PPP guide for construction and building contractors (2021 tips)

In this 7-minute read:

  • Can construction and building contractors get PPP loans?
  • Important PPP rules updates that can benefit building and construction contractors
  • Calculate the maximum PPP loan for your construction business
  • How can construction and building contractors spend their PPP loans?
  • How to apply for forgiveness on your PPP loan
  • You may also like: can real estate agents get PPP loan?

The application period for the Paycheck Protection Program was extended through May 31, 2021, allowing your construction/contracting business (and the rest of America’s small businesses) to apply for government stimulus funding to help during this financially unpredictable time. 

If you are interested in receiving this funding, we encourage you to apply as soon as possible to give your lender plenty of time to get your application into the SBA. Not sure you’re eligible for the loan or what the responsibilities for the loan are? Read on and we’ll give the scoop. 

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Can construction and building contractors get PPP loans?

Construction workers and building contractors may be eligible for the PPP loan depending on their employment status. The PPP loan is intended for business owners, sole proprietors, independent contractors, and self-employed individuals. If you fit the bill for any of those categories and have the tax documentation to back it up, you’ll meet the first requirement for qualification. 

However, if you’re a construction worker who gets a W2 from the company you work for, you would not be eligible for the PPP loan with your W2 job. However, if you do independent contract work on the side and file IRS Form 1040 Schedule C when you file your income tax return, then you could receive the PPP loan for that job. 

Important PPP loan updates for 2021 that can benefit building and construction contractors

The Biden-Harris administration has amended the PPP loan rules to allow even more businesses and individuals the opportunity to get maximum benefit from this program:

  • Borrowers using IRS 1040 Schedule C (like many independent construction and building contractors) can now choose to use their gross profits to calculate their maximum loan amount (previously you could only use your net profits). This can allow more people to qualify based on their annual revenue amount. Some independent building and construction contractors who previously didn’t qualify for PPP stimulus are now able to apply. 
  • Borrowers who are delinquent on their student loan payments are now eligible to participate in the program
  • Non-citizen borrowers can now apply for the PPP loan so long as they are lawful residents with an ITIN and meet all other eligibility requirements

First and second draw PPP loan eligibility requirements

Depending on whether you are applying for your first or second PPP loan, you’ll need to meet a couple of more requirements before you can qualify for these funds, in addition to your qualifying status as an independent contractor, self-employed person, business owner, or sole proprietor.

For first draw loans, your business must have been in operation as of February 15, 2021, and you must have earned at least $4,800 in gross profits in 2019 or 2020. Learn more about this minimum earning threshold for the PPP loan

For second draw loans, you’ll need to meet the following requirements:

  • You have received the PPP loan already
  • You have spent your first draw funds on approved expenses by the time your second draw funds are dispersed
  • You must be able to show a revenue reduction of 25% or more when comparing any 2020 quarter to 2019
  • You must have fewer than 300 employees

These are not exhaustive lists for eligibility. To learn more about special circumstances that may apply, please visit our PPP FAQ

Calculate the maximum PPP loan amount for your construction or building contractor business

The PPP loan is a limited funding program, meaning you can’t apply for any amount that you want. So, there is a calculation in place to help you determine the maximum loan that your construction business can take out. Follow the steps below to calculate your PPP loan if you don’t have any employees. If you have employees, see further below.

Step 1: Acquire your 2019 or 2020 IRS 1040 Schedule C and take the number from line 7 (for your gross profits). If that number exceeds $100,000, lower it to $100,000. 

Step 2: Take the number you got in Step 1 and divide it by 12 to get your average monthly income/profits. 

Step 3: Multiply your average monthly income by 2.5 to get your maximum PPP loan amount. 

Step 4 (if applicable): Add any outstanding amount of your Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020 to the maximum loan amount your got in Step 3. Be sure not to add any advances that you received on the EIDL because that doesn’t need to be paid back. 

Do you have W2 employees for your construction or contracting business? Check out our FAQ to find the calculation for your max PPP loan amount when you have employees. 

How can construction and building contractors spend their PPP loans?

Perhaps the most appealing feature of the PPP loan is that it can be completely forgiven so long as you follow the rules that have been set for how the funds are spent. We’ve outlined some approved expenses for businesses in the construction industry. 

Payroll and income

The rules state you must spend at least 60% of the PPP loan on payroll in order to receive full loan forgiveness. For self-employed individuals without employees, your own income counts as payroll. You could even use 100% of the loan to pay your own income. If you do have employees, you’ll need to use that 60% (at least) to maintain your employees’ compensation and employment during your selected covered period. (Exceptions to this would include employees who resign or are terminated with cause.)

You can use the other (up to) 40% of the loan to help cover the other approved business expenses we’ve outlined below. 

Mortgage, rent, and utilities

Your PPP loan can help cover the expenses for any mortgage, rent, or utility payments related to your business. This could be an office space that you have or even your own home office space. Any costs related to these expenses that you could write off on your business taxes can be covered with your loan. 

Interest payments on debts

Do you have any other debts related to your business? This could be credit cards, business loans, equipment financing, etc. You can use your PPP loan to pay the interest payments on those debts. 

Costs for operational functions

The PPP loan is intended to help your business stay in operation if possible, so it can help cover certain costs for business software and cloud computing services that are essential to the function of your business. This might include payment processing, inventory management, accounting, product or service delivery, and other sales and billing functions. 

Supplier costs

Any contracts or purchase orders with suppliers that are in place before your covered loan period begins can be covered by your PPP loan. 

COVID-19 protection

There’s no question that COVID-19 has changed the ways businesses operate, and so the SBA has included coverage for costs that you might have incurred to help protect your employees, customers, and yourself from the virus (PPE, sneeze guards, cleaning supplies, etc.). 

Property damages

The 2020 public disturbances and riots caused significant damages to businesses across the country. If your business property was damaged in lieu of these events, then you can use your PPP loan to help cover costs that weren’t covered by insurance. 

As you think about what to spend your PPP loans on, also be thinking about how you can track and keep record of those expenditures. You’ll need to have proof to show where your funds went if you wish to receive full loan forgiveness. 

You might like: Tracking PPP expenses to maintain forgiveness (tools and tips!) 

How to apply for forgiveness on your PPP loan

After your covered loan period ends (and you’ve spent your PPP loan funds appropriately), you can apply for loan forgiveness. You have within 10 months of the last day of your covered period to turn your application into your lender. 

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:

  1. Ask your lender for the correct forgiveness application
  2. Fill out your application and gather any documentation you need to verify your expenses
  3. Turn everything back into your lender and then they will process it with the SBA (many lenders will help you complete an electronic application via their systems; speak to your lender to be sure)
  4. Wait for your lender to notify you of the decision

All communication for the loan and forgiveness will go through your lender. 

Have more questions about loan forgiveness? Check out these resources:

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