Note: The Paycheck Protection Program closed to new applicants on August 8, 2020. This page will be updated if and when the federal government passes legislation to restart the program or create additional small business financial relief.
The Paycheck Protection Program (PPP)—a federal government loan program aimed at helping small businesses impacted by the coronavirus pandemic—became available to independent contractors and self-employed individuals on April 10, 2020.
If you’re self-employed and looking for help understanding what the Paycheck Protection Program loan is, whether it applies to you, how independent contractors and self-employed workers can apply for a PPP loan, and what your next steps are, you’ve come to the right place.
In response to the coronavirus outbreak, the federal government passed the CARES Act in late March—a bill that created and funded the Paycheck Protection Program, to be administered by the Small Business Administration.
Starting on April 3, 2020, PPP loans officially became available to small business owners (including sole proprietors) through SBA-accredited lenders. Now, self-employed workers and independent contractors are eligible to apply for these loans, as well.
That means gig economy workers (who work for Uber, Lyft, DoorDash, and other similar companies) and independent contractors who collect 1099-MISC forms can apply for the PPP loan, as long as they were in operation as of February 15, 2020. There are millions of such workers across the U.S. who are seeking financial relief due to the pandemic.
Self-employed workers and independent contractors will apply for a PPP loan the way other small businesses do: by finding an SBA-accredited lender accepting PPP applications.
The SBA has a lookup tool for finding SBA-accredited banks that are involved in the PPP loan process by zip code.
For small businesses with payroll that goes toward employees, their PPP loan amount is 2.5x their monthly average payroll, up to $10 million. If you are your only employee, how does this apply to you?
PPP loans will cover payroll costs (including benefits) for individual salaries up to $100,000. Contractors and self-employed workers can essentially use a PPP loan to fund their salaries (including wages, commissions, and tips) with a loan that is 2.5x their average monthly net profit, up to $100,000 on an annualized basis.
Here’s your four-step process to calculating your maximum loan amount:
Remember: You must provide the 2019 Form 1040 Schedule C with your PPP loan application in order to substantiate the loan amount, as well as a 2019 IRS Form 1099-MISC detailing non-employee compensation, invoice, bank statement, or book of record that establishes you are self-employed.
Self-employed workers (freelancers, artists, electricians, etc.) who don’t use 1099-MISC forms can use their 2019 income as well to calculate their PPP loan amount.
If you don’t have 1099s to help you add up your total income and/or prove your salary during 2019, the documents needed to establish eligibility include payroll processor records and payroll tax filings.
If you started receiving income prior to June 30, 2019, divide your total income by 12 if you received income in January 2019, 11 if you received income in February 2019, and so on. If you didn’t start receiving independent contractor income until after June 30, 2019, you can divide your January to February 2020 income by 2. Seasonal businesses can use February 15, 2019 to June 30, 2019 OR March 1, 2019 to June 30 2019.
The basics of a PPP loan for self-employed workers are the same for other PPP loans, and they are as follows:
Now, virtually every type of small business is eligible to apply for the federal government’s PPP loan. It remains to be seen how quickly lenders and the SBA are able to process these loan applications and disburse the funds to the businesses in need.