Can independent contractors and self-employed individuals get PPP loans? (2021 UPDATE)

Important PPP update for 1040 Schedule C applicants for 2021

As of March 3, 2021, applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, 1099 workers, and sole proprietors) will be able to use their GROSS (instead of net) profits to determine their max loan amount. This can make a big impact on the amount you can borrow, depending on how much you make and how you have reported your profits. Read more about the latest 1040 Schedule C/PPP loan rules changes, and see the new rules, and the new PPP application form for Schedule C applicants.

Background for 2021: On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process. Please read the full details here.

In this 2-minute read:

  • Can independent contractors, sole proprietorships, and self-employed people get PPP loans?
  • Can these PPP loans be forgiven?
  • What counts as payroll for independent contractors or self-employed people?
  • What if I don’t have any employees?

Since March of 2020, businesses have been working through eligible lenders to get their PPP loans when the funding has been renewed. However, one of the most often-asked questions we get is “can independent contractors, sole proprietorships, and self-employed individuals get emergency loans through the Paycheck Protection Program?” Absolutely they can! 

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The primary focus of the PPP initially was is to enable employers to keep their staff members paid, so what about those business owners or self-employed individuals that don’t have employees? What about contractors, gig workers, Uber drivers, Doordash delivery people, computer/IT contractors, content creators, Upworkers, sole proprietors, and self-employed people? Well, you definitely are a vital part of America’s small business community, and you absolutely can qualify for forgivable PPP stimulus loans. 

In fact, for 2021 it’s even easier than ever to get approved and have your loan/s forgiven, and you likely qualify for a larger loan amount! See the update at the top of this article.

Can independent contractors and self-employed business owners get PPP loans?

The short answer is yes. Independent contractors, sole proprietorships, and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. The application process has been simplified, and the requirements for forgiveness have also been streamlined, particularly for people without employees.

What if I don’t have any employees? Can I still qualify for a PPP loan?

Yes! For independent contractors, sole proprietors, and self-employed individuals there are still requirements in place that you have to meet in order to apply for a PPP loan. The main one is that you must have been in operation by February 15, 2020. 

Like other businesses, you will also be required to submit paperwork and documentation to verify things like:

  • Payroll process records
  • Payroll tax filings
  • Form 1099 and 1040 Schedule C
  • Income and expenses for your business

If you don’t have that kind of documentation, you may need to supplement your paperwork with bank statements that demonstrate the amount you are paid (or pay yourself).

As an independent contractor, sole proprietor, or self-employed individual, you can qualify for up to $50,000 in forgivable PPP loans in 2021. 

Click to read our full list of required documentation for application for a PPP loan

Can PPP loans for independent contractors be forgiven?

Absolutely. Just like other businesses, if you use your loan for approved, specific purposes, your PPP loan for an independent contractor or self-employed individual can be forgiven. 

In order to have your loan forgiven, the funds must only be used to cover payroll costs, mortgages, rent, and other utilities over the course of the 8-24 week period after receiving the loan (and you must apply with your lender for loan forgiveness—read the link below for more info). 

In fact, since your salary/paycheck counts as eligible payroll expenses, you can use up to 100% your PPP funding to “pay yourself” and still have the loan completely forgiven. The loan can be used for other legitimate business expenses, but you may be required to pay back any portion of the loan not used for the specific items outlined above. 

Click to read our complete article about requirements for PPP loan forgiveness

What counts as payroll costs for an independent contractor?

For independent contractors and self-employed people, payroll costs can include any wages, commissions, income, cash tips (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips), or earnings that they receive. 

This is capped at $100,000 on an annualized basis for each employee. So, since your maximum PPP loan amount is calculated at 2.5X your average monthly payroll (and as of March 3, 2021, this can be based on your GROSS INCOME from line 7 of your Form 1040 Schedule C), if you earned at least $100,000 in 2019 or 2020 you can qualify for up to a total of $41,666 in completely forgivable PPP stimulus loans! And for businesses/contractors/sole proprietors/self-employed in NAICS category 72 (food and accommodations businesses) you can qualify for up to $50,000! (Learn more about the updated 3.5X max loan calculation for second draw loans for NAICS code 72 businesses.)

Can I get a second PPP loan as an independent contractor if I already got a PPP loan in 2020?

Yes, starting in January 2021, some businesses and independent contractors may be eligible to receive a “second draw” PPP loan. The Economic Aid Act generally provides that you are eligible for a “Second Draw” PPP Loan only if:

  • Your business has 300 or fewer employees (as an independent contractor you obviously meet this requirement), and
  • You experienced a 25% revenue reduction for any quarter of 2020 relative to 2019, and
  • Your business has received a “first draw” PPP loan and has used, or will use, the full amount of the initial PPP funding on or before the expected date on which the Second Draw PPP Loan is disbursed to you, and
  • You have spent the full amount of your first PPP Loan on eligible expenses under the PPP rules.

Check out our article on second draw loans for more details of eligibility for second draw PPP loans. For even more detail, you can refer to the SBA’s document regarding second draw PPP loans.)

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