This article now contains the latest PPP loan forgiveness updates from the Small Business Administration (SBA) and Treasury Department, released on January 19, 2021. The latest changes apply to loans of $150,000 or less—the maximum loan amount for most sole proprietors, independent contractors, and self-employed individuals.
Being a sole proprietor, self-employed, or an independent contractor can feel five times as hard sometimes. Just look at the Paycheck Protection Program (PPP) and its promise of loan forgiveness for small businesses. How does it even work if you're on your own?
I'm still trying to figure out how to apply for forgiveness.
Roger Kaufman, who runs a masonry company in New York, told us. And we get it—there’s so much confusion around the process, rules, and even the words that describe it. In fact, some of you didn't apply for a PPP loan because you weren’t sure it could be forgiven.
That’s what we’re here for.
We created a comprehensive, comprehensible guide all about PPP loan forgiveness for the self-employed, sole proprietors, and independent contractors. This is everything we know based on information directly from the SBA, the 19th Interim Final Rule (IFR) filed on June 19th, 2020, and the last update for loans of $50,000 or less released on October 8, 2020.
Below, you’ll find:
While the PPP's forgiveness portal opened in August, most financial advisors suggest waiting to submit applications until Congress decides what will happen next. This guide contains helpful information for filling out the application as of 12/8/20. We'll update it to reflect changes in forgiveness as they occur.
Is this loan really forgivable?
Willette Watts, a realtor in Tulsa, OK, asked in one of our discussions on the PPP. And she wasn’t the only one—this question came up again and again.
So let’s clear the air.
According to the Paycheck Protection Program Flexibility Act, freelancers, self-employed individuals, solopreneurs, and independent contractors who took their maximum loan amount (2.5x their 2019 monthly income) are ensured full forgiveness.
In short, if you took out a PPP Loan as a self-employed individual with no employees, you can absolutely have your loan forgiven—here’s how to know if you qualify.
You must have been harmed by the pandemic and meet three requirements:
As a reminder, some of the terms of the PPP loans changed with the Flexibility Act. Here’s what you need to know.
You might be wondering, how can you use the loan on payroll if you don’t have any employees? Don’t forget yourself—you’re an employee of your business after all.
Here’s what you can use your PPP loan for:
There are some changes depending on when you received your loan, so you'll need to do some research to find out what you qualify for. Wherever possible, please source the SBA directly.
So now that you know that you qualify for forgiveness, let's take a look at another pressing question: When do you need to apply for it?
Because the forms list October 30, 2020 as the expiration date, many borrowers were confused about when to apply for PPP loan forgiveness.
First off, fear not, the deadline hasn’t passed. You still have time—and you have options.
One big caveat: If you apply for forgiveness after 10 months from the last day of your loan’s forgiveness period, you’ll have to begin repaying your loan.
The SBA offers this as an example: “. a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.”
So make sure you know when your forgiveness period is up, so you don’t have to start repaying a loan that can be forgiven.
One other tip: Many financial advisors suggest holding off on submitting forgiveness applications. Because there might be additional simplifications to the application and forgiveness process, it makes sense to wait.
For more PPP loan forgiveness guidance, check out these FAQs directly from the SBA.
Okay, so you’ve qualified for a PPP loan and forgiveness based on the outline we provided above and you know when to do it to avoid repayment. Now, you need to figure out how much money you can receive. Thankfully, it’s simple.
To calculate your maximum loan and forgiveness amount, follow these four simple steps.
Now you have your maximum PPP forgiveness amount—up to $20,833.
Under the PPP Flexibility Act, you can also calculate your maximum loan based on eight weeks of compensation up to $15,385. All you have to do is divide your 2019 net profit by 52 and then multiply by eight.
If you need help figuring out your maximum loan forgiveness amount, there are plenty of tools available.
Now, it’s time to get into the heart of PPP loan forgiveness: filling out the application forms. We’ve put together step-by-step instructions that you can follow to avoid common mistakes.
Thankfully, it’s not as hard as you think. If you’re a sole proprietor and don’t have any employees, you don’t have to fill out the full-loan application. Instead you have two application options: the 3508S forgiveness application and the EZ Application.
So you might be wondering: Which form do I use for PPP forgiveness? And what's the difference?
Both applications can work for solopreneuers and are easy to fill out. However, they do have a few differences in terms of qualifications, forms, and processes. Below, we'll break down both, including:
If you received a PPP loan amount for $50,000 or less, you qualify for the easiest and quickest loan forgiveness application form: 3508S.
And you most likely fall into this bucket—it represents 68 percent of all loans processed and 12 percent of the overall relief.
The SBA MAY request information and documents to review your calculations during the loan review process. So we recommend completing the above calculations and keeping the information on file, just in case.
Okay, so how do you fill out the 3508S application?
We’ll break down this simple application into five steps. You can also find directions directly from the SBA here.
The first step is to fill out your identifying information. This is how the government will legally review your business and should match what is already on file.
Let’s go through each of these sections.
Next, you need to fill out your PPP loan information. This is fairly self-explanatory, but just in case, we’ll go through it all.
This line worries borrowers the most, but it is not as difficult as you think. Forgiveness Amount is “the total amount of your payroll and non-payroll costs eligible for forgiveness. The amount entered CANNOT exceed the principal amount of the PPP loan.”
Typically, your forgiveness amount matches your loan amount, which we helped you calculate in the above section, How to Calculate PPP Loan Forgiveness if You’re Self-Employed.
To calculate your forgiveness amount, you will need to add up all eligible payroll and non-payroll costs incurred during the covered period: 24-weeks (168-day) beginning when the borrower received their PPP loan.
Next, you just need to certify that you have filled out the form correctly and truthfully. Read through each section and initial next to each statement.
