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

    Erica Seppala
  • 18 comments
  • Updated on:
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Erica Seppala

Erica Seppala

Expert Analyst & Reviewer at Merchant Maverick
An expert in accounting, finance, and point of sale, Erica has been researching and writing about all things small-business since 2018. Erica's insights into personal and business finance have been cited in numerous publications, including MSN, Real Simple, and Reader's Digest. She is a graduate of Limestone College.
Erica Seppala
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18 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Jennifer Beard

    I am a member of an LLC who files a 1065 Partnership return. All three LLC members receive a K-1 based on their portion of the LLC. Each member files a Schedule C on their individual tax return for their K-1 ordinary business income. Can we apply as Sole Proprietors using the Schedule C since we report it in our personal tax return? None of us show any income or loss on the K-1s in Box 14 Self Employment Earnings, so I am confused on the calculation or eligibility as a sole proprietor. If I were to walk into a bank and show them my Schedule C without indicating the funds were from a LLC filing as a partnership, they would likely make me the loan based on my tax return. Help is appreciated! Best, Jen

      Jessica Dinsmore

      Hi Jennifer,
      You pose a tricky question. Per the SBA, “LLCs should follow the instructions that apply to their tax filing status in the reference period used to calculate payroll costs (2019 or 2020)—i.e., whether the LLC filed (or will file) as a sole proprietor, a partnership, or a corporation in the reference period.” So if you filed as a partnership, you will have to follow the rules of calculating and applying for the loan as a partnership. The SBA begins its instructions for calculations by stating: “partners’ self-employment income should be included on the partnership’s PPP loan application; individual partners may not apply for separate PPP loans.” So you would not be eligible to apply for loans as sole proprietors. As far as not showing income or loss on the K-1, that’s a pretty complex situation. Our advice would be to contact an SBA regional office or talk to a lender about the situation.

        Bennie

        As a sole proprietor with one employee, what documents do I need to provide other than W-2 for my employee? What about my income which is not W-2 income? What do I submit for myself?

          Jessica Dinsmore

          Hi Bennie,
          You will be required to provide some basic information about your business, including your business’s legal structure, average monthly payroll costs, and owner information. You must also state the loan’s purpose and answer several questions that will determine if your business is eligible for funding.

          In addition to your application, you must also submit payroll documentation. This payroll documentation should back up the numbers from your application to determine if you qualify for a PPP loan and how much you qualify to receive. You should also make sure you have other documentation on hand that may be required by your lender. This includes but is not limited to tax documents, employee W-2s, organizational documents, and government-issued identification.

          As far as what to submit for yourself, this post on Sole Proprietor PPP loans can help you calculate your eligible compensation. I hope that helps!

            Lori Armstrong

            Hi Jessica,

            I left a question yesterday.

            Why has my question (comment) been removed?

            Thank you,

            Lori

              Jessica Dinsmore

              Hi Lori,

              It’s pending approval. We’ll be in touch soon!

                Lori Armstrong

                Hi Jessica,

                Thank you for providing such valid information.

                I am a sole proprietor who write crime stories for my newspaper but due to the pandemic many of the hearing are online. I do not have employees and due to the 2019 gig law, I had to file as a sole proprietor for the newspaper.

                Being an author, offering various services, some of my clients have dropped off and I still have several expenses. I will file a Schedule C for 2020 but I did not in 2019. Can I still apply for a PPP? Where would you suggest I file for PPP?

                Thank you in advance.

                Lori

                  Jessica Dinsmore

                  Hi Lori,

                  Thanks for your patience!

                  The SBA says that if you’re an individual with self-employment income, you can qualify for a PPP Loan as a sole proprietor as long as you filed or will file a Form 1040 Schedule C for 2020, and your principal place of residence is in the United States. So if you meet that criteria you can definitely apply for a PPP loan.

                  In terms of where to apply–If you prefer to work with a local bank or credit union, you can use the SBA’s Lender Match tool to locate an SBA lender near you. Or you can certainly apply with the lenders we recommend in this post we are commenting on. I believe we have a link to each one in there. However, if you submit applications with multiple lenders, just be sure to withdraw any outstanding applications once you are approved. I hope that helps you navigate the journey ahead. Best of luck to you!

                    Karin

                    I am a sole proprietor who does not have a separate business banking account. I noted that the bank I applied to said the banking account must be a business account to deposit funds. Do you know of banks that don’t require this? I have such a small business that I’ve never set up a different account, but I’ve been preparing my business taxes for 20+ years so have some history to show if they need it.

                      Jessica Dinsmore

                      Hi Karin,

                      Unfortunately, we don’t currently have a list of lenders that aren’t requiring a business bank account. While it is not currently a program requirement, it’s a requirement of many lenders. Having a business bank account is generally a good idea to avoid commingling business and personal debits and credits, and it will make tracking your qualifying expenses much easier. Not doing this could present some problems for you now (deposit delays/freezes), and or down the road (when applying for forgiveness). You might just want to open one if you can.

                        Cameron M.

                        HI! I hope you can help me. I would like to apply for a round 1 PPP loan. I have a consulting business that is an S-Corp, there are no employees, no payroll. I file a 1040 Schedule C. My question is when I fill out the PPP application do I complete the application with the business as the applicant (using business EIN#) or as an individual (using my SS#)? Thank you very much-

                          This comment refers to an earlier version of this post and may be outdated.

                          Jessica Dinsmore

                          Hi Cameron,

                          You should use your EIN if you have one.

                            This comment refers to an earlier version of this post and may be outdated.

                            Doreen

                            I have a sole proprietorship but file Schedule E. Why is schedule E excluded from the PPP when I meet all the other criteria and schedule C is accepted. I have definitely incurred loss from the pandemic but profit prior to it. An explanation would be appreciated.

                              This comment refers to an earlier version of this post and may be outdated.

                              Jessica Dinsmore

                              Hi Doreen,
                              We haven’t come across an official explanation from the SBA, but the PPP is a very targeted program. While passive income streams have certainly been affected by the pandemic, they aren’t the focus of the program. My apologies; I know this has to be extremely frustrating.

                                This comment refers to an earlier version of this post and may be outdated.

                                guy leone

                                please respond

                                  This comment refers to an earlier version of this post and may be outdated.

                                  Jessica Dinsmore

                                  Hi Guy,

                                  What can we do for you?

                                    This comment refers to an earlier version of this post and may be outdated.

                                    Jeremy Nguyen

                                    Hello! I would like to ask a question. I own a sole proprietorship business with employees. My salary is the profit of the business ( I’m not on the payroll ). I got approved PPP based on payroll, so how do I pay my self? Or May I use schedule C of 2019 and social security number to apply another loan for my compensation? Your answer is greatly appreciated.

                                      This comment refers to an earlier version of this post and may be outdated.

                                      Jessica Dinsmore

                                      Hi Jeremy,

                                      Owner compensation up to $100k is a legitimate, forgivable expense for sole proprietorship PPP loans and is calculated into the total amount received; you cannot apply for a second/separate PPP loan. I hope that clears things up for you!

                                        This comment refers to an earlier version of this post and may be outdated.

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