PPP loans for independent contractors: video Q&A with SBA expert!

IMPORTANT PPP UPDATE: As of March 3, 2021, applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, sole proprietors, and 1099 workers) 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.

We’re very excited to have the opportunity to talk to an SBA expert about common questions independent contractors, sole proprietors, and self-employed individuals have about the PPP program. Womply teamed up with Max Maher, who runs a YouTube channel dedicated to giving information and advice to small business owners and entrepreneurs, to interview Bill Briggs from the SBA. As the acting associate administrator at office of capital access at the SBA, Bill was one of the most senior leaders overseeing the PPP program, and he provided some great feedback and answers in this interview.

See below for the questions and answers divided into convenient, short videos, or you can also watch the entire webinar on YouTube!

Please note: this article and the videos herein are for informational purposes only and do not constitute legal or professional financial advice. The responses below may or may not be a combination of responses from the SBA representative and Womply. Neither Womply nor the SBA accepts any liability for the accuracy of this content, nor for any actions taken by business owners. Seek advice from a qualified, licensed financial advisor and/or business attorney.

I’m an independent contractor and I just started my business in 2020. Can I get a PPP loan?

For this go-round of the PPP program, there’s a bit more emphasis on data verification and identity management. You have to assert on your application that you have been in business before February 15, 2020. What you also have to do is provide documentation, either in the form of payroll records, tax receipts, etc. that show that you were in fact in business before that date. 

If you’re not sure if you qualify for a PPP loan, it’s a good idea to apply anyway (if you were in business before February 15, 2020). The rules can be a little bit difficult to understand but the lender applications are very helpful in steering you in the right direction. If you can answer each individual question it will tell you whether it applies to you or not. But the amount of money you can get is substantial. Businesses that don’t have employees and may not actually think of themselves as “business owners” can still get access to the program.

Will something as simple as a bank statement showing income from my contract work prove that I was in business before February 15, 2020?

Generally, yes, if you can prove and document that you were using that money to pay yourself as part of your payroll/income.

What counts as “payroll costs” for an independent contractor, when applying for a PPP loan?

Generally any wages, commissions, income, tips, or past records of tips, or reasonable good faith estimate of tips, and net [SEE IMPORTANT PPP UPDATE BELOW] earnings you received. This will be capped at $100,000 for the purposes of the loan. So if you earned more than $100,000 last year, your payroll calculation for the PPP loan will be based on $100,000.

Normally the approval process will take a look at the individual’s tax returns. They’ll look and see what was the net profit that you reported on your tax returns, and that will be the basis for the calculation for determining eligibility (if it’s over zero dollars) and also loan size, based on the amount of money that’s on that line item.  

It’s important to look at the application rules, but most lenders now run electronic applications that will run those calculations instantly. So individuals who are self-employed really shouldn’t stress too much about this, because the calculations should be done automatically as long as you have the input information. 

IMPORTANT PPP UPDATE: As of March 3, 2021, applicants who report their income with IRS Form 1040 Schedule C (i.e., most independent contractors, sole proprietors, and 1099 workers) 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.

Can Paycheck Protection Program loans for independent contractors and self employed individuals be forgiven?

Yes. The design intent of the Paycheck Protection Program when it started in 2020 was to prevent mass unemployment due to the pandemic, and the economic impacts due to government mandated shutdowns. The idea was that businesses could use the money to supplement their payroll, and if they used the money in the appropriate way, i.e., for payroll costs, that they would be eligible to have their loans forgiven, and that ultimately they would not owe their lender anything.

If I’m self-employed, can I use 100% of the PPP loan to pay myself?

Yes. In order for it to be fully forgiven, you must demonstrate that you used at least 60% of your PPP loan funds for payroll costs or income, but if you have done that, you can use 100% of your loan to pay yourself, essentially.

The second draw PPP loans require the “PPP first draw SBA loan number.” What exactly is that number and where can I find it?

Is is a ten-digit number, has no letters, and is used in your second draw application. The format is 8 numbers, then a dash, then two more numbers (XXXXXXXX-XX). Your [original PPP loan] lender should be able to provide that to you.

