Paycheck Protection Programs: Resources and Provisions for Entrepreneurs, Small Businesses, and Independent Contractors

Dawn Allcot
Expert Contributor
Last Updated:
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In late December 2020, Congress and the president approved a $900 billion COVID-19 relief program, which included a second round of funding under the Paycheck Protection Program. First passed last spring, the original round of PPP funding included more than 5 million loans, each for an average of approximately $100,729. The total loans added up to more than $525 billion when the first round of funding closed in August.

PPP loans are partially or fully forgivable, depending on the organization’s income and what the money was used for. As of November 22, 2020, the SBA received more than 595,000 loan forgiveness applications worth a total of $83 billion. Of that money, $38 billion was forgiven.

Who Received PPP Loans?

In spite of accusations that the original round of PPP funding only helped larger businesses, was wrought with fraud, and put money into the hands of businesses that didn’t need it, the SBA released statistics showing that most PPP loans from the first round of funding helped small businesses.

  • 75% of loan recipients had nine or fewer employees
  •  87% of loans were for $150,000 or less
  • The SBA had more than $130 billion in unclaimed funds when the loan application deadline closed in August

 Nevertheless, many small business owners, including independent contractors and sole proprietors, missed out on PPP loans. They may not have been aware of the funding or didn’t know how to go about applying for the funding.

No doubt, small business owners were juggling a lot in the early days of the pandemic, including many parents who faced children home from school full-time and attempting virtual or remote learning. When you’re trying to run a business, pay your bills, put food on the table, and now educate children, loan paperwork may have been the last thing on many independent contractors’ minds.

Paycheck Protection Programs: Resources and Provisions for Entrepreneurs, Small Businesses, and Independent Contractors

Second Chance: A Second Round of PPP Loans Makes More Funding Available to Small Business Owners

If you missed the first round of applications – or if you still need additional funding – your business may qualify for the second round of PPP loans. If you employ 300 or fewer people and have lost at least 25% of revenue in any quarter of 2020 comparable to that same quarter in 2019, you may qualify for funding.

Borrowers can apply for up to $2 million in funding for the second round, and if you have received a PPP loan within the past 90 days, the total of both loans cannot equal more than $10 million.

PPP loans carry an interest rate of 1%, with a term of up to two years for loans issued prior to June 5, 2020, and five years for loans issued after that date. Loan payments for unforgivable portions of the loan are deferred from 10 months past the end of the covered period for the borrower, which is either 8 weeks or 24 weeks from the date of loan remittance.

Forgivable Expenses Under the Second Stage of PPP Funding

PPP loans may be forgivable if the money is used for certain business expenses. Congress expanded forgivable expenses under the second round of loans. These expenses include:

  • Payroll costs
  • Business mortgage interest, rent, and utilities
  • Supplier costs
  • Facility modification costs (including modifications required to create a safer workplace and reduce the spread of COVID-19)
  • Personal protective equipment required to help keep employees and customers safe from COVID-19
  •  Business software (new for second draw)
  • Cloud computing services for business operations (new for second draw)

As with the first round of funding, business owners can borrow up to 2.5 times their average monthly payroll expenses or, in the case of independent contractors and solopreneurs, up to 2.5 times their average monthly income. At least 60% of the loan must be spent on payroll costs or salary.

Tax Responsibilities for Expenses Paid for Using PPP Funds

December’s legislation also came with tax law changes pertaining to PPP funds. Originally, the IRS had said that corporations could not deduct business expenses paid for with PPP funds from their taxable income. The new act permits tax deductions of these business expenses to reduce a company’s adjusted gross income (AGI). If you use PPP funds to pay for your mortgage, utilities, business software, or to pay employees or contractors – among other expenses – you can still deduct these expenses to reduce your taxable income.

PPP Loans for Independent Contractors and Self-Employed Individuals

If you are a 1099 independent contractor or a self-employed business owner, you can apply for PPP loan relief to help cover your business expenses. As with other businesses, if you were in operation on February 15, 2020, and can show a loss of 25% or more for any quarter in 2020 compared to the same quarter in 2019, you may qualify for a loan.

Your loan may be used to replace your 1099-MISC or self-employment income, interest on business mortgages, business rent, and utilities. The amounts may be fully forgiven if used within the first eight weeks to cover lost income. Up to 25% of money used to cover other qualified costs may be forgiven.

Business owners who file taxes as an S-Corp may also be eligible for PPP loan relief, but they can only file for a loan up to the amount of the W-2 salary they draw as an employee from their corporation.

Documentation Required to Apply for PPP Loans

To submit a PPP loan application as a self-employed individual or 1099 contractor, you’ll need:

  • Your 2019 IRS Form 1040 Schedule C
  • Any 1099-MISC or 1099-K forms substantiating your income for 2019
  • Proof you were self-employed in 2019 (invoices, bank statements, or book of records)
  • 2020 invoice, bank statement, or book of record showing you were in business as of February 15, 2020

Applying for a PPP Loan as a Small Business Owner or Independent Contractor

If you’re applying for a PPP loan, it’s good to visit a lender where you already have an established relationship. This may include your bank or credit union. It’s also a good idea to check with your tax accountant regarding potential tax ramifications of the PPP loan and what expenses you can deduct on your small business taxes.

The Small Business Administration also provides a host of resources to help small business owners and independent contractors apply for PPP funding.

You can find some of these resources below:

How to Calculate Maximum Loan Amounts for First Draw PPP Loans

Lender Match – Free online tool to find an SBAA-approved lender for a PPP loan

Search by zip code to find PPP lenders near you on this map

SBA Document – PPP Myths vs. Facts

PPP First Draw Borrower Application Form (use this if you would be receiving a PPP loan for the first time)

PPP Second Draw Borrower Application Form

PPP Second Draw Loans Overview

Paycheck Protection Program Loan FAQs  

Next Steps:

Dawn Allcot
Expert Contributor
Last Updated: