Paycheck Protection Program (PPP) Loan Guide For Independent Contractors, Freelancers, & The Self-Employed

On December 27, 2020, a $900 billion COVID-19 aid package was signed into law as part of the larger omnibus bill funding the federal government. This bill includes $284 billion in new funding for the Paycheck Protection Program (PPP), the federal loan program established to support businesses impacted by this lengthy pandemic. The SBA announced that certain lenders would begin accepting new PPP loan applications on January 11, 2021, and all participating lenders would follow suit shortly thereafter.

If you find yourself wondering how you are going to make it through this pandemic, you are not alone. Our Merchant Maverick coronavirus hub has continuously updated information for small businesses trying to weather this pandemic.

If you’re a contractor or are self-employed, read on to learn how to apply for and receive a PPP loan.

Can Contractors & Self-Employed Apply For PPP Loans?

The Paycheck Protection Program’s premise is simple: The SBA is backing loans to borrowers that need payroll assistance due to the economic hardships from the coronavirus. Previously, only S/C-corporations, tribal businesses, and businesses with up to 500 employees could apply for loans when the program first launched last April. Now, sole proprietors, independent contractors, and self-employed individuals can apply as well.

The terms for the loans are as follows: The PPP loans are designed to cover payroll costs, including benefits, for individual salaries up to $100,000; rent; utilities from buildings rented before February 15th, 2020; interest on mortgage obligations; business-related software; necessary supplier costs; COVID-related worker protection measures; and property damage incurred from civil unrest.

PPP loans for the self-employed and contractors can be used to give yourself a salary (wages, commissions, tips). Qualified borrowers can apply for 2.5 times their average payroll cost for 12 months. This amount is capped at $100,000 on an annualized basis for each employee.

One of the best parts of these PPP loans is that they are forgivable if you use the loan on operational costs (payroll first) during the 24 weeks following loan disbursement. (That’s assuming you follow the loan forgiveness stipulations outlined in the Paycheck Protection Flexibility Act, which includes a mandate that 60% of the loan must be used for payroll alone.)

PPP loans have a 1% interest rate, a loan term of up to five years with no prepayment penalty, and a six-month payment deferral. (Side note: If your business hasn’t been operational for a full year, the government provides alternative ways to measure average payroll.)

PPP Requirements For Self-Employed People

PPP loans are designed to reach as many small business owners as possible, including the self-employed. While the terms are broad, the first qualification is that you must demonstrate a need based on the current COVID-19 world. Be sure to specify that you are seeking aid related to the COVID-19/coronavirus disaster.

For those of you who received a first-draw PPP loan in 2020, the requirements are more precise: You’ll need gross receipts from any calendar quarter in 2020 that show at least a 25% reduction in gross revenue from the same quarter in 2019 to qualify for a second draw PPP loan.

If you collect 1099s or operate in the gig economy, you are included in the January 11th, 2021, loan rollout. Also included are people who have 1065s or 1120s with no employees.

What You Need To Apply For A PPP Loan

If you’re applying for a PPP loan as an independent contractor or freelancer, you will need to gather the necessary paperwork to get your loan moving. In the eyes of the IRS, you will be treated as a sole proprietor. You will need your Schedule C on line 31 based on your 1099s from your 2019 or 2020 tax return (whichever was used to calculate the loan amount). This number is your net profit and can be used to determine salary. You may also add up your 1099s together from the past year and divide it by 12 to receive a rough monthly estimate.

In February 2021, President Joe Biden announced that eligible sole proprietors could also calculate the maximum amount of their PPP loan by using gross income. If you plan to use this to calculate your loan amount, you will need to use line 7 from your Schedule C. This number can be divided by 12 to calculate your gross monthly income.

Making sure you have verified income and updated bookkeeping, including:

• 2019 or 2020 tax returns
• Federal Tax Identification Number 
• Payroll tax filings
• 1099s-MISC records
• Income and expenses, bank records 

Forgiveness Requirements For Self-Employed

Forgiveness requirements for PPP loans for self-employed workers are largely the same as the requirements for any business seeking to have their PPP loans forgiven. The details concerning which form you’ll need to submit are spelled out in our article on PPP forgiveness, which we encourage you to check out. Whichever form you use, remember that you need to submit your application to your lender, not the SBA itself.

You’ll need to spend your loan proceeds on qualifying expenses to have your loan forgiven. Your forgiveness application form should spell out what kinds of documentation you’ll need to provide that shows how you spent your loan funds. Forgivable expenses include the following:

• Mortgage interest
• Rent
• Utilities
• Software
• Property damage from civil unrest
• Necessary supplier costs
• COVID-related protective measures

Additionally, you must spend your loan proceeds within 24 weeks of disbursement. You can also use your funds to cover expenses incurred during the 24-week period.

Naturally, the requirement that a PPP loan-receiving entity maintains its full-time staff and payroll does not apply to the self-employed.

Where To Apply For A PPP Loan

There are over 1,800 banks and lenders preapproved with the SBA to help meet the need and respond to the rush of applications. Be sure to have all your information ready. Experts say it’s best to go through an FDIC-insured bank (other lenders might be brokering for a fee — best to go right to the source).

As most banks are operating remotely, many are telling borrowers not to contact branches directly but to work with their online application. It’s always best to check with your local community bank, but not all small banks are equipped to work fast on SBA loans. As a next resource, check out the SBA Preferred Lending Partners.

In some instances, working with a matchmaker could be the way to go.

Here are four lending vendors that will be offering Paycheck Protection loans:

Lendio

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Lendio is also a loan matchmaker and will work on your behalf to aggregate loan options. Links to apply for PPP loans will be available on Lendio’s site. Lendio makes it easy to apply and compare options, and it advertises funding within 24 hours. Due to the terms of the CARES Act, there are no fees for the borrower.

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Fundera

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Fundera works together with small businesses to match them with their best loan options, and Merchant Maverick deems it one of the best loan matchmaking vendors out there. The experts at Fundera will likely be opening their application process for PPP loans the week of January 11th. After providing your average monthly payroll and number of employees, Fundera will contact you with loan options. If the thought of applying for a PPP loan is overwhelming, consider working with Fundera.

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Credibly

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Credibly has funded small businesses with over $1 billion and is equipped and ready to assist with PPP loan applications. From the front page of Credibly’s website, borrowers will find a link to the application. Customer service is efficient and can walk first-time borrowers through the process with efficiency.

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BlueVine

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BlueVine is an online lending service dedicated to helping small business owners conquer their borrowing struggles. BlueVine will be assisting with SBA PPP loans for self-employed individuals and working diligently to submit paperwork to the SBA and secure funds. With a big pivot, Blue Vine will be making PPP loans a priority and is a valuable option. Lending information is available on the front page of BlueVine’s website.

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Be Prepared & Apply As Early As Possible

There’s a time when slow and steady wins the race. There’s also a time when you need to light a fire and work as fast as you can. When it comes to applying for these Paycheck Protection loans, what we’ve learned from the first phase in 2020 is that working quickly with a matchmaker might be the fastest way to get your application seen and processed.

The stimulus for the PPP loans is capped at $284 billion this time around. That staggering amount will not go as far as we wish it would, but as we know, the money is sorely needed for small businesses and the self-employed all over the nation, and the loan forgiveness options are generous.

Looking for more resources as we navigate this pandemic? Our coronavirus hub is packed full of useful information for businesses. Have any questions for us? Leave them in the comments, and we’ll help direct you to the right place to find your answer.