Make sure to be honest here. If you’re not and make a false statement to get more of your loan forgiven, you could face consequences like fines and even imprisonment. If you have any questions about this section, talk with your accountant or banker.
Finally, sign and date your application.
What if you borrowed more than $50,000 and you do not qualify for the 3508S form? As a borrower (together with any affiliates), if you received PPP loans totaling $2 million or more, you must use the EZ Application, which is two pages long.
This application still saves you pages of information compared to more comprehensive loan forgiveness application forms, but it does mean you will have to complete a few additional calculations and provide more documentation.
To find out if you qualify for the EZ Application, take a look at the below questions. If you answer “yes” to the first question or “no” to the second, the EZ Application is for you.
When responding to the third question, make sure one of the following applies:
If you do have employees, any decreases in staff can affect your loan forgiveness. The CARES Act considers “full-time equivalent employees” when determining how much to reduce your loan forgiveness by if your staff count went down. To figure this out for each employee:
The max number for each employee is 1.0. An even simpler way to do this? Assign 1.0 for 40-hour per week employees and 0.5 for anyone who works less than that.
Here are three situations that you can ignore staff reductions or reduced hours:
You couldn’t operate your business at the same level during the Covered Period as before February 15, 2020 because you were complying with requirements or guidance from the CDC, Secretary of Health and Human Services, or Occupational Safety and Health Administration (OSHA) issued between March 1, 2020 and December 31, 2020.
These requirements include sanitation, social distancing, or other work/customer safety issues relating to coronavirus
Now, let’s break down the 3508EZ form into manageable chunks that you can fill out.
The first two steps match exactly what was outlined for the 3508S application above. The remaining five steps (Step 3 - Step 7) are where things begin to differ.
The first step is to fill out your identifying information. This is how the government will legally review your business and should match what is already on file.
Let’s go through each of these sections.
Next, you need to fill out your PPP loan information. This is fairly self-explanatory, but just in case, we’ll go through it all.
This is a fairly simple step. Even if you are self-employed, an independent contractor, or a sole proprietor, you’ll need to provide this information. Just refer to your owner, contractor, or freelance compensation.
This is the section of the application that worries most people. How do you calculate your loan forgiveness amount? We already walked you through the most difficult four steps when we talked about your maximum loan amount, above. You’ll use that information here.
For individuals with no employees and who did not run payroll in 2020, this section is actually fairly easy. It will take a little math, but it’s straightforward. We’ve even included some examples to show you what it could look like.
Want to see this in real life? Here are some examples.
Example 1: Here are application numbers for a freelancer who received the max loan amount of $20,833 based on hitting the $100,000 threshold. She has no employees, does not rent an office, and only pays for a separate work phone.
Example 2: Here’s another example from a solopreneur who earned less. He had a total payroll of $68,000, but he also had lease payments of $3,600 and some utilities totaling $200. He got a loan for $18,250.
In this case, the loan the solopreneur received was slightly higher than what is eligible for loan forgiveness, so he will need to pay back $284.
For more PPP loan forgiveness guidance, check out the SBA's FAQ. Or talk with an accountant suggests Mitchell Nelson a Senior Care Specialist.
There are many unanswered questions about the PPP and the best person to ask this question is your CPA.
You can also check in with your banker, recommends Herbert Gottlieb from Gottlieb and Associates.
If you have a good relationship with your bank and a banker, they will be happy to assist.
Next, you just need to certify that you have filled out the one-page form correctly and truthfully. Read through each section and initial next to each statement.
Make sure to be honest here. If you’re not and make a false statement to get more of your loan forgiven, you could face consequences like fines and even imprisonment. If you have any questions about this section, talk with your accountant or banker.
Now, initial next to at least one of these explanations to show that you're eligible for forgiveness. If both apply to your business, initial next to both items.
Finally, sign and date your application.
Prefer a video walkthrough? Watch the below video for step-by-step instructions to fill out the EZ forgiveness application if you’re self-employed and have no employees.
Wait! You’re not done yet.
Before you can submit your completed 3508S or 3508EZ form, there are a few documents you’ll need to include.
You need to verify your eligible payroll and any non-cash benefit payments during the covered period (8 or 24 weeks). This includes:
If you have employees, you are also required to report the average number of full-time equivalent employees on payroll on January 1, 2020, and at the end of the covered period.
You will also need to provide documentation that verifies your eligible interest, lease, and utility payments during the covered period.
If you need help gathering any of your documentation, Karin B. Orlowski from Concierge Wealth Management Service suggests going to your bank.
Your bank has a list of documentation needed to complete the application and will certify and forward the paperwork to the SBA.
If you need additional help obtaining forgiveness, don’t worry; you’re not alone. There are many resources and tools from the SBA and beyond. Check them out:
We hope this helps you get maximum forgiveness for your PPP loan. Let us know what questions you have, and we’ll do our best to answer them. You can always ask a question on the platform for advice from our community members, too.
Remember, we’re all in this together, so let’s lean on each other and share tips to make this process easier. After all, that’s what this community is here for.
Are you self-employed? Have you applied for PPP loan forgiveness? Tell us what your experience has been like to help others through the process.
For more on helping your business recover, check out the below articles:
Disclaimer: The information contained in this document is for general information purposes only. The Massachusetts District Office does not make any representations, warranties, or guaranties, express or implied, as to the accuracy or completeness of the information contained within. Any opinions provided herein are not the official opinions of the SBA, are not binding on the SBA, and shall not be considered eligibility or forgiveness determinations for any of SBA’s loan programs. Additionally, information changes frequently so this document may not reflect the most current information. The information is strictly intended to be helpful when navigating PPP Forgiveness.
Special thanks to writer Kelly Vo and the SBA for their help in putting this guide together.