Can someone apply for both a first AND second draw PPP loan now?

Generally speaking, the way the program is designed is that if you had not gotten a PPP loan before, you’re coming in right now and going to your lender to apply for a first draw loan, you could theoretically apply for that first draw loan, spend it over the next 8 weeks, and then the current authorization runs out at the end of March [NOW EXTENDED TO MAY 31, 2021]. And you could technically apply for a second draw loan but you would have to demonstrate a 25% revenue reduction. So it’s not likely. We’d recommend you focus first on applying for your first draw loan and working your way from there.

Is it easier to apply for first or second round PPP loans in 2021 due to the simpler application process and less restrictive rules?

There was a lot of confusion at the start of the PPP last year, but with this rollout the SBA has given lenders time to understand both the policy guidance and the SBA’s systems, and so hopefully both lender and borrower will have a better experience this go-round.

We also urge everyone to be patient. There’s plenty of money, and you should definitely apply when in doubt. Do not talk yourself out of it. It may take a little time, but lenders are working very diligently, and within a reasonable amount of time you should be able to get a loan number and be funded, and then you can use that money in an appropriate way.

Is credit a factor when applying for a PPP loan?

No. One of the great things about this program is there’s no underwriting, there’s no collateral requirements (so you don’t have to put up any of your personal property). Because of the emergency nature of the pandemic, essentially if you are a business in operation and you meet the general standards, you are eligible for the loan. 

This is one of the reasons we are encouraging all independent contractors, and people who may not have great credit to work with a lender, because this is one of the few loans or financial lifelines that does not require underwriting, and you will not be denied loan approval due to credit reasons or collateral reasons.

Can I add the EIDL loan refinance amount to my requested PPP loan amount?

You have to be very careful about this one because there are important dates that apply. The first week of the CARES act and PPP opened on April 3, 2020— if you had gotten an EIDL loan in that first week and were using it to pay payroll, you can add it to your PPP loan amount and can get that refinanced. However, it’s a very small window and in most cases it won’t apply to todays applicants.

Can I apply for a second draw PPP loan as an independent contractor if I received a PPP loan in the first round as a sole proprietor?

Absolutely, as long as you have demonstrated that you have 300 employees or less, and that you have taken that required 25% or greater reduction in revenue or income. 

One thing to note though, is if you’re an independent contractor and have received some kind of state-based stimulus—if you live in a state where they have their own small business support program—or a different type of federal aid besides a PPP loan or an EIDL advance, that will be included as part of your revenue. And this could affect your revenue calculations. You you have to make sure you are counting that as part of your revenue. 

But otherwise if you can demonstrate a 25% revenue reduction, then you’re eligible. Again, when in doubt, go ahead and apply anyway. Your lender will let you know.

How do I know if I’m an independent contractor or offer some service that makes me eligible to apply for a PPP loan?

Generally speaking, even if you don’t have what’s known as an Employee Identification Number (EIN), if you have used your social security number and have received payment, and that information has been documented via the IRS, you can apply that way. Also payroll records and bank statements. If you have reported 1099 income, that is generally how you would know. You don’t necessarily have to have registered your business at the state level; it’s if you have gotten any consulting work or income coming in that you’ve reported on your taxes.

This is important to point out. Since the program was rolled out as a “small business” stimulus, people think that if they’re an individual with no employees, they don’t qualify as a small business. They don’t think of themselves day-to-day as a “small business owner.” You may not know it, but you likely qualify for this program. So even individuals who are working for:

  • Doordash
  • Instacart
  • Postmates
  • Uber
  • Uber Eats
  • Content creators for YouTube
  • Own a Shopify store
  • Etc. 

—if they were driving or delivering or earning revenue during the applicable time periods, all of these types of individuals may qualify. They should all be looking to apply, and the lender process will help them determine whether they are actually eligible or not.

Can I apply for a PPP loan if I get income from Airbnb?

Generally, yes. If you have an LLC, they are very likely to be eligible for PPP loans. You need to be careful about the “passive income,” but again, if you’re unsure, you should definitely apply and the application process will sort out any issues.

