Paycheck Protection Program (PPP) Loans For Sole Proprietors: Where & How To Apply
With Round 2 of the Paycheck Protection Program (PPP) in full swing, businesses that missed the first round 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).
Wonder no longer! The SBA has released guidance in the form of an “interim final rule” clarifying who does and doesn’t qualify for the PPP. It specifically addresses the question of sole proprietorships and businesses without employees.
Table of Contents
Am I Qualified For A PPP Loan?
If you’re an individual with self-employment income, you can qualify for a PPP Loan if you meet the following criteria:
- You filed or will file a Form 1040 Schedule C for 2019
- Your principal place of residence is in the United States
- You must have had a net profit for the time in question
Note that if you’re 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, you’ll file a single application for the company with the income of each partner 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.
The SBA plans to release further, specific guidance for self-employed individuals who were not in operation in 2019 but were in operation by February 15, 2020, and will also file a Form 1040 Schedule C for 2020.
Be aware that applying for a PPP to cover self-employment income may complicate your application for state-level unemployment insurance, so make sure you take a look at those guidelines to ensure you’re maximizing your eligibility.
How Much Money Can I Apply For?
Here’s how the interim final rule says to calculate the maximum amount you can apply for:
- On line 31 of your 2019 IRS Form 1040 Schedule C, you’ll find your net profit. If it’s over $100,000, reduce it to $100,000. If the number is zero or less, you’re not eligible.
- Divide the number you arrived at from Step 1 by 12 to get your average monthly net profit.
- Multiply your average monthly net profit by 2.5.
- Add the outstanding amount of Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020, that you’re 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 you’re applying as a partnership, you’ll treat each partner’s income as a payroll cost. The maximum amount is up to $100,000 annualized. Otherwise, consult our guide on applying for a PPP Loan.
What Will I Need To Apply?
The first thing you’ll need is a lender, which I will touch on in the next section. As government programs go, the PPP application is surprisingly short. No, really, it’s only two pages long.
Your specific lender may have particular document requirements, but you should be prepared to provide tax documents, organizational documents, and government-issued identification. Since you don’t have any employees, you won’t have to worry about W-2s and payroll documentation.
Where Can I Apply?
Unlike the Economic Injury Disaster Loan program, PPP Loans aren’t made directly through the SBA. Instead, you’ll have to work with a third-party lender. If you prefer to work with a bank or credit union, once the program restarts, you can use the SBA’s Lender Match tool to locate an SBA lender near you.
If you don’t have an existing relationship with a bank or credit union, you can also apply through online lenders that have partnered with the SBA. Here are a few popular and reliable online lenders that have been approved to process PPP Loans.
Fundera is a popular matchmaking service that pairs applicants and lenders from its pool of partners. If you apply for the PPP through Fundera, the same principle applies: Fundera will shop your application amongst its network of SBA-approved lenders. Considering some of the bottlenecks applicants have run into with traditional lenders, this may not be a bad option for businesses that want to maximize their chances of getting their application through the rush.
Lendio is another business financing platform that matches applicants with one or more of its partnered lenders. Lendio has been very vocal about the PPP, to the degree that it turned into something of an advocate for the program after Round 1 of funding was quickly exhausted. Lendio is ready and waiting to leverage its platform to get cash-starved businesses the help they need once Round 2 is ready to go.
Credibly isn’t an aggregate platform like the previous two options, but it is using its online application infrastructure to allow businesses to apply for PPP Loans online. It’s a pretty user-friendly setup, so if you’re having anxiety about crossing all your t’s and dotting your i’s, you may appreciate the way Credibly walks you through the process.
If you’d like to work with a reliable online lender on your application, BlueVine is one of the best. It usually offers invoice factoring, term loans, and lines of credit, but during the COVID-19 crisis, it’s taking part in the federal PPP. As is the case with the other options above, you can take advantage of BlueVine’s convenient infrastructure to submit your information to the SBA.
To help businesses navigate the unprecedented difficulties of the COVID-19 crisis, we’ve created a centralized hub of guides and resources. We’re updating them frequently, so check it out.