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SBA Loans for Independent Contractors and Self Employed

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SBA Loans for Independent Contractors and Self Employed

Updated: August 3rd, 2023

SBA Loans for Independent Contractors and Self Employed

Paycheck Protection Program (PPP) loans aren’t just for traditional run-of-the-mill small businesses—self-employed business owners, independent contractors, and freelancers can take advantage of this forgivable, tax-free funding.

At first, the SBA’s application process made it difficult for most sole proprietorships to obtain any substantial funding. However, the new PPP loan amount calculations for Schedule C filers (that’s you, freelancers and contractors) allows applicants to use gross income instead of net when calculating PPP loan amounts.

Now, sole proprietors can secure much-needed financing through the PPP loan program—and if they use the funds appropriately, they can have these loans converted into tax-free grants. And with the SBA extending the PPP application to May 31, 2021, there’s still time for your business to obtain much-needed financing through a PPP loan.

Below, we’ll walk you through everything you need to know about getting an SBA loan as an independent contractor or self-employed business owner.

How to Apply for an SBA Loan for Self-Employed and Independent Contractors

Self-employed workers and independent contractors apply for PPP loans much the same way as other small businesses. You’ll need to determine your eligibility, calculate your loan amount, determine your PPP loan use case, and then submit an application with an SBA-accredited bank.

Let’s walk through each of those steps in more detail.

Eligibility Requirements

As a self-employed individual or independent contractor, you’ll need to meet the following criteria:

  • Be in operation before February 15, 2020
  • Make income
  • Live in the US
  • Have filed a 2019 or 2020 tax return with the IRS
  • Certify that PPP funding is necessary to support your ongoing operations

Loan Amounts

Businesses with employees use a payroll calculation to determine their loan amounts. First-time borrowers may get up to 2.5 times their monthly payroll (up to $10 million), while second-time borrowers can get up to $2 million.

However, if you don’t have employees, you can still get PPP loan financing. Thanks to the change in loan calculations for Schedule C Filers, self-employed workers and independent contractors can use gross income instead of net to determine their total loan amount.

“The support for employment for sole proprietors includes covering business expenses as well as net profits,” Congress stated in the Interim Final Rule (IFR). “This change would affect many sole proprietors who have been effectively excluded from the PPP, especially those with very little or negative net profit, many of which are located in underserved communities.”

Use the following method to calculate your maximum PPP loan amount under the new IFR:

  1. Find your gross income amount. If this number exceeds $100,000, then use the number $100,000 for calculations.
  2. Divide your gross income amount by 12.
  3. Multiply this result by 2.5.
  4. The final amount is your PPP max loan amount (not to exceed $20,833).

Ways to Use a PPP Loan

Self-employed individuals and independent contractors can use PPP loans following the SBA’s guidance. If you use the loans appropriately, then your business has the potential to receive 100% loan forgiveness.

Here’s a list of eligible PPP fund expenses:

  • Payroll: Includes wages, salary, tips, commissions, bonuses, paid leave, and group insurance benefits
  • Rent: Fees for lease dates beginning before February 15, 2020
  • Interest Payments: Interest payments on mortgage debts that were made before February 15, 2020
  • Utility Payments: Includes gas, water, electricity, telephone, transportation, and internet services for plans made before February 15, 2020
  • Worker Protection Expenses: Cost to purchase protective equipment (masks and hand sanitizer) and to make adaptive investments to comply with federal health and safety guidelines
  • Operations Expenses: Payments for software, accounting, human resources, cloud computing, and remote-enabling services
  • Supplier Costs: Expenses made to supplies that are essential for ongoing operations
  • Property Damage Costs: Costs to repair damages incurred from public disturbances in 2020 that your insurance didn’t cover

You’ll also need to follow the SBA’s essential forgiveness rules:

  • 60/40 Rule: 60% of your loan must be used on payroll costs. The remaining 40% can be used on other eligible expenses.
  • Coverage Period: You must use your funds during the 8- or 24-week covered period.
  • Payroll and Salary Maintenance: You’ll need to maintain the same number of headcount you had prior to February 15, 2020. You’ll also need to maintain at least 75% of their total salary.

Where to Apply for a PPP Loan as a Self-Employed or Independent Contractor

You can use the SBA’s Lender Match tool to find eligible SBA-accredited lenders still offering PPP loans, or you can take a shortcut and apply with Funding Circle. Regardless of who you work with, you have until May 31, 2021, to submit your PPP loan application.

Keep in mind that some lenders have specific eligibility requirements that go beyond the SBA’s. Most will only offer PPP loans to current customers, and others have established lending minimums. This can make it difficult for a self-employed worker or independent contractor looking for a small loan for the first time.

Yes, self-employed workers qualify for SBA loans. The loan amount calculation is different, but most other requirements, spending uses, and forgiveness criteria still apply. Many traditional banks are only looking to lend large amounts to more established businesses, so you may need to look at alternative and online lenders.
Yes, independent contractors are eligible for SBA loans. Whether you’re a freelancer, gig worker, or 1099 contractor, you’re likely eligible for PPP financing to some extent.
Yes, you can get a PPP loan even if you have no employees. Instead of using payroll to calculate your loan amount, you’ll use your gross income.
Yes, you can. Owner Compensation Replacement is part of the eligible use cases for PPP loans, so you could use a PPP loan to provide your personal income. Find answers to more PPP-related questions in our extensive FAQs section on our PPP overview page.


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