Can eCommerce store owners get PPP loans? (plus 2021 rules updates)

In this 7-minute read:

  • A guide to PPP loans for eCommerce store owners
  • PPP loan eligibility requirements for eCommerce store owners: Amazon, Etsy, Shopify, etc.
  • 2021 PPP rules updates that can have big impacts on eCommerce store owners
  • Calculating your maximum PPP loan 
  • What can eCommerce store owners spend their PPP funds on to receive loan forgiveness?
  • Applying for PPP loan forgiveness

A lot of businesses have moved online during the pandemic—it was trending that way before it all started, but physical distancing and statewide shutdowns forced many business owners’ hands to make that push to online sales. 

Maybe your online sales skyrocketed when people were stuck at home looking for means of entertainment and normalcy. Maybe things slowed way down. Either way, the Paycheck Protection Program was created for business owners like you to help keep operations running and your paycheck full. 

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Do eCommerce store owners (Amazon, Etsy, Shopify, etc.) qualify for PPP loans?

If you are the owner of an eCommerce store, you can absolutely apply for the PPP loan, so long as you meet the other eligibility requirements (see below). The first checkbox that any applicant needs to tick is having the right employment status: business owner, sole proprietor, independent contractor, or other self-employed individual.

As long as you have the documentation to verify your employment status—usually your tax filings—then you meet that first requirement. If you’re not sure what your business type is or whether you qualify, if you file your taxes using 1099 forms and/or a Schedule C (form 1040) then you mostly likely qualify for PPP loans. What 2021 PPP rule changes have potentially huge benefit for Schedule C applicants like many E-commerce store owners?

On February 22, 2021, the Biden-Harris administration announced PPP rule changes that now allow PPP borrowers who file using IRS Form 1040 Schedule C to use GROSS profits, rather than NET profits, to calculate their maximum PPP loan amount. This can have a huge impact on many smaller businesses and independent contractors, including ecommerce store owners that file using Schedule C (form 1040)

Previously, using their “net” profit amounts, many potential borrowers were unable to qualify for PPP loans since they didn’t earn enough revenue to meet the $4800 minimum annual income for PPP loans. But with this recent rule change allowing GROSS income to be used as the basis for Schedule C borrowers’ maximum PPP loan calculations, many more people may qualify.

PPP loan eligibility requirements for eCommerce store owners

As we mentioned, there are other eligibility requirements that eCommerce store owners, and any applicant, must meet in order to continue in the application process for a PPP loan. First, you need to know if you are applying for a first or second draw PPP loan. If you are applying for the first time or never received a PPP loan after your first application, you’ll be applying for a first draw loan. If you have already received a PPP loan and are applying for a second one, you’ll apply for a second draw loan. 

Eligibility requirements for first draw loans (this is not a comprehensive list):

  • You must have the right employment status and have been in business since February 15, 2020 or before

Eligibility requirements for second draw loans:

  • You must have already received a PPP loan
  • You must have spent your first PPP loan funds on authorized uses by the time you receive the disbursement for your second draw funds
  • You can show a revenue reduction of at least 25% when comparing any quarter in 2020 to 2019
  • (You must have fewer that 300 employees)

We have additional FAQs that you can review for more details and special circumstances around PPP eligibility:

Calculating your maximum PPP loan 

The PPP loan is limited, meaning you can’t apply for any amount that you want. There’s a specific calculation that you need to follow to determine the maximum loan amount that you can apply for. 

This calculation if for business owners and self-employed individuals without employees:

Step 1: You can choose to use your 2019 or 2020 IRS Form Schedule C. When you have chosen which form to use, you can then choose to pull your gross profit (line 7) or your net profit (line 31)—we recommend choose the number that gets you the biggest loan. Just be sure that number doesn’t exceed $100,000, and if it does, lower it to $100,000. 

Step 2: Take the number you got from Step 1 and divide it by 12 to get your average monthly profit. 

Step 3: Multiply your average monthly profit by 2.5. For most businesses, you’ll have your max PPP loan amount now. 

Step 4: If you had an Economic Injury Disaster Loan in 2020, you can use your PPP loan to help refinance it. Take your final number from Step 3 and add any outstanding amount of your EIDL made between January 31, 2020 and April 3, 2020 (be sure not to include any advance on the loan since that doesn’t have to be repaid). 

If you have employees or another type of business, your calculation might look a little different, so you can follow the steps in this FAQ to calculate your max first draw PPP loan amount.

What can eCommerce store owners spend their PPP funds on to receive loan forgiveness?

It can be really helpful to plan out how to spend your PPP loan funds before, or at least right when, you receive them. What eCommerce store owners use their PPP funds on might look different from other businesses, so we’ve put together a list of SBA-approved expenses for your PPP loans. 

Payroll and income

First, it’s important to know that you must use at least 60% of your PPP loans toward payroll and income costs. If you don’t have any employees, that entire 60% (or even the entire PPP loan funds) can go towards your income. 

If you do have employees, you’ll need to use that 60% toward payroll in order to be eligible for loan forgiveness. 

Outside of payroll, there are several other items that you can use that other 40% towards. 

Rent, mortgage, and utilities

Maybe you’re renting a warehouse or storage space for the inventory for your online store. Or you have an office or physical store that you have a mortgage and utility bill for. Any rent, mortgage, or utility bills related to your business are eligible PPP loan expenses. 

If you operate solely out of your home, you could still use your PPP loan to help cover these costs. Just make sure that you are only putting it towards the portion of these expenses that you would deduct on your business taxes. 

Interest payments on acquired debts

You can use your PPP loan to help make the interest payments on any debts that you have for your business. This could be credit cards, business loans, large equipment financing, etc. 

Certain costs for operations

Certain costs for business operations are also eligible expenses. Any costs for business software or cloud computing services that help in the facilitation of sales and billing functions, product or service delivery, payment processing, invoicing, managing your inventory, and tracking expenses can be covered with your PPP loan. 

With an eCommerce business, a lot of your store is run through online applications—Square or Stripe payment processing, order and shipping fulfillment software, etc.—so use your loans to help with that. 

Costs for suppliers

Do you purchase your inventory or materials for your products from outside suppliers? You may be able to use your PPP loans to help cover those costs. You just need to be able to show that a purchase order or contract was made before your covered loan period begins. 

Worker protection

The coronavirus pandemic has severely disrupted the way that businesses have had to operate, and as of 2021, a new approved cost is expenses related to worker protection for COVID-19. This could be PPE or other significant changes that you’ve had to make to ensure better protections for yourself, customers, and/or employees. 

Property damages

The public disturbances and riots in 2020 caused significant property damages to several businesses across the country. If your business was affected and you have property damages that weren’t covered by insurance, you can use your PPP loan to help with those costs. 

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Applying for PPP loan forgiveness

Following our guide for where to spend your PPP loans will help set you up for receiving full loan forgiveness. In order to receive forgiveness on your PPP loan, you’ll need to apply within 10 months of the last day of your covered period. 

To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

If the above doesn’t apply to you, contact your PPP lender and complete the correct application form:

  • Ask your lender for the forgiveness application (there are multiple, so they’ll be able to make sure you have the right one)
  • Acquire all documentation that you can to verify where your PPP funds went: bank statements, invoices, cancelled checks, purchase orders, etc.
  • Turn your application and documents back into your lender to process with the SBA

All communication for the PPP loan and forgiveness application will be between you and the lender. They will notify you when the SBA has made a decision regarding your forgiveness application. 

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