If you are self-employed and seeking financial assistance through the Paycheck Protection Program (PPP), this guide provides essential information on eligibility, application steps, and commonly asked questions. The PPP is designed to support individuals like you, helping to sustain your business while navigating financial challenges.
Note: ABC Biz Loans does not offer PPP loans, but we aim to provide valuable insights into how they function. If you require other types of funding, reach out to us for fast loan solutions that can be processed within 24 hours.
Eligibility for PPP Loans
The PPP is part of the $2.2 trillion economic stimulus package known as the CARES Act, which allocates approximately $953 billion specifically for the PPP. To qualify, you must be one of the following:
- A small business
- A sole proprietor
- An independent contractor
- Self-employed
- A 501(c)(3) nonprofit
- A 501(c)(19) veteran organization
- A tribal business
As of January 11, the PPP has reopened, offering three types of loans:
- First Draw loans for eligible businesses that did not receive a PPP loan previously
- Second Draw loans for those that already received a PPP loan and require additional funding
- Additional loans for businesses that either repaid their first PPP loan or did not receive the full eligible amount initially
To qualify as a self-employed individual, you must have been in business since February 15, 2020, have self-employment income, reside primarily in the United States, and file an IRS Form 1040 Schedule C (Form 1040C) for 2019 or 2020. If you think you qualify, continue reading.
Calculating Your First Draw PPP Loan Amount Without Employees
To determine your maximum loan amount, follow these three steps:
- Select either line 7 (gross income) or line 31 (net profit) from your Form 1040C. Use $100,000 for any amount exceeding $100,000. If both lines show zero, you are ineligible.
- Divide the amount from step one by 12 to find your average monthly income.
- Multiply the result from step two by 2.5, with a maximum cap of $20,833.
First-time applicants without employees will generally use the final amount to qualify. You will need to provide your Form 1040C and IRS Form 1099-MISC, along with an invoice, bank statement, or business record to confirm your self-employment status as of February 15, 2020.
Calculating Your First Draw PPP Loan Amount With Employees
For self-employed individuals with employees, the calculation involves these steps:
- Calculate your total payroll using the following components:
- From your Form 1040C, use either line 7 (minus employee payroll costs from lines 14, 19, and 26) or line 31. Apply the $100,000 cap as needed.
- From IRS Form 941, line 5c, column 1, add the total gross wages and tips paid to employees residing in the U.S., along with pre-tax health insurance or fringe benefits.
- Total contributions to employee insurance, including applicable portions of lines 14 and 19 from your Form 1040C, and any state taxes related to these contributions.
- Divide the total from step one by 12 to calculate your average monthly payroll.
- Multiply the average payroll by 2.5.
First-time applicants with employees will generally use the final amount to qualify. Required documentation includes your Form 1040C, Form 941 or an equivalent, SUTA forms, and payroll statements to confirm your business operation status as of February 15, 2020.
Second Draw PPP Loans
If you are applying for a second-round PPP loan, you must have fully utilized the funds from your first loan. Additionally, your business should have no more than 300 employees and demonstrate a minimum 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
The maximum loan amounts are calculated similarly to First Draw loans, except businesses classified under NAICS code ’72’ (primarily food service and accommodation) may qualify for loans up to 3.5 times their average monthly payroll, with the maximum cap set at $29,167.
How to Apply for PPP Loans
Applications for PPP loans can be submitted via the Small Business Administration (SBA) website. A simple online search will direct you to the application portal. While ABC Biz Loans does not provide PPP loans, we offer numerous financing options for various business needs. Contact us today for assistance!
Frequently Asked Questions
Below are answers to some common questions about PPP loans. For more detailed information, consult the SBA website.
What if I haven’t filed my 2020 taxes yet?
You can still apply. You do not need to have filed your 2020 taxes to qualify. You can also use your 2019 forms for eligibility.
Should I use my net profit or gross income?
Using net profit may reduce the likelihood of additional SBA review. Ensure your loan request is justified by current economic uncertainty, as required by the SBA.
Can I get my PPP Loan forgiven?
Typically, if at least 60% of your loan is used for payroll, you may qualify for forgiveness. The remaining amount can be allocated to other business expenses such as rent, utilities, and essential operational costs.
What’s everything I’ll need to apply?
You’ll need a copy of your driver’s license or passport, a voided check for loan deposit, and for Second Draw applicants, the loan number from your initial PPP loan.
Does the IRS tax PPP loans?
No, it has been established that expenses covered by PPP funds do not need to be taxed as deductible business expenses.
My business is closed. Do I still pay my employees with PPP loan funds?
Yes, PPP funds are intended to support your employees, regardless of whether they are actively working. The objective is to help businesses maintain their workforce during challenging times.
