SBA PPP Loans for Independent Contractors and Self-Employed Individuals

The Paycheck Protection Program officially ended on May 31, 2021. Read our PPP page for more information or visit our PPP Loan Forgiveness Guide.

As part of a larger relief package, Congress has approved $284.5 billion in new Paycheck Protection Program funding. The types of businesses and industries that are eligible for PPP loans have been expanded under the new bill. Additionally, businesses that can demonstrate at least 25% reduction in gross receipts year over year and meet other requirements may be eligible for a second PPP loan.

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:

• Step 1: Find your 2019 IRS Form 1040 Schedule C and identify your Line 31 net profit amount. (If you haven’t filed a 2019 return, fill out this form and compute the value for Line 31, or calculate the sum of the 1099-MISC forms you received from employers throughout the year.) If this amount is over $100,000, reduce it to $100,000; if the amount is zero or less, you are not eligible for a PPP loan.
• Step 2: Divide your net profit amount by 12 to calculate your average monthly net profit amount.
• Step 3: Multiply your average monthly net profit by 2.5.
• Step 4: If you took out an Economic Injury Disaster Loan, add the outstanding amount that you want to refinance (minus the amount of any advance given to you through the EIDL application process, since the advance does not have to be repaid).

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:

• 1% interest rate.
• Loan maturity of five years, with payments deferred for 10 months. (Note that loan maturity was originally two years before the passage of the PPP Flexibility Act.)
• Your loan can be forgiven if you use at least 60% of it to replace your 1099-MISC income or net self-employment income, and the other 40% or less on other financial obligations such as rent, mortgage interest, and utilities. (Note that these percentages were 75% and 25%, respectively, before the passage of the PPP Flexibility Act.)
• No collateral or personal guarantee needed.

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.