Paycheck Protection Program (PPP) Loan Guide For Sole Proprietors [Updated For PPP2]

Paycheck Protection Program (PPP) Loan Guide For Sole Proprietors [Updated For PPP2]

: The SBA has stopped accepting PPP applications due to lack of funds. The SBA will continue to fund outstanding applications that have been already approved.

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The SBA has announced changes to the PPP, including a revised funding formula for sole proprietors, independent contractors, and the self-employed. We will update this article when the SBA releases further guidance on the new rules.

The latest COVID-related stimulus bill was signed into law on (PPP) and Economic Injury Disaster Loan (EIDL) programs are expected to return in . Learn more about the new legislation in our article, Congress Passes New PPP Legislation, Targeted EIDL Program.

With this latest round of PPP funding, businesses – even those that received a PPP loan during the first funding period – will have a second chance to take advantage of the popular relief package. This includes businesses whose owners may have assumed they did not qualify due to being sole proprietorships with no employees (this status technically applies to freelancers as well).

In April, the SBA released guidance in the form of an “interim final rule” clarifying who does and doesnt qualify for the PPP. It specifically addresses the question of PPP funding for sole proprietorships and businesses without employees. The most recent interim final rules released by the SBA after the latest aid package was passed in December confirm this guidance.

Am I Qualified For A PPP Loan?

If youre an individual with self-employment income, you can qualify for a PPP Loan as a sole proprietor if you meet the following criteria:

  • You filed or will file a Form 1040 Schedule C for 2020
  • Your principal place of residence is in the United States

Note that if youre in a partnership, you are still eligible for PPP, but you should not submit a separate application for yourself as a self-employed individual. Instead, youll file a single application for the company with each partners income reported as a payroll expense. This is meant to cut down on the volume of applications and eliminate confusion regarding which companies and partners have applied.

Be aware that applying for a PPP to cover self-employment income may complicate your application for state-level unemployment insurance. Make sure you take a look at those guidelines to ensure youre maximizing your eligibility.

How Much Money Can I Apply For?

  1. On line 31 of your 2019 IRS Form 1040 Schedule C, youll find your net profit. If its over $100,000, reduce it to $100,000. If the number is zero or less, youre not eligible.
  2. Divide the number you arrived at from step 1 by 12 to get your average monthly net profit.
  3. Multiply your average monthly net profit by 2.5.
  4. Add the outstanding amount of Economic Injury Disaster Loan (EIDL) made between , that youre trying to refinance, minus the amount of any advance you received under an EIDL COVID-19 loan, which does not have to be repaid.

If youre applying as a partnership, youll treat each partners income as a payroll cost. The maximum amount is up to $100,000 annualized. Otherwise, consult our guide on applying for a PPP Loan.

Calculating PPP Loan Amount Using Gross Income

On , President Joe Biden announced changes to how sole proprietors can calculate their maximum PPP loan amount. The IRS provided further guidance on , breaking down how sole proprietors can use their gross income to calculate how much money they can receive through the PPP.

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