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

The latest COVID-related stimulus bill was signed into law on December 27, 2020. The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs are expected to return in January 2021.

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 doesn’t 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.

Read on to learn more about PPP sole proprietor funding.

Am I Qualified For A PPP Loan?

If you’re 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 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 each partner’s 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 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:

1. 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.
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 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.

Calculating PPP Loan Amount Using Gross Income

On February 22, 2021, President Joe Biden announced changes to how sole proprietors can calculate their maximum PPP loan amount. The IRS provided further guidance on March 3, 2021, breaking down how sole proprietors can use their gross income to calculate how much money they can receive through the PPP.

In order to calculate your loan amount using gross income, you must be a sole proprietor that has filed a Schedule C. If so, here’s how you calculate your loan:

1. On line 7 of your 2019 or 2020 IRS Form 1040 Schedule C, you’ll find your gross income. If it’s over $100,000, reduce it to $100,000.
2. Divide the number you arrived at from step 1 by 12 to get your average monthly gross income.
3. Multiply your average monthly gross income by 2.5.
4. 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.

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.

How Do I Apply For Forgiveness?

You’ll need to apply for forgiveness through the lender that serviced your PPP loan. The details concerning which form you’ll need to submit are spelled out in our article on PPP forgiveness. Whichever form you use, remember that you need to submit your application to your lender, not the SBA itself.

You’ll also 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:

• Payroll costs
• 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. Lastly, you must maintain your full-time staff and your payroll after receiving your funds.

Again, read our piece on PPP loan forgiveness for further details.

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. The program will open up again imminently, and when the SBA releases the updated application, these lenders will be processing them.

1) Lendio

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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 the previous round of funding. Lendio is ready and waiting to leverage its platform to get cash-starved businesses the help they need once this latest round officially kicks off.

Get Started with Lendio

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2) Fundera

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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.

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3) Credibly

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Credibly isn’t an aggregate platform like the previous two options, but it will be using its online application infrastructure to allow businesses to apply for PPP Loans online. Credibly’s setup was quite user-friendly during the last round, so if you’re having anxiety about crossing all your t’s and dotting your i’s, you’ll appreciate the way Credibly walks you through the process.

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4) BlueVine

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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’ll be able to take advantage of BlueVine’s convenient infrastructure to submit your information to the SBA.

Get Started with BlueVine

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Other Resources For Coronavirus-Affected Small Businesses

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.