In this 2-minute read:
- Is “stacking” first and second draw PPP loans legal?
- How you can optimize your PPP loan process and maximize your forgivable stimulus
- Can I legally pay myself using a PPP loan?
- Independent contractors, sole proprietors, self-employed people benefit most
The PPP loan program for 2021 (extended application deadline: May 31, 2021) is simpler, quicker, and allows more expenses to maintain full loan forgiveness. Plus, there’s a new second draw PPP loan for people who got PPP loans previously.
We’re also seeing a huge increase in the number of independent contractors, gig workers, self-employed individuals, and sole proprietors who are taking advantage of the program (including the method described in this article). This is great news, because these types of people are absolutely vital to America’s business infrastructure and are just as much “small businesses” as traditional brick-and-mortar shops.
As we work with PPP applicants, we get a lot of people who haven’t gotten a PPP loan before asking if they can get both a first-draw and a second draw loan at the same time.
And the answer is, effectively, yes, if you’re quick enough. Let us explain.
Womply has made email marketing truly automatic for busy small business owners and all types of independent contractors. Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!
Can I get both first and second draw PPP loans at the same time?
You can’t apply for a first-draw PPP loan AND a second-draw PPP loan at the same time, but if you act quickly, you can get your first draw funding and spend it in a legal fashion (i.e., on payroll expenses—which in the case of independent contractors, eligible self-employed individuals, or sole proprietors means paying yourself), and immediately apply for a second draw PPP loan if you qualify.
Getting approved and funded for a first-draw PPP loan can take as little as a few days up to a couple of weeks, and as soon as you have your PPP funds you can apply for a second-draw PPP loan. You don’t need to have your First Draw loan forgiven, and you don’t need to actually spend your first PPP loan funds.
A closer look at the eligibility requirements for second draw PPP loans, shows why this works:
- Your business has 300 or fewer employees (which for independent contractors, eligible self-employed individuals, or sole proprietors is a no-brainer), and
- Your business experienced a 25% revenue reduction in 2020 relative to 2019 (described further below), 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. (And, again, paying yourself counts as eligible payroll expenses for independent contractors, sole proprietors, and self-employed individuals.)
For more details of eligibility for second draw PPP loans, including certain exclusions, see our FAQ guide about eligibility requirements for Second Draw PPP loans.)
If you’re an independent contractor, eligible self-employed individual, or sole proprietor, there’s no reason not to do it this way.
Why? Because you can. You have been hit hard by the effects of the pandemic and if you can demonstrate the required 25% reduction in revenue for a second-draw loan, you may as well double up your funds.
Who is eligible for this method for getting 2 PPP loans back to back?
This method for getting double PPP stimulus funding can only be done if you haven’t previously applied for and received a First Draw PPP loan. Obviously if you already have gotten a PPP loan, then you should be applying for a second-draw PPP loan if you’re eligible.
Due to the revised rules about proving proper expenses and payroll, this “double-down” PPP loan method works best for independent contractors, sole proprietors, and self-employed individuals.
If you’re a small business with employees and qualify for larger loans (over $150,000), you can definitely get your PPP loans back to back, but it will be more complicated and possibly more difficult to use your first PPP loan appropriately before your second PPP funding comes through (which is a requirement).
This method works best for smaller PPP loans, and most particularly for independent contractors, sole proprietors, and self-employed individuals.
Is it legally allowed to pay myself using my PPP loan?
Absolutely. The PPP rules stipulate that at least 60% of PPP funds must be used on approved payroll expenses. If you are an independent contractor, eligible self-employed individual, or sole proprietor, then this means you can use up to 100% of your PPP funds to pay yourself and have your PPP loan fully forgiven. Make sure you keep good records.
Of course, you can (and should) also pay yourself as a business owner with employees. To be eligible for full forgiveness, you’ll need to demonstrate that your employee and compensation levels are maintained during the 8-24 week period following the receipt of your PPP funds.
How long do I have to wait after applying for a first draw PPP loan before applying for a second draw PPP loan?
If you can demonstrate a 25% reduction in revenue in 2020 compared to 2019 and meet the other eligibility requirements, you can apply for a second-draw PPP loan as soon as you have your first draw PPP funds. You have to demonstrate that you have spent (or WILL SPEND) the full amount of your PPP first draw funding on eligible expenses or before the expected date on which the second draw PPP loan funds are disbursed to you.
Again, if you don’t have any employees, then this can simply mean that you have paid all of your first draw PPP funds to yourself.
Is there a minimum net profit amount I need to show to qualify for a first or second draw PPP loan?
Yes. The minimum PPP loan amount is currently $1000. So in order to qualify, you need to show at least $4800 in yearly net profit (on your 1040 Schedule C, line 31 or otherwise), since the PPP loan amount is calculated at 2.5 times your average monthly revenue. $4800 (annual net profit) ÷12 (months) X 2.5 = $1000.
If you didn’t earn at least $4800 in 2019 or 2020 as a business, an independent contractor, self employed individual, sole proprietor, etc. you don’t qualify for a PPP loan at this time.
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.
I don’t have quarterly revenue data as a contractor/sole proprietor/self-employed person. How do I demonstrate a 25% reduction in revenue to qualify for a second draw PPP loan?
If you don’t have accurate quarterly revenue data demonstrating a 25% reduction in revenue for one quarter in 2020 compared to 2019, you can use your 2020 tax return to demonstrate the 25% reduction, assuming you reported a 25% or greater loss for 2020 and you were in operation for all four quarters of 2019. The SBA provides that a borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. This provision will allow a borrower to provide annual tax return forms to substantiate its revenue reduction.
Win new customers and build loyalty with your existing customers with Womply Email Marketing
Womply has made Email Marketing truly automatic for busy small business owners, independent contractors, and sole proprietors. Womply helps you turn customers into regulars and get more repeat business with targeted emails that send automatically when customers transact with you. Build customer loyalty and revenue, and get more repeat business with just a few clicks!
Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!