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  • Writer's pictureJeran Van Alfen, CFP®

Self-Employed? How to Get Paycheck Protection Program Money

The Paycheck Protection Program will resume today with an added $320 billion to assist in rescuing small businesses from the effects of the Covid-19 pandemic. If you are self-employed and don’t have payroll, you can still qualify for funds to support your business. Here are some important items to know:

The first round of this program included $350 billion and ran out of funds on April 16th as lenders were inundated with applications. Most lenders continue to have a pipeline of applications waiting on the new funds so it is important to act quickly if you are considering an application.

As the name implies, the PPP was introduced to support jobs by providing loans for businesses to maintain their payroll and other business expenses. In fact, the program allows for loans to be forgiven if certain qualifications are met. However, many businesses that qualify for the program, like sole-proprietors, self-employed and 1099 contractors, do not have payroll to maintain. The SBA has issued new guidance on what these businesses need to do to qualify for a loan.

PPP Summary

The PPP is a loan program provided by the SBA through certain qualified lenders. Collateral and personal guarantees are not required to qualify for a loan and the lenders will not charge any fees. The loan has a two-year term and 1% annual interest. While interest accrues immediately, payments are deferred for six months.

The loan will be fully forgiven if the proceeds are used to pay for payroll, rent, interest on mortgages or utilities. The rules also stipulate that in order for proceeds to be forgiven, at least 75% of the forgiven amount must be used for payroll. The rules also require businesses to maintain full-time headcount and salary levels. With these requirements, how do self-employed individuals qualify for the program and loan forgiveness?


Schedule C tax filers are eligible for the program if the meet the following requirements:

  • Were in operation on February 15, 2020

  • Are an individual with self-employment income

  • Have a principal place of business in the U.S.

  • Have filed or will file a Form 1040 Schedule C for 2019

Qualifying with No Employees

Check your net profit on your Schedule C. If your net profit was $0 or negative, you do not qualify for the PPP.

Positive profits will be capped at $100,000. Divide your net profit by 12 to determine the average monthly net profit. This amount is multiplied by 2.5 to determine the total loan that can be applied for.

A Schedule C for 2019 will have to be attached to the application along with a Form 1099-MISC or a bank statement, invoice or other proof of self-employment income.

If you have also applied for an EIDL (Economic Injury Disaster Loan) that will be refinanced into the PPP, you need to include this amount by adding it to your total and subtracting any advance that will be forgiven.

How Forgiveness is Determined Without Payroll

A unique advantage of using PPP funds is that the full principal amount of the loan plus accrued interest can be forgiven if certain qualifications are met. The actual amount forgiven will be based on the amount of money spent over an eight-week period following receipt of funds. The expenses in this eight-week period that will qualify the proceeds to be forgiven include payroll costs (this includes healthcare, retirement contributions, and state taxes), payments on deductible interest on mortgages, rent, and utilities. Keep in mind that expenses have to be attributable to agreements that were established before February 15th, 2020.

The last major expense that is included for qualifying for loan forgiveness is owner compensation replacement. This is the key item that allows sole-proprietors or independent contractors to benefit from this program. While the rules stipulate that 75% of the forgiven amount must be used for payroll, it is still unclear whether owner compensation replacement is included as a payroll cost. Originally, payroll costs included net-earnings from self-employment however the SBA released updated guidance that seems to separate owner compensation from payroll.

Proceeding with a Plan

There is debate on whether owner compensation is included as a payroll expense and will qualify for the rule that 75% of the forgiven amount must be used for payroll. However, the PPP still provides inexpensive capital for a sole-proprietor to keep functioning during uncertain times. Major expenses like rent and utilities can be covered for a few months. Even if proceeds do not qualify for forgiveness they are loaned at 1% without collateral. This is a great option to consider if your production has suffered at all this year.


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