Self employed? Here’s how to determine if you’re eligible for PPP
Since Paycheque Protection Program (PPP) the deadline has been expanded as of May 31, there is still a abundance of funds available for small businesses. Many workers and the self-employed are not aware of the big changes that the United States Small Business Administration (SBA) released, making funding more accessible to this group. Now sole proprietors, independent contractors and self-employed people are entitled to greater financial support under the PPP.
The SBA’s recent Interim Final Rule (IFR) allows sole proprietors, independent contractors and self-employed people to use gross income to calculate their PPP loan amount. Previously, this group had to justify loan requests using labor costs plus net profits. This excluded many borrowers due to limited or negative net profit, or the loan amount calculated after expenses were so low that it was not worth applying.
The SBA realized that this cohort was penalized based on profitability, which was not a factor for large companies. The new calculation method levels the playing field and ensures that you can get the funds you need.
How do I know I’m eligible?
- You reported gross annual income (Schedule C, line 7) of $ 24,000 or more on your Schedule C.
- The calculation of the maximum amount of your loan will depend on the presence or absence of employees in your business. Refer to IFR SBA document for step-by-step calculation instructions for each scenario.
- As a reminder, you can request a maximum loan amount equal to 2.5 times your average monthly salary costs.
- You have access to the following documents for justification:
- IRS Form 1040 Annex C 2019 or 2020
- 1099s, if received, to support annual gross income on submitted Schedule C
- For first-draw loans: proof that your business was operational on February 15, 2020, such as a utility bill or bank statement
- For Sole Proprietorships with an EIN and Employees: Payroll reports that corroborate lines 14, 19, and 26 on the submitted Schedule C
How do I calculate my maximum loan request?
If you don’t have employees:
* Important Note: If your gross income is greater than $ 100,000, round up to $ 100,000 before starting the calculation. This is the maximum amount you can use for your own payroll.
- Find your 2019 or 2020 schedule C.
- Locate the amount on line 7. If it is greater than $ 100,000, round to $ 100,000 (see note above).
- Divide your number from line 7 by 12 (to calculate your average monthly income) and multiply by 2.5. This is your loan application!
If you have employees:
* Important Note: This is a two-step calculation that requires you to subtract your employee costs before adding them back later. While it may seem unnecessary, it’s a safety solution to make sure you’re not asking for the wrong amount based on your payroll as an individual. If your property payroll is greater than $ 100,000, round up to $ 100,000 before proceeding to the next step; $ 100,000 is the maximum allowable payroll for individuals.
- Find your 2019 or 2020 schedule C.
- Find the amount entered on line 7
- Subtract your personnel costs (lines 14, 19 and 26).
* This translates to your individual payroll as the business owner. If it is greater than $ 100,000, round up to $ 100,000 (see note above).
- Add up your personnel costs (amounts indicated on lines 14, 19 and 26).
- Add your individual payroll (step 3) and your employee payroll (step 4).
- Divide by 12 (to get your average monthly payroll) and multiply by 2.5. This is your loan application!
During COVID-19, the SBA offered a variety of financial assistance to businesses of all sizes. If you have an established relationship with a bank, it’s best to check it out to make sure you’re on the best loan program for you. If you don’t have a strong relationship with your current lender, consult a non-bank lender (such as my organization, Liberty SBF) may be the best option.