Can I get a PPP loan if I am on unemployment? (FAQs for 2021)

In this 2-minute read:

  • Can I still get a PPP first or second draw loan if I’m currently taking unemployment benefits?
  • What if my employees are on unemployment? Can I get PPP loan forgiveness?
  • If I get a PPP loan, will I lose my unemployment benefits?

The intent of the Paycheck Protection Program is to help save American small businesses and jobs and alleviate some of the financial hardships caused by the COVID-19 pandemic. For 2021, the PPP has been renewed and even if you are currently out of work and taking unemployment benefits, we encourage you to start your free PPP loan application. (The deadline for PPP applications is May 31, 2021). You can still meet the PPP eligibility requirements for a first or second-draw PPP loan, even if you’re currently unemployed.

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Can I get a PPP loan if I am on unemployment?

Being on unemployment does not disqualify you from applying for a PPP loan. Receiving a PPP loan by itself does not disqualify you for unemployment. If you meet the eligibility requirements for a PPP loan, you should apply for PPP funds since the amount of money you receive on PPP can be significant (up to $20,833 per loan for a self-employed person), far in excess of most unemployment programs.

However, you should be careful navigating both unemployment and PPP at the same time. If you are self-employed or a 1099 then you likely cannot use your PPP funds to pay yourself and continue to collect unemployment—because the payment you make to yourself counts as income, which in most cases will disqualify you from continuing to receive unemployment. But keep in mind you can spend your PPP loan on other expenses including other employees’ compensation, mortgage interest, rent, operating costs, and more. 

You may be able to get back on unemployment benefits after receiving your PPP loan, and we would recommend that you work with your local unemployment office.

If I get a PPP loan, will I lose my unemployment benefits?

It is a possibility, depending on your state. If you receive a PPP loan, that could disqualify you from continuing to receive unemployment. However, you may be able to get back on unemployment benefits after receiving your PPP loan, and this approach may extend the length of time you can receive government assistance. We recommend that you work with your local unemployment office.

Go deeper: Should I get a PPP loan or claim unemployment benefits?

Does unemployment count as income when determining my maximum loan amount for a PPP first or second draw loan?

No. Your maximum loan amount is determined by average monthly payroll from 2019 or 2020. This would not include unemployment payments.

If you are an independent contractor/self-employed individual with no employees: You will use any 1099 (or similar) payments to determine this figure. Unemployment benefits would not be included. Read how to determine maximum PPP loan amount as an independent contractor.

If you are a business with employees: You will use average monthly payroll for your business from 2019 or 2020. Learn how to determine maximum PPP loan amount as a business with employees.

 

I got paid from both W-2 and 1099 before the pandemic. I’m on unemployment from my W-2. Can I keep my unemployment there and still file for a PPP loan for my 1099?

Whether or not you are on unemployment doesn’t disqualify you from applying for a PPP loan. It’s possible that receiving a PPP loan for your 1099 may disqualify you from receiving unemployment benefits for your W-2, so you should check with your local unemployment office to confirm.

What if my former employees file for unemployment and won’t come back after I get a PPP loan?

In order to receive full forgiveness for your PPP loan, you are only required to spend at least 60% of your funds on payroll and ensure that you don’t make any reductions in staff after receiving your funds.

Due to some states’ extensions of unemployment benefits, some employees may elect to remain on unemployment rather than accept their former positions. The legal, moral, and ethical implications of this decision are another matter, but you won’t be held responsible for their decision as long as you use your PPP funds for approved expenses and spend at least 60% of it on payroll costs.

You are not required to bring back employees who are on unemployment. You can use your PPP funds to either hire back previous employees, hire new employees, or maintain existing staffing levels.

Can I use my PPP loan to pay new employees if my previous employees choose to stay on unemployment?

Yes. To receive full forgiveness for your PPP loan, you must spend at least 60% of your loan funding on payroll costs. This can include hiring new employees, hiring back old/previous employees, or simply maintaining your current staffing levels.

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