The Paycheck Protection Program (PPP) is a federal program designed to help small businesses who have been affected by the coronavirus. On April 10th, 2020, the program opened up to independent contractors and self-employed individuals who were in operation on February 15th, 2020. 

This is great news if you’re a freelancer or gig worker who has experienced financial hardship as a result of the pandemic. If you’re self-employed and looking for further information about the PPP and how you may benefit from it, you’ve come to the right place. Keep reading to learn more. 

How Much Can I Borrow

Small businesses with payroll can take out a PPP loan that is 2.5 times their average monthly payroll, up to $10 million. So if you are an independent contractor or self-employed individual, you may be wondering how much you can borrow.  

The PPP can fund your salary (including wages, commissions, and tips) with a loan that is 2.5 times your average monthly net profit, up to $100,000. Follow these steps to calculate your maximum loan amount.

  • After you find your IRS Form 1040 Schedule C, take a look at Line 31 to see your net profit amount. If the amount is over $100,000, reduce it to $100,000. In the event it’s zero or less, you do not qualify for a PPP loan. 
  • To calculate your average monthly net profit, divide your net profit by 12.
  • Multiply your average monthly net profit by 2.5.
  • If you took out an Economic Injury Disaster Loan (EIDL), add the outstanding amount incurred between January 1 through April 3, 2020.

You will need to provide your 2019 Form 1040 Schedule C with your PPP loan application and a 2019 IRS Form 1099-MISC that outlines your non-employee compensation. A bank statement or book of record that shows that you’re self-employed will also be required. 

PPP Terms

The terms of the PPP loan for those who are self-employed are the same as they are for small businesses. If you’d like your loan forgiven to be forgiven, you’ll need to use at least 75% of the funds to replace your 1099-MISC income or net self-employment income and the other 25% on other qualifying expenses like rent, mortgage interest, and utilities. You’ll need to pay back any part of your loan that is not forgiven with a 1% interest rate over a two year period. Fortunately, your loan will not be counted as gross income for tax purposes. 

What to Expect From the Application Process 

The PPP application process for self-employed workers and independent contractors is just like it is for small businesses. To apply, you’ll need to find a bank, credit union, or online lender that offers PPP loans. It’s a good idea to check with the bank or credit union you currently use for business banking. If they do not participate in the program, you can plug your zip code into the SBA lookup tool to find a lender near you. 

If you’re an independent contractor or self-employed individual with questions about the PPP, don’t hesitate to contact Jerad Daley today.