paycheck protection program

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

Are you a sole proprietor, independent business owner, contractor or freelancer who could use some financial help to get you through what’s left of the COVID-19 pandemic?

While there are a number of state and local pandemic-related programs designed to help small businesses recover that have and will continue to appear, this could be the last chance for you to get the support of the federal government during this pandemic.

Congress passed — and the president signed into law — a COVID-related stimulus bill in late 2020. The bill restarted the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDLs) beginning in early 2021. The restoration of these initiatives was in response to the escalation of the coronavirus pandemic during the late fall and winter. The original PPP loan program, which was part of the CARES Act, was allowed to expire in August 2020 because, at the time, COVID-19 seemed to be under control and its impact on small businesses, which were being allowed to reopen, was less than it was earlier in the year.

The second opportunity to take advantage of these programs was supposed to end on March 31, 2021. However, the Biden administration moved the deadline to May 31, 2021 because of the large number of loan applicants and backlog in approving applications. It’s probable that this will be the final extension.

With this latest round of PPP funding, small businesses, even some that received PPP loans during the first funding period last year, have a chance to apply to take advantage of the popular relief package. This includes sole proprietors, freelancers and independent contractors that hire no employees, even though the primary purpose of the Paycheck Protection Program is to incentivize small business owners and people who run nonprofit organizations to keep their workers employed.

The Small Business Administration (SBA), which administers the PPP program, recently issued guidance in the form of an interim final rule that clarifies who qualifies for program funding, especially when it comes to companies that don’t have employees. Here’s everything you need to know about PPP loans for single person businesses.

PPP Loan Qualification

If you are self-employed and earn an income, you are able to qualify for a PPP loan if:

  • You filed or will file a Form 1040 Schedule C for tax year 2020.
  • You live primarily in the United States.
  • The net profitability of your business is greater than zero and less than $100,000.

As you can see, PPP loan eligibility is relatively simple for sole proprietors to determine. However, the devil is in the details, and it is possible you could run into issues during the loan application and approval process. What’s important is that you follow the rules issued by the SBA and seek out advice and guidance from your loan provider.

Note: If you work in a partnership, you could be eligible for the PPP. Don’t make the common mistake many people in partnership arrangements make. You shouldn’t submit separate PPP applications for each partner. Instead, file a single one for the company and report each partner’s income as a separate payroll expense.

PPP Loan Amounts for Sole Proprietors

According to the new rules for SBA loans, here’s what you need to do to figure out how much funding you qualify for if you are a sole proprietor:

  • Find your business net profit (not gross income or net income) on line 31 on your 2020 IRS Form 1040 Schedule C. (If it’s more than $100,000, you won’t qualify for a PPP loan. If it’s zero or less, this will also be the case.)
  • Divide your annual business net profit by 12 to come up with your average monthly net profit.
  • Multiply your average monthly net profit by 2.5. This is the maximum loan amount you qualify for unless…
  • …You want to refinance an Economic Injury Disaster Loan (EIDL) taken out between January 31, 2020 and April 3, 2020 with your new PPP loan. If that’s the case, add the outstanding amount of your EIDL to the amount you came up with in the previous step.
  • …You received an advance under an EIDL COVID-19 loan, then you need to subtract the amount of it from the average monthly net profit you multiplied by 12. (This is necessary because the EIDL advance is considered to be part of your PPP loan.)
  • Once you’re done with these calculations, you’ll know the maximum PPP loan you qualify for.

What Sole Proprietors Must Do to Apply for PPP Loans

The first thing you need to do is find a PPP lender. That’s because, even though the SBA administers the PPP, applications are made — and funding is supplied — through SBA approved lenders, such as Biz2Credit.

Once you’ve done that, the next step is to complete a PPP loan application through your lender. The good news is that the application form is relatively short and easy to complete, especially when compared with other government forms.

Different lenders may have specific requirements about the documents you need to file with your application, but you should be prepared to provide tax forms and tax returns, along with bank statements and other records related to your organization and its finances. You’ll also need government issued identification, such as a driver’s license, state identification card or passport, to prove that you are who you claim to be.

You may need some back-and-forth activity with your PPP lender to ensure your application is complete and 100 percent accurate. Once you finish the application process, it could take a few weeks to receive funding.

It may help to reach out to a certified public accountant (CPA) if you need help preparing the proper paperwork and documentation. In addition, they can help you understand what the tax implications of taking out a PPP loan may be.

Tip: Applying for a PPP loan to cover self-employment income may make it more difficult for you to qualify for state-level unemployment insurance, even under the current federal government unemployment benefit expansions related to COVID-19. It’s a smart idea to look into your state’s regulations if you’re thinking about applying for unemployment and a PPP loan.

Applying for PPP Loan Forgiveness

One of the key benefits of PPP loans is that the government will forgive them if borrowers spend the loan proceeds on approved things such as:

  • Payroll costs, including things like health insurance, other insurance premiums, certain payroll taxes, sick and family leave pay and some common employee benefits
  • Rent on spaces where business is conducted
  • Mortgage interest on business-related properties
  • Utilities, including electricity, gas, water, telephone and internet service
  • Software used to conduct business
  • Property damage from civil unrest
  • Necessary supplier costs
  • COVID-related protective measures.

In addition, you must spend your PPP funds within a 24-week period beginning the day you receive them. This is known as the covered period. The loan funds must be used for covered expenses incurred during that time. Larger businesses must maintain full staffing for their loans to be forgiven. However, this is not an issue with sole proprietors, independent contractors or freelancers.

In the end, your loan forgiveness amount – which works in a slightly different way for sole proprietors – will be based on how much of the money you put toward approved expenses during the covered period. Any loan proceeds not used for appropriate expenses must be paid back within five years after the covered period is over at an annual interest rate of one percent.

Tip: In most cases, it makes sense that you use all your PPP loan funds on covered expenses within 24 weeks after you receive the money. Otherwise, you will have to pay all or some of the money back with a small amount of interest. If you have questions about this, an experienced professional at your PPP loan funding company can advise you on the size of loan you should apply for.

Loan recipients apply for forgiveness through the lender that originally handled the PPP loan. When it comes to applying for forgiveness, the process is simpler for one-person operations than for larger businesses. It will involve completing a form and supplying documentation that the funds were spent on authorized expenses.


If you want to apply for a PPP loan, you currently have until May 31, 2021, and it seems unlikely the deadline will be extended. The government will allow time after that date for loans to be approved, but it’s a smart idea to start your application as soon as possible.

Even though the PPP loan program is coming to an end soon, this doesn’t mean there aren’t and won’t be other financial assistance programs for small businesses to take advantage of as we exit the pandemic. The PPP loan program is a great option, so if you need funding for your business, be sure to apply right away. However, don’t forget to continue to check back here at the Biz2Credit Blog to learn about other opportunities and programs your business can utilize. We will continue to update our site with new developments as we learn about them so that our readers can be up-to-date with the latest news.

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