4. Self-employed PPP
The Paycheck Protection Program (PPP) was expanded in late April, with an additional $310 billion in funding. The deadline to apply for a Paycheck Protection Program Loan expired on Aug. 8, 2020 but could be extended again if another relief bill is signed into law.
Small businesses with 500 or fewer employees, sole proprietorships, independent contractors, and self-employed individuals are all eligible for the program. Note that:
- Sole proprietorships will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship.
- Independent contractors will need to submit Form 1099-MISC or Form 1099-NEC in addition to their Schedule C.
- Self-employed individuals will need to submit payroll tax filings reported to the IRS.
The maximum amount your business can receive from an SBA-approved lender is your average payroll cost in 2019, multiplied by 2.5, up to a maximum of $10 million. Your PPP loan will be fully forgiven if you use 60% of the funds for payroll costs and if you use the funds for interest on mortgages, rent, and utilities.
Loans have a 1% interest rate and a maturity rate of 2 years (although loans issued after June 5, 2020, have a maturity of 5 years). There’s no need to make loan payments until either your forgiveness application is processed or 10 months after your covered period ends. No collateral or personal guarantees are required, and neither the government nor lenders will charge small businesses any fees.
A second round of PPP funding provided by the Consolidation Appropriations Act passed on December 20, 2020. This second round is available for businesses with less than 300 employees and who experienced at least a 25% reduction in revenue in the 1st, 2nd, and 3rd quarter of 2020. Businesses that previously received a PPP loan are eligible for PPP2 loans if they meet certain criteria.