Q: Can Independent Contractors and Self-Employed People Apply for the Paycheck Protection Program?

Yes. As of April 10, independent contractors who receive 1099-MISC forms, sole proprietors, and self-employed individuals are eligible to apply for the Paycheck Protection Program (PPP), which offers billions in forgivable loans to small businesses.

PPP lenders first began accepting applications from certain small business entities, including S corps and C corps, on April 3, 2020. The application process for self-employed individuals is similar to that of small businesses. These applicants can use their reported income to access PPP funds.

Here’s what you can expect if you’re an individual entrepreneur applying for a PPP loan.

What loan amount am I eligible for?

If you qualify as a borrower, you can get a loan for up to 2.5 times your average monthly wage, commission, 1099-MISC income, net self-employment income, or similar compensation based on your prior year’s expenses. The maximum loan amount is $10 million.

PPP loan forgiveness

If you use funds from your PPP loan for allowable purposes during the first eight weeks after you receive loan funding, the amount you use may be eligible for forgiveness. In other words, you won’t have to repay it. Allowable purposes include:

  • Wages, commissions, income, or net earnings from self-employment (capped annually at $100,000 per individual)
  • State and local taxes that are assessed on compensation
  • Payments of interest (but not principal) on a mortgage
  • Business rent
  • Business utilities

Be aware that if you use more than 25% of the loan amount for interest on mortgages, rent, or utilities, the entire amount may not be eligible for forgiveness. At least 75% of your loan must go towards income for the self-employed person or independent contractor in order for the full loan amount to be forgiven. Be sure to track and document your eligible overhead expenses for the eight-week period; you’ll need those records if you want that portion of the loan to be forgiven.

Who is eligible? 

You are eligible to apply if:

  • You were in operation on or before February 15, 2020
  • You were an individual with self-employment income
  • Your principal place of residence was the United States
  • You filed a 1040 Schedule C for 2019

This includes gig workers, too. 

How do I apply? 

If you want to apply for one of these loans, lenders may request the following or other documents and information:

  • PPP loan application
  • Payroll tax filings that you’ve reported to the IRS (some lenders are requesting state returns, too)
  • Records of your income and expenses
  • A bank statement to show you were operating on February 15, 2020
  • Form 1040 Schedule C for 2019
  • Form 1099 MISC for 2019

In order to determine your maximum loan amount, you will need to provide your Form 1040 Schedule C. If you have not yet filed a 2019 return, you should complete it and calculate the net profit for your business, regardless of whether you have filed your IRS tax return yet. Depending on your circumstances and the requirements of your lender, you may need to provide additional documents.

We encourage you to apply as soon as possible as the loans are first come, first served. So gather your relevant documentation and find an approved PPP lender via the Small Business Administration (SBA)’s lender match tool. You can also check Gusto’s running list of PPP lenders to find out if your bank is accepting PPP applications.

The SBA also published additional guidance for self-employed individuals; we recommend that you review it carefully and discuss with an attorney or your accountant if you have any questions.

Comments

  • ROGER WOLF

    Does the loan processor (financial institution) have to check the applicant’s credit score before processing or approving the PPP loan? If so does the applicant need a credit score minimum level to obtain a PPP loan?

    Reply
    • Gusto Editors

      Hi Roger! The PPP does not require credit score checks for applicants.

      Reply
  • Sandra

    Is it true if i take ppp loan i can NOT get pua. I have been approved for ppp but pua would be better but who knows when pua will actually send me money

    Reply
    • Gusto Editors

      Hi Sandra — if an employer receives a PPP loan, workers must withdraw from unemployment in order for the loan to be forgivable. The PPP is meant to keep you and your workers off unemployment.

      Reply
  • Lynn

    As self employed can you use the funds to pay rent for a home based business. My income is what pays all my business and living expenses so will this qualify for forgiveness? I have finally been able to apply for PUA which will take a while to receive. Thanks

    Reply
  • Marc

    As a single member LLC / sole proprietorship, with about 10 employees, we got approved for a PPP loan, including two months worth of compensation for the owner, capped at $8,333/mo or $100,000/yr). The owner/manager has not been paid through Gusto in the past. Instead, distribution checks were provided at year end. During the 8 week forgiveness period, do payments/draws to the owner have to be paid out in order to count towards the 75%? If so, should they be made through Gusto (if that’s even possible) or it doesn’t matter how and when these payments are made?

    Reply
    • Gusto Editors

      Hi Marc, any eligible self-employment income needs to be paid during the 8 weeks and is capped at $100k annualized (just like any other employee). Self-employment income will need to be declared directly with your lender when you file for forgiveness. It is not included in our forgiveness report.

      Reply
  • Donna Smith

    Silly question here, but I can’t find any forms online to request a ppp loan forgiveness anywhere. Do I wait to be informed by the sba to provide the required documentation?

    Reply
    • Gusto Editors

      Hi Donna — you’ll want to touch base with your lender to find out what they require for forgiveness!

      Reply

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