How to Apply for the Independent Contractor PPP Loan Before the Deadline

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Mar. 23 2021, Published 11:11 a.m. ET

The application period for the latest round of Paycheck Protection Program (PPP) loan funding is set to expire on Mar. 31. This time, it's not small businesses who are getting the focus. Rather, it's the self-employed and other members of the gig economy, which makes up as much as a third of the workforce.

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Who can take advantage of this forgivable loan, and how should they go about it? 

Who's eligible for the self-employed PPP loan?

Any independent contractor, sole proprietor, or self-employed individual with no employees is eligible for the latest PPP loan. As long as you were in operation on Feb. 15, 2020, you live within the U.S., and you filed (or will file) a Form 1040 Schedule C on your tax return showing self-employment income, then you're eligible.

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To be certain, you will go through the eligibility approval process with your third-party lender for confirmation. 

How the PPP loan