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Independent Contractors – Paycheck Protection Program

April 9, 2020

This guide has been created to assist independent contractors in completing an application for the SBA’s Paycheck Protection Program (PPP), a federal loan program adopted under the CARES Act. This guide is not a substitute for legal or accounting advice. If you are unclear about how to proceed with an application, you should consult an attorney, an accountant or your lender.
 

What is an independent contractor? An independent contractor is someone who does work on a contract basis rather than as an employee. If you are doing work for a company, are not on its payroll and have signed a contract with it, you are probably an independent contractor. You can be self-employed or have a corporation, LLC or other entity. If you have employees other than you, you may instead be a small business and should seek assistance from an attorney.
What is the Paycheck Protection Program (PPP)? It is a loan program of the Small Business Administration (SBA) providing 8 weeks of cash-flow assistance through 1%, 2-year loans that are fully or partially forgivable.
Am I eligible for a loan? You are eligible if you operated as an independent contractor as of February 15, 2020. However, distributions and dividends are not covered by the PPP; if you own a business and you receive a K-1, you cannot treat dividends and distributions reported on the K-1 as “payroll costs” for purposes of obtaining a PPP loan.
Can I receive a PPP loan and unemployment benefits at the same time? No.
Do I need to guaranty or provide collateral for the loan? No. The CARES Act removed the requirement for personal guaranties and collateral.
When can I apply? Independent contractors and self-employed workers may begin filing PPP applications on Friday, April 10, 2020.
To whom should I apply? Although the SBA is ultimately responsible for the program, you must apply to the program through a lender. If you already have a relationship with a lender (business or personal), contact it to see whether it is a lender under the PPP as many lenders are prioritizing existing customers or are not accepting new customers for these loans. If you do not have a lender or your lender is not participating in the PPP, you can find a lender by following this link: SBA Lenders
How do I apply? Ask your chosen lender whether it has its own application form, or whether it is using the SBA’s form. The SBA application form is found here: SBA application form. Fill out the form according to the instructions attached to the form.
What documents do I need? You will need bookkeeping or payroll records to prove your expenses, which may include:
  • Form 1099-MISC;
  • Income and expense from a sole proprietorship; and
  • If you don’t have the foregoing, you can submit other information accepted by your lender, such as bank records or payroll records.
How is the loan amount calculated? (1) First, determine your total "payroll costs" during 2019: 
  • If you receive 1099s, then you can report payroll costs as the sum of your 1099-MISC income.
  • If you filed 2019 taxes, you can use your net profit from line 31 of your Schedule C.
  • If you have not yet filed 2019 taxes, but have completed bookkeeping, you can use your net profit from the “Net Profit” line on your 2019 income statement.
  • If you were not operational for all of 2019, you should discuss how to calculate the amount with your bank, lawyer or accountant.
(2) Then, determine your average monthly payroll by dividing the sum of your payroll costs, as determined above, by 12.
  • If you made less than $100,000 in 2019, then divide the sum of the amounts above by 12.
  • If you made more than $100,000 in 2019, then divide $100,000 (the maximum amount permitted under the PPP) by 12.
(3) Finally, multiple the average monthly payroll determined in Step 2 by 2.5 to obtain your loan amount. (If you applied for an Economic Injury Disaster Loan, let your lender know. Your lender may require you to refinance that loan and add it to your PPP loan.)
What expenses can I pay with PPP loan proceeds? You can use your PPP loan proceeds for the following:
  • To pay yourself net earnings you might otherwise have earned in the absence of the pandemic (“payroll”);
  • Mortgage interest (only forgivable if the mortgage was obtained before February 15, 2020);
  • Rent (only forgivable if the lease began before February 15, 2020);
  • Utilities (only forgivable if the utility service began before February 15, 2020); and
  • Interest on non-mortgage debt (not forgivable).
75% of the loan amount must be used for payroll. This means independent contractors must use at least 75% of the loan amount to pay “net profit” to themselves.
How is forgiveness determined? If you have no employees other than yourself:
  • During the 8-week period beginning on the date you obtain your loan, all loan proceeds used to pay the costs noted above (to the extent forgivable as noted above) will be forgiven, provided that at least 75% of the forgiven amount is used for payroll.
  • Any amounts not forgiven will be treated as a 2-year loan with 1% interest.
If you have employees other than yourself, you may not be an independent contractor for these purposes. You should consult an attorney, accountant or your lender, who can help you with these issues. Note that if you have employees, forgiveness can be reduced based on whether you have laid off employees or reduced your employees’ salaries/wages
What further resources are available? This guide is not a substitute for legal or accounting advice.
If you have any questions, you should first discuss them with your chosen lender. If the lender advises they are unable to answer all your questions, you should seek the advice of an attorney or an accountant.
 
Click on the following links for further guidance from the SBA:


This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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