7 shows $0 or less, you do not qualify for a PPP loan.
Divide the amount from Step 1 by 12.
Multiply the amount from Step 2 by 2.5 (or 3.5 if your business is in the food services or accommodation industry, with a NAICS code starting with 72). For most borrowers, this will be your maximum PPP loan amount.

NOTE: If you received an EIDL loan between January 31, 2020 and April 3, 2020 you can refinance that as part of your PPP loan (minus any amount received as an EIDL grant).

Here’s how you can spend your PPP loan

Replace your compensation (based on your 2019 or 2020 income)
Pay interest payments on a mortgage or loan (such as an auto loan) you use to perform your business*
Make business rent payments*
Make business utility payments*
Make interest payments on any other debt incurred before February 15, 2020 (but such amounts are not eligible for loan forgiveness)
Operations expenses for business software and cloud computing services and other human resources and accounting needs that facilitate business operations
Payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods
Property damage costs related to looting due to public disturbances in 2020 that are not covered by insurance or other compensation

*You must have claimed a deduction on your 2019 or 2020 taxes for expenses described in 2, 3, and 4 above.

Here’s What You’ll Need to Apply for a PPP Loan

If your lender is accepting PPP applications, the following documentation will be needed. Please note that specific requirements and acceptable documents may vary depending on the lender. The SBA may issue further guidance, at which time these recommendations will be updated.

1. Completed PPP Application Form

There is one application form for first-time PPP loans and a different form for second draw PPP loans.
Include your contact name and email address.
Indicate your Business Type (Independent Contractors and Sole Proprietors have slightly different document requirements).
Check Yes or No for all questions on the form.
- If you answer Yes to questions 1,2, 5, or 6, you do not qualify for a PPP loan.
- If you answer Yes to question 3 or 4, you may still qualify, but you must include an Addendum on a separate sheet explaining the details.

2. Proof of Self Income

For Independent Contractor/Self-Employed/Sole Proprietorship with no employees:

2019 or 2020 IRS Form 1040 Schedule C. (If you are using 2020 to calculate the loan amount but you haven’t filed your 2020 taxes yet, you may provide a draft.
If you are the sole proprietor for multiple businesses, consider bundling all your businesses’ revenue documents together and apply using a single PPP form to avoid separate applications from being flagged as duplicates under your Social Security Number. (Please consult your own legal, financial and accounting advisor to determine how to proceed.)
If you are including an Economic Injury Disaster Loan (EIDL) that was taken from 1/31/20-4/3/20, provide a bank statement showing the deposit into your business account.
Invoice, bank statement, book of record, or a 1099 MISC that covered the period up to 2/15/2020.
Remember: as a sole proprietor, your PPP application won’t involve payroll calculations.

3. Unexpired government-issued photo ID

Along with your SSN, lenders will also require a government-issued ID such as a Passport or a state-issued Driver’s License.

4. Voided check

So the lender can deposit approved funds into your account, you may be asked to provide a voided check.

5. Documents needed for proof of 25% revenue reduction (for a second draw PPP)

If you’ve received and exhausted a previous first-time PPP loan, you may now qualify for a second draw PPP. You do not need to have received forgiveness for your first PPP loan (with few exceptions). In addition to the documents listed above, you will need one of the following (your choice) to demonstrate your income reduction:

2019 and 2020 tax forms (IRS Form 1040 Schedule Cs).
2019 and 2020 quarterly income statements (for the same quarter for 2019 and 2020)
If the business started between 1/1/2020-2/15/2020, quarterly income statements or bank statements for Q2, Q3, or Q4 compared to Q1.
2019 and 2020 bank statements (for the same quarter for 2019 and 2020).

Who Can Apply?

As a sole proprietor or independent contractor, you may be eligible for a PPP loan if all of the following are true:

You were already in operation on February 15, 2020. (With very few exceptions, you can’t have started a business this March or April and expect to get PPP funds.)
Your primary place of residence is the United States. (You don’t have to be a U.S. Citizen);
Your business has filed a 2019 or 2020 tax return with the IRS. For independent contractors, this means a Form 1040 Schedule C for 2019 or 2020 showing self-employment income.
Entities with significant ties to China are ineligible for a second draw PPP loan.
Furthermore, to qualify, you must certify in good faith that the loan is “necessary to support [your] ongoing operations.” (In other words, PPP loans should be your only way of accessing needed money.)

What If You Don’t Qualify for 100% Forgiveness?

Amounts not forgiven simply convert into a 1% interest loan, payable over the next two years. There’s even a grace period. No payments would be required until the SBA remits the forgivable amount to your lender. If you do not request forgiveness, you will not have to make any payments for 10 months following the date of disbursement of the loan. (However, interest will still accrue from the date loan was disbursed.)

Learn more details

For more information on the PPP loan, please visit the U.S. Chamber of Commerce’s website.

Disclaimer: This information has been aggregated from external sources. Fundbox and its affiliates do not provide financial, legal or accounting advice. This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal or accounting advisors before engaging in any transaction.