A Guide to PPP Loans for the Self-Employed | ABC Biz Loans

PPP Loans for Self Employed

If you’re self-employed in any fashion and you want more information on the Paycheck Protection Program (PPP), you’ve come to the right place. We have created a guide to PPP loans for those who are self-employed. We’ll cover every step, from qualification to application, then follow with a Q&A of commonly asked questions.

Please note that ABC does not offer PPP, but we wanted to extend the courtesy of filling you in on how they operate. If you need a favorable loan of just about any other kind, give us a call and we can get you money fast – as quickly as within a day’s time. Now, let’s get into these PPP loans…

Qualifying for PPP Loans:

Last year, the federal government passed the CARES Act, which is an ongoing $2.2 trillion economic stimulus bill. The PPP, which is part of the act, is a business loan program designed to help payroll workers continue to be paid. Around $953 billion of the CARES Act is dedicated to the PPP. To qualify, applicants be one of the following: a small business, a sole proprietor, an independent contractor, self-employed, a 510(c)(3) nonprofit, a 501(c)(19) veteran organization, or a tribal business. One round of relief has already passed, but as of January 11 of this year, the PPP has reopened.

This time around, there are three types of PPP loan:

  • First Draw loans for businesses that previously qualified but did not get a loan
  • Second Draw loans for businesses that previously received a PPP loan but need additional funding
  • Additional loans for businesses that either paid the previous PPP loan off or didn’t get the full amount qualified for previously

Furthermore, for the self-employed to currently qualify, you must have been in business since 2/15/20, must be an individual with self-employment income, must principally reside in the US, and must file an IRS Form 1040 Schedule C for either 2019 or 2020, commonly known as a 1040C. If you still feel you qualify, then please read on. If at this point you’ve realized you don’t qualify according to these parameters but still wish to apply, we recommend you contact the Small Business Administration.

First Draw PPP Loans without Employees

You should first know how to calculate your personal maximum loan amount. Here is a nice and easy three-step method:

  1. From your 1040C, choose either line 7 (gross income) or line 31 (net profit) to use moving forward. Use exactly $100,000 for anything over $100,000. If both lines 7 and 31 are zero, you are ineligible.
  2. Divide the total from step one by 12 to get your average monthly income/profit.
  3. Multiply the total from step two by 2.5 – this amount can’t exceed $20,833.

First-time PPP loan applicants who are self-employed without employees will generally use the total from step three to qualify. To substantiate income in this scenario, you must provide your Form 1040C as well as IRS Form 1099-MISC. Lastly, you must provide an invoice, bank statement or book of record to establish self-employed operation on or around 2/15/20.

First Draw PPP Loans with Employees

Your first move is to calculate your payroll for the year. Be sure to use the same year for all items, and (obviously) only for the year you’re applying for, whether 2019 or 2020. This is also a three-step method, but perhaps not quite as nice and easy as applying without employees. Fear not, though. We’ve made it as user-friendly as possible!

  1. Calculate the sum of the following:
    • From your 1040C, either line 7 (minus employee payroll costs as reported on lines 14, 19 and 26) or line 31. Use exactly $100,000 for anything over $100,000 as prorated for the period during which payments were made (or obligated to be). Use $0 if each of these amounts are less than zero.
    • From IRS Form 941, line 5c, column 1: the total of gross wages and tips paid to employees whose primary residence is within the US, plus pre-tax health insurance or fringe benefit contributions excluded from Form 941. Use exactly $100,000 for anything over $100,000 as prorated for the period during which payments were made (or obligated to be).
    • Contributions to employee insurances, found by totaling applicable portion of line 14 with line 19 from your 1040C, as well as any state tax imposed on these contributions. Refer to your specific State Unemployment Tax Act (SUTA) for this information.
  1. Divide the total from step one by 12 to get your average monthly payroll amount.
  2. Multiply the total from step two by 2.5.

First-time PPP loan applicants who are self-employed with employees will generally use the total from step three to qualify. To substantiate income in this scenario, you must provide your Form 1040C, your Form 941 (or an equivalent containing same info), SUTA forms, as well as evidence of contributions to insurances if applicable. Lastly, you must provide a payroll statement or similar documentation to establish self-employed operation on or around 2/15/20.

Second Draw PPP Loans:

To qualify for a second round PPP loan, you must have used all the funds from your first PPP loan by the time the second loan is issued. Additionally, you must have no more than 300 employees and show a minimum loss of 25% of gross receipts in comparable quarters from 2019 to 2020.

Maximum loan amounts are calculated the same way as First Draw loans, except for businesses whose NAICS code begins with ‘72’. These are usually food service and/or accommodation businesses. If you’re part of this group, you may qualify for a loan up to 3.5 times the average monthly payroll amount, and the amount cannot exceed $29,167 as opposed to a max of $20,833 for all others.

Applying for PPP Loans

You can apply for any of the above-mentioned loans on the Small Business Administration (SBA) website. A quick online search ought to bring you directly to the application process. Once again, here at ABC we do not offer PPP loans, but we do have plenty of loan options for all types of businesses and individuals. Call us now for more information!


Now that you have a better idea of what PPP loans are, how to qualify and how to apply, let’s get into some of the more frequently asked questions. After all, every situation is different, and while we can’t answer every single question out there, we hope the following questions and answers provide help to you in some way. The SBA website offers detailed information regarding PPP loans, you should also know. Good luck and good business!

What if I haven’t filed my 2020 taxes yet?

You’re still okay. You don’t have to have filed your taxes for last year to qualify. If you’re in this boat, you’ll likely be using line 7 of your 1040C. Below is what it looks like. Note you can also use your 2019 forms to qualify.

Should I use my net profit or my gross income?

Just bear in mind that according to the SBA, to qualify you must prove that current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Also bear in mind that business owners using gross income are more often subject to SBA review than those using net profit. We are of course under the assumption that anyone reading this is a fair and honest business owner and wouldn’t attempt fraud.

Can I get my PPP Loan forgiven?

The general rule of thumb is that if you spend at least 60% of your loan on payroll, you could qualify for loan forgiveness. The remaining 40% may be spent on mortgage/rent, utilities, operations costs, property damage from civil unrest, supplier costs for essential goods, and worker protection equipment, e.g. sneeze-guards or PPE.

What’s everything I’ll need to apply?

In addition to any documentation we mentioned prior, you’ll need a copy of your driver’s license or passport, as well as a voided check for the deposit of the PPP loan. For Second Draw applicants, you’ll need the loan number from your first PPP loan, which will be ten digits long in the format XXXXXXXX-XX.

Does the IRS tax PPP loans?

No. In December of last year, it was made official that expenses paid for with PPP loans do NOT have to be taxed as deductible business expenses.

My business is closed. Do I still pay my employees with PPP loan funds?

Yes. The law was designed to help them just as much as you, if not more, regardless of the tasks they are performing or if they aren’t working at all, as long as they are still on payroll. Ideally, the loans are meant to bring struggling businesses back to normalcy.



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