Applications are currently open for first and second draw PPP loans. The deadline to apply for the PPP is March 31, 2021.
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 has just announced that certain lenders began accepting new PPP loan applications on January 11, 2021.
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 the 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 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.
Loans open soon, so your best use of time is making sure you have verified income and updated bookkeeping. Those should include:
- 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.
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
- 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 its payroll does not apply to the self-employed.
Where To Apply For A PPP Loan
At the moment, 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. 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.
Congressmember Espaillat hosted #RepresentNYC with special guests Assemblymember Carmen De La Rosa, and Beth Goldberg and John Mallano from The Small Business Administration New York District Office to discuss the #PaycheckProtectionProgram. Watch RepresentNYC Sundays at 7pm and Wednesdays at 9pm on MNN1 (Spectrum 34 & 1995, RCN 82, FiOS 33) or MNNHD (Spectrum 1993).
The full "Represent NYC" episode covering PPP loans will air on 2/21 and 2/24.