Should people worry about the PPP program running out of funding?

Absolutely not. The current law was passed in December, 2020, and there are some really smart economists and people who modeled the demand for both first and second draw loans, and we believe that the $285 billion is sufficient. Our current data runs suggest that there will be plenty of funds. Do not feel that if you do not get your application in today that you will miss out.

Should people worry about rule changes under the Biden administration that may change PPP forgiveness?

We’ve been working with the Biden administration and they’re fully aware of the program and what’s going on. If you take a step back and start at a year ago, the program has evolved both legislatively and regulatorily, and the program has been made, generally speaking, easier for lenders and borrowers. We can only hope that the Biden administration will continue our emphasis on reaching underserved, minority-, women-, and veteran-owned businesses. We haven’t seen any red flags with the new administration and they will continue to make it easier for borrowers who have been impacted by the pandemic.

What happens if someone submits multiple PPP applications?

Sometimes people do this because different lenders have different operational speeds. You are only allowed one loan (one first draw loan and one second draw loan). You can apply to multiple places but keep in mind that you are allowed only one loan, and you should generally give your lender a heads-up if you’re going to other lenders as well. The SBA’s system should catch it, but we don’t want you to be in the situation where you have 2 loans and you’re confused what to do. So you can do that, but generally speaking you’ll want to give your lender a heads-up.

For a first-draw PPP loan, can someone use 2020 documentation to get approved?

Yes, absolutely. You can use 2020 or 2019 payroll, and/or 2019 taxes, and if you haven’t filled out your 2020 taxes, you can fill out and attest to that (you don’t necessarily have to submit it to the IRS). The copy of your 2020 taxes will be part of the documentation that you submit to your lender.

For independent contractors, can they use a 2020 draft tax form to apply for PPP loans?

Yes. You will have to attest to the accuracy of it, but yes they can.

When someone applies for a PPP loan, how fast can they expect to be approved?

There’s a part of the process that depends on the lender and their operations, but most lenders are working with streamlined platforms. Part of the SBA’s rollout of the program this time was to give lenders time to get their systems in line, and that they fully understand the policy. 

So we would say a few days after the time that you submit your application to your lender, assuming you’ve provided all the accurate documentation. The lender then submits the application to the SBA, and the SBA does some data verification and identity management which can take a day or two. They then give the loan number back, and by regulation, the lender then has 10 days after they get that loan number to fund your loan.

So generally speaking, for most loans, from the date of application (assuming you have all your documentation) should be done within 2 weeks. 

The following responses are from Womply:

Do you have any suggestions as far as documentation goes for self-employed people? Can they just bring in a year’s worth of bank statements? Do I need my quarterly P and L?

The key point here is that Womply has a lot of support staff who can help you answer these questions, so our team can help with this. But for independent contractors and self-employed people the documentation requirement is actually pretty light. You really just need to have a tax filing. So you need the tax documents you filed for 2019 or 2020, and these are just your typical 1040 tax documents, which are usually going to be sufficient for the first draw loan.

For the second draw loan you are going to have to show a 25% revenue decline in 2020 compared to 2019, and we have FAQs and second draw ppp loan articles about what is sufficient to prove that decline.

In general, the documentation threshold for people receiving loans for under $150,000 is way lower to get a loan. And the amount of documentation required to get your loan forgiven will be much lower as well. The rules are obviously very simplified for smaller loan sizes, independent contractors, and sole proprietors. The main message here is to go to a lender, start applying and see if you qualify. Chances are you will qualify!

What if someone is employed as a W2 worker and works on the side as a 1099 worker? Can they apply for a PPP loan?

Yes, they can. They’re still eligible as a 1099—the PPP program doesn’t exclude people who have an hourly or salaried job at another company. It focuses on whether those businesses or individuals are eligible based on their earnings as independent contractors or sole proprietors. As long as you meet the other requirements, you’re still potentially eligible. So again, you should apply now, and you should be focuses on that 1099 income, or your net [SEE IMPORTANT PPP UPDATE ABOVE] profit income for your “small business” operations.

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