Self-employed? Here’s how to determine if you qualify for PPP

Since the Paycheck Protection Program (PPP) deadline has been extended to May 31, there is still an abundance of funds available for small businesses. Many gig workers and self-employed individuals are not aware of the big changes that the U.S. Small Business Administration (SBA) released making funding more accessible to this group. Now, sole proprietors, independent contractors, and self-employed individuals qualify for more financial support through the PPP.

The SBA’s recent interim final rule (IFR) allows sole proprietors, independent contractors, and self-employed individuals to use gross income to calculate their PPP loan amount. Previously, this group was required to substantiate loan requests using payroll costs plus net profits. This excluded many borrowers as a result of limited or negative net profit, or the loan amount calculated after expenses was so small that it wasn’t worth the hassle of applying.

The SBA realized this cohort was being penalized based on profitability, which wasn’t a factor for larger businesses. The new calculation method levels the playing field and ensures that you can get the funds you need.

How do I know I’m eligible?

• You reported annual gross income (Schedule C, Line 7) of $24,000 or more on your 2019 or 2020 Schedule C.
  • Calculating your maximum loan amount will depend on whether your business has employees. Refer to the SBA IFR document for step-by-step calculation instructions for each scenario.
  • As a reminder, you can request a maximum loan amount of 2.5 times your average monthly payroll costs.
• You have access to the following documents for substantiation:
  • 2019 or 2020 IRS Form 1040 Schedule C
  • 1099s, if received, to support annual gross income on submitted Schedule C
  • For first draw loans: Proof that your business was operational on Feb. 15, 2020, such as a utility bill or bank statement
  • For sole proprietors with an EIN and employees: payroll reports that substantiate Lines 14, 19, and 26 on submitted Schedule C

How do I calculate my maximum loan request?

If you do not have employees:

*Important note: If your gross income is more than $100,000, round down to $100,000 before you start the calculation. This is the maximum amount you can use for your own payroll.

1. Find your 2019 or 2020 Schedule C.
2. Locate the amount listed on Line 7. If it’s over $100,000, round down to $100,000 (see note above).
3. Divide your Line 7 number by 12 (to calculate your average monthly income) and multiply by 2.5. That’s your loan request!

If you have employees:

*Important note: This is a two-step calculation that directs you to subtract your employee costs before adding them back in later. While this may seem unnecessary, it’s a fail-safe to ensure you don’t request the wrong amount based on your payroll as an individual. If your ownership payroll is more than $100,000, round down to $100,000 before moving on to the next step; $100,000 is the maximum allowable payroll for individuals.

1. Find your 2019 or 2020 Schedule C.
2. Locate the amount listed on Line 7
3. Subtract your employee costs (Lines 14, 19, and 26).

*This results in your individual payroll as the company owner. If it’s over $100,000, round down to $100,000 (see note above).

1. Add up your employee costs (amounts shown on Lines 14, 19 and 26).
2. Add your individual payroll (step 3) plus your employee payroll (step 4).
3. Divide by 12 (to get your average monthly payroll) and multiply by 2.5. That’s your loan request!

During COVID-19, the SBA has been offering a variety of financial assistance for businesses of all sizes. If you have an established relationship with a bank, it’s best to consult with them to ensure you are participating in the best loan program for you. If you do not have a strong relationship with your current lender, consulting with a non-bank lender (such as my organization, Liberty SBF) may be the best option.