PPP forgiveness for independent contractors, gig workers, and self-employed (2021 rules)

In this 5-minute read:

  • What are the PPP loan forgiveness terms for sole proprietors, contractors, gig workers, etc.?
  • How can self-employed individuals spend their PPP loan funds?
  • How can independent contractors, gig workers, and self-employed individuals get PPP loan forgiveness?

The rules of the Paycheck Protection Program are a little different for self-employed individuals, and some recent updates make the loans from this program all the more appealing for these borrowers and potential borrowers. Independent contractors, gig workers, and other self-employed individuals have the opportunity to get even more PPP funding in spring 2021 than ever before, thanks to some recent PPP rules changes for schedule C borrowers, and they can have their loan completely forgiven, so long as they follow a few important steps along the way. 

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!

What are the PPP loan forgiveness terms (are they different for independent contractors, sole props, etc.)?

First, it helps to know what the forgiveness terms are for the PPP loans. Knowing this before spending the money will help you allocate it appropriately so that you can receive loan forgiveness. 

For self-employed individuals, the forgiveness terms are as follows:

  • At least 60% of your loan must go towards payroll costs—this is essentially your salary for the covered period, including any wages, tips, or commission. If you’re a sole proprietor, independent contractor, or self-employed individual (and don’t have employees) you CAN legally pay yourself 100% of your PPP money
  • You must use the other 40% (or less) on eligible expenses for the program
    • Mortgage, rent, utilities for office space
    • Operational expenses (specific software applications that keep business operations moving along)
    • Business-related damages caused by the riots/public disturbances in 2020 that couldn’t be covered by insurance
  • You must use your loan within 8-24 weeks of receiving the funds—this is also called the “covered period” (you can select your covered period when you apply for your loan)

How can contractors, gig workers, and self-employed individuals spend their PPP loan money?

As covered above, a big rule of the PPP loan is that in order for it to be forgiven, at least 60% has to go towards “payroll costs.” This can be a little confusing for the majority of self-employed workers that don’t have employees and don’t consider the fact that they actually have payroll expenses. What constitutes payroll? Are you able to just pay yourself with the money and then spend it on whatever you want? Yeah, kind of. 

Assuming you meet all other guidelines and use your loan over the 24-week covered period, you could use 100% of the loan to pay your income during that time and receive full loan forgiveness. Now, that being said your maximum loan amount is can only be 2.5 times your average monthly profit (As of March 2021, anyone applying for a PPP loan using Form 1040 Schedule C may elect to use EITHER their gross or their net income to calculate their max loan amount), capped at $100,000 on an annualized basis. 

Once you’ve paid your income with the PPP loan, that money is yours to do what you will. But we’re guessing that you likely have your typical living expenses to pay for, so it’s not like you just won a free all-expense paid vacation. The point of the PPP loan is to help you recover from the financial impact of the COVID-19 pandemic and the lockdowns and restrictions resulting therefrom.

Outside of payroll or income expenses, you can use up to 40% of your PPP loan to help with other business expenses. For self-employed individuals, this might get a little trickier, particularly if you are working out of your home. 

Just like you would if you were deducting operating expenses from your taxes, you could determine the portion of your rent, mortgage, or utilities that counts as a business expense and then use your PPP loan to help pay for those expenses. 

Other approved expenses are necessary operational costs for software applications that keep your business moving. Maybe you have a project management software or time tracking tool that you subscribe to. These types of expenses can also be covered by your PPP loan. 

No matter what you choose to spend your PPP loan on, you’ll want to be diligent in tracking exactly where these funds go if you want to receive full loan forgiveness. 

Check out our guide: Tracking PPP expenses to maintain forgiveness (tools and tips!) 

How can independent contractors, gig workers, and self-employed individuals get PPP loan forgiveness?

If you wish to apply for loan forgiveness (and you absolutely should), you can do so once you’ve used all of your loan proceeds. You’ll need to apply for forgiveness within 10 months of the last day of your covered loan period to be eligible for loan forgiveness. 

To apply for loan forgiveness, you should contact your PPP lender and complete the correct application form. It will be one of the following:

You’ll also need to compile documentation to verify your expenses. For payroll, this may include bank account statements and tax forms. For non-payroll expenses, you’ll need documents like invoices states, lease agreements, canceled checks, or other account statements to verify the expenditure. 

Once you’ve filled out the appropriate form and compiled your documentation, you should submit these to your lender. They may request additional supporting documents depending on the loan forgiveness amount for which you apply. 

Continue to work with your lender throughout the process. Follow up with them for updates as necessary. Your lender will notify you if the SBA reviews your loan and let you know what the final decision is. Your lender is responsible for ensuring that you know when or if your loan has been forgiven and any details regarding loan payback if that applies to you. 

For more information about how to prepare for PPP loan forgiveness, visit our PPP forgiveness FAQ

Simplify the loan application process with PPP Fast Lane

Independent contractors, gig workers, sole proprietors, and eligible self-employed individuals can qualify for up to $50,000 in forgivable PPP loans for 2021! We built Fast Lane for you.

  • Simple, five minute data collection process
  • Guides you through every step along the way
  • Automated first and second draw loan applications

 Put your PPP application in the Fast Lane


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