How should consultants spend PPP funds to get forgiveness? (2021 rules)

In this 5-minute read:

  • PPP max loan calculation for independent consultants
  • How should consultants spend their PPP loans to maintain loan forgiveness?
  • How can consultants apply for loan forgiveness?

The Paycheck Protection Program was renewed in early 2021 to help businesses that are still dealing with the financial challenges of COVID-19. The application deadline is May 31, 2021, so apply now while you can. 

Consultants are among those who can receive the PPP loan. Whether you own your own consulting firm or work as an independent contractor, this program was designed to help your small business. Financial, health, beauty, business, and other types of consultants should take advantage of this program, especially if you’ve been impacted financially. 

But consultants tend to fit under that “self-employed” umbrella, and this program has been more than a little confusing for individuals that apply for the PPP loan that don’t have employees. We’re here to clear the air a little and help you know what you can spend your PPP loans on in order to receive full loan forgiveness. 

Gig workers, freelancers, sole proprietors, independent contractors, self-employed individuals and more are eligible for PPP loans. Check your eligibility with Womply in as little as 5 minutes, and you could receive up to $50,000 in forgivable PPP loans!

PPP max loan calculation for independent consultants

First, it helps to understand how your maximum loan amount is calculated. During the application process, this is something that you’ll need to determine. And if you are self-employed with no employees, the calculation is going to look a little different than if you were a “traditional” brick-and-mortar business. 

For sole proprietors, independent contractors, and self-employed individuals, you’ll calculate your PPP loan with the following steps:

  1. First, you will need to acquire your 2019 or 2020 IRS Form 1040 Schedule C. On that form, you can (as of March 2021) select either line 31 to use your net profit or line 7 to use your gross profit. If your 2020 taxes are not filed and that’s the year you chose to calculate your loan, then you’ll just fill out your 2020 forms to calculate the number you need. If your total income number is more than $100,000, you’ll need to lower that to $100,000
  2. Take the number from Step 1 and divide it by 12 to get your average monthly profit
  3. Multiply your average monthly profit by 2.5 (not to exceed $20,833)
  4. You may also add any outstanding amount of your Economic Injury Disaster Loan (if you have one) that was made between January 31, 2020 and April 3, 2020 that you want to refinance. (Just be sure not to add any advance of your EIDL you may have received,  since that doesn’t have to be repaid)

That will give you the maximum loan amount that you are eligible to apply for. Knowing this number in advance can help you plan how to spend your funds when you receive them. 

If you’re unsure whether to choose net or gross profit for your loan calculation, run the calculation with each number and choose the one that gets you the biggest loan. Learn more about gross vs. net income for Schedule C PPP applicants.

How should consultants spend their PPP loans funds in order to to receive loan forgiveness?

The SBA has put together an expansive list of approved expenses, not all of which will apply to a typical self-employed consultant. We’ve gone through the SBA’s list and pulled the items that may apply directly to independent consultants. 


One of the big rules of the PPP loan is that at least 60% of it has to be used on payroll costs if you wish to receive full loan forgiveness. For self-employed persons, that is basically just your income, including any additional wages, commissions, or tips you might receive. 

You have the option to put 100% of your loan towards your income, and that’s a perfectly legal option for self-employed individuals without employees. But you also have the option of putting up to 40% of your funds toward other business expenses if you need to.

Mortgage, rent, utilities

If you are currently renting, leasing, or paying a mortgage on an office space, you can use your PPP loan to help pay this expense, plus utilities. Do you work out of your home? That’s fine too—you’ll just want to only apply the PPP loan toward the portion of your rent, mortgage, or utilities that you would deduct from your business taxes. 

Interest on debt payments

Interest payments on any debts that you incurred before February 15, 2020 are eligible expenses for the PPP loan. Maybe you have a business loan from starting a new business in 2019. Any interest payments related to debts for your business can be paid with your PPP loan. 

Covered operational costs

Beyond ensuring that America’s workers get paid, the SBA wants to help keep small business operations moving forward. So you can use your PPP loan to help pay for business software or cloud computing services that help facilitate your consulting operations. This could be software for processing client invoices or a project management system that you subscribe to. Any payments for software that helps with product or service delivery, processing payments, accounts or tracking expenses, or that helps with sales and billing functions counts a covered operational expenditure. 

Costs for suppliers

If you have an inventory that you have to keep stocked for services or products that you provide to your client, your supplier costs may be eligible expenses for the PPP loan. These costs must be part of a contract or purchase order that was made before your covered loan period begins. 

COVID-19 protection

Because COVID-19 is still widely prevalent, specific expenses that go towards helping maintain health and safety guidelines are eligible uses for the PPP loan. This includes PPE and other costs that help with social distancing guidelines (physical barriers like a sneeze guard, business space expansions, air pressure ventilation system, and others). 

Property damages

In 2020, several business properties across the U.S. were damaged due to the public disturbances and riots that took place. If your office was damaged and you were not able to get coverage from your insurance to help with the costs, then your can use your PPP loan to help pay for those damages. 

Be diligent in planning and recording where you spend your PPP funds, because if you wish to receive full loan forgiveness, you’ll want good documentation verifying where those proceeds went. 

You might also like: 

How can independent consultants apply for loan forgiveness?

To receive forgiveness on your PPP loans, you’ll need to submit a PPP loan forgiveness application with your lender. They’ll help make sure that you get the right form. You’ll also just want to make sure that you apply for forgiveness within 10 months of the last day of your covered period. 

As you fill out your application, be sure to acquire all of the necessary documentation to help show where your funds went. This may be invoices, bank statements, cancelled checks—anything that helps show that you spent your funds appropriately. This process is pretty simple for self-employed individuals that choose to use all their PPP funds to “pay themselves.”

Turn everything into your lender and stay in communication with them about your forgiveness status. All communication about your loan forgiveness will go through your lender. And they will notify you when a decision has been made. 

You may also like: How do I check the status of my PPP loan?

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