A Comprehensive Guide to the Paycheck Protection Program (PPP) Application Process for First-Draw Borrowers

On March 3, 2021, the SBA released new PPP loan applications. Here, we’ll discuss the first-draw PPP loan application—this is for first-time borrowers of the PPP—if you’ve already received a PPP loan, see the post on second-draw PPP applications. 

Which PPP application should I use?

There are multiple versions of the application so this may be confusing. Here’s what you need to know. 

• First-draw PPP borrowers who do not file Form 1040 Schedule C should use this form. 

• First-draw PPP borrowers who file Form 1040 Schedule C and have elected to make the PPP calculation based on gross income should use this form. 

Are you a second-draw borrower? See the post.  

Ready to start making the calculation so you know the maximum amount you can borrow from PPP? See the PPP loan calculator post. 

What if I use the wrong PPP application? 

Your lender will likely point you to the correct one and you will have to fill that one out. Most lenders have the application online so you can fill it out digitally. 

Am I eligible to apply for a first-draw PPP loan?

Good thing you asked! PPP eligibility has been expanded recently. 

First-draw PPP loan eligibility requirements:

• Your business has less than 500 full-time, part-time, or seasonal employees.
• Your business was operational before February 15, 2020 and remains operational.

Businesses eligible for PPP include: 

• Sole proprietors
• Independent contractors
• Self-employed individuals
• Certain non-profits including certain 501(c)(6) non-profit organizations
• Seasonal employers; the new bill has clarified the definition of a seasonal business to be one that operates for at least a 12-week period, but no more than seven months within a year or earns no more than a third of gross receipts within a six-month period
• Faith-based organizations that have less than 150 employees
• Housing cooperatives that employ less than 300 people 

The recent expansion in eligibility includes:

• Businesses owned by non-citizens who are lawful U.S. residents (use your ITIN to apply) 
• Businesses owned by those who have been convicted of non-fraud felony crimes
• Businesses owned by those who are delinquent on student loan payments 

To get eligibility details for second-draw PPP borrowers and to understand more about who is ineligible for a loan, get the complete picture of PPP eligibility requirements here. 

What you’ll need to fill out the PPP application 

The required documents will change from lender to lender, but generally, here is what you should gather:

1. Copies of all business owner photo IDs: Get this for anyone who owns at least 20 percent of the business 
2. Payroll reports
3. Accounting information: Don’t have access to your payroll reports? The next best option is to use your accounting software to compile the payroll cost information. 
4. Tax forms: While each bank or lender will have its own process, tax documents likely to be requested are:
   • IRS Form 940
   • IRS Form 941
   • IRS Form 944
   • IRS Form W-3
   • IRS Form 1099 (if relevant) 
   • IRS Form 1040, Schedule C (if relevant) 

Note:  If you’re a Gusto customer, sign into your account to download your Payroll Protection Program report. You’ll find these in your Documents tab.

How to fill out the first-draw PPP application 

If you are not a Form 1040, Schedule C filer, here are step-by-step instructions on how to fill out the PPP application. (If you do file Form 1040, Schedule C—and have elected to use gross income to make your calculation—see the section below on how to fill out the right PPP application form.)

Your business information

Fortunately, most parts of the application are short and relatively simple. Let’s start with the basics.

The first section requests basic business information, including:

• Business type: Is your business a sole proprietorship, partnership, C corporation, S corporation, LLC, or another type of entity?
• Business legal name: This is the business name you put on the application with the secretary of state.
• Business address: Whether you have a physical location outside your home, or not, this is where the mail will go. 
• DBA, or “Doing Business As,” if applicable: That’s when you give your business a name that’s different from your entity’s.
• NAICS code: This is how the government defines your industry. Find your NAICS code here. 
• Business TIN, EIN, SSN, or ITIN: Here you’ll provide the ID that was assigned to you when you created the business. If you’re a sole proprietor or independent contractor, this may be your Social Security number. If you are a non-citizen legal U.S. resident, use your ITIN.
• Primary contact: Is this you? Someone else? 
• Year of establishment: The year your business started
• Business size: This refers to the number of employees; if you’re unsure how to size your business, see the SBA size standards tool.
• Business phone number
• Email address: The application does not specify, but let’s presume a business email.

Calculating payroll costs and your loan amount

Now, it’s time to calculate your payroll costs. The maximum amount you can borrow from PPP is based on your average monthly payroll costs for 2019 or 2020 (you get to choose which). If your business is newer and you don’t have 12 months’ worth of payroll costs, you can calculate your payroll costs up to February 15, 2020. 

Payroll costs include:

• Employee wages, salaries, commissions, or tips
• Payment for vacation, parental, family, medical or sick leave
• Group health care benefits, which include group health, dental and vision premiums, and disability and life insurance premiums
• Retirement benefits, like employer contributions 
• State and local taxes assessed on employee compensation 

Calculating payroll costs and your PPP loan maximum can get hairy, so we put together this post that will walk you through how to calculate your PPP loan max and this handy PPP loan calculator. 

(Gusto customers should log into their Gusto account to download their payroll report.)

Once you know your payroll costs, multiple that number by 2.5 (or 3.5 if your NAICS code allows for it) and add any amount you have received in EIDL funds (excluding the advance grant). 

Enter your employee number.

Select all the ways in which you plan to use the loan proceeds. 

Applicant ownership

Next in the application is a table to include ownership information. Each owner (either an individual or parent company) that holds 20% or more equity in the business applying will be listed here.

If you are a nonprofit and don’t have an owner with percentages of ownership, you’ll likely be asked to provide information on your authorized signatories. This can be a single control person such as the president, CEO, or director—whomever has signatory authority.

Simple enough. Moving on.

And just a few questions

A brief questionnaire follows that, depending on your answers, may result in your loan not being approved or require you to provide more information. Here’s the first half of the questions:

• Questions 1 and 2 ask if either the business or owners have been forbidden from participating in the program via another government agency, involved in bankruptcy, or have been delinquent or defaulted on other government loans.
• Question 3 requests information about other businesses that have the same owners  or management as the business applying for a PPP loan. Note that affiliated companies may not be able to submit more than one PPP loan application. See the SBA’s Interim Final Rules on Affiliation for more details.
• Question 4 requests information from applicants who have obtained an EIDL between January 31, 2020 and April 3, 2020.

As you can see, if an applicant answers “Yes” to either Question 1 or 2, the loan will not be approved.

Here’s the second half of the questionnaire:

The two key questions are 5 and 6. They ask about owners who are currently being charged with, or have been convicted of, crimes in the past five years. Eligibility for PPP has recently been expanded to include non-citizen, legal U.S. residents,  those who have been convicted of non-fraud felonies, and those who are delinquent on student loan payments. 

Question 7 asks about the applicant’s employees’ principal place of residence. Question 8 inquires whether the applicant is a franchise listed in the Small Business Administration (SBA)’s Franchise Directory.

Demographic information

This section is totally optional and does not need to be filled out. It will have no bearing on your application; the government collects data and reports on who is applying for PPP and who is receiving the funds.

Certifications and authorizations 

Page 3 of the application is a list of certifications and authorizations that the applicant makes. Essentially it says that you’ll follow all the rules and regulations.

One of the key certifications relates to the forgiveness feature of the PPP. It allows borrowers who comply with the rules for documenting and spending the proceeds to have their loans forgiven (i.e., they won’t have to pay the loan back).

Here’s the condition from the application:

I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 40% of the forgiven amount may be for non-payroll costs.

In other words, 60 percent of the loan proceeds must be spent on eligible payroll costs in order for 100 percent of the loan to be eligible for forgiveness. The signature of the business’s authorized representative goes at the bottom of page 3.

How to fill out the first-draw PPP application if you are a Form 1040, filer Schedule C 

An interim final rule (published on March 3, 2021) enables those who fill out Form 1040, Schedule C, to elect to make the loan calculation using gross income rather than net profit. Gross income will be found line 7 of the 1040, Schedule C form, while net profit is found on line 31. Using gross income will make your loan maximum amount larger. 

If you choose to use gross income to calculate your loan amount you will need to use this PPP application form. If you choose to make your calculation using net profit, use the instructions above to fill out your application form. However, if you want to make your loan calculation using gross income, keep reading.

First, use this version of the PPP first-draw application. 

Your business information

• Business type: Is your business a sole proprietorship, partnership, C corporation, S corporation, LLC, or another type of entity?
• Business legal name: This is the business name you put on the application with the secretary of state.
• Business address: Whether you have a physical location outside your home, or not, this is where the mail will go. 
• Total gross income: You can choose to use your 2019 Form 1040, Schedule C or the 2020 version. (Hint: the version that has a larger gross income will enable you to make a larger loan maximum calculation.) You’ll find the gross income on line 7 of the form. 
• DBA, or “Doing Business As,” if applicable: That’s when you give your business a name that’s different from your entity’s.
• NAICS code: This is how the government defines your industry. Find your NAICS code here. 
• Business TIN, EIN, SSN, or ITIN: Here you’ll provide the ID that was assigned to you when you created the business. If you’re a sole proprietor or independent contractor, this may be your Social Security number. If you are a non-citizen legal U.S. resident, use your ITIN.
• Primary contact: Is this you? Someone else? 
• Tax year for gross income: Remember when you chose between the 2019 version or the 2020 version for Form 1040, Schedule C? Check the box that correlates with the year on the form you chose. 
• Year of establishment: The year your business started
• Business size: This refers to the number of employees; if you’re unsure how to size your business, see the SBA size standards tool.
• Business phone number
• Email address: The application does not specify, but let’s presume a business email.
• Number of employees, including owners: This is pretty straightforward. 

If you don’t have employees

If your business only employs owners, fill out this section of the application to make your loan calculation. 

If you do have employees

If you employ workers, fill out this section of the application to make your loan calculation. r business only employs owners, fill out this section of the application to make your loan calculation.

Wrapping up

The remaining part of this application is exactly the same as it for those who do not file Form 1040, Schedule C so see above for details on how to work through those sections. 

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That’s it! You’ve made it through the PPP application. If you’d like to learn more, check out our handy guide to the PPP for small business owners.

This post was originally published on April 21, 2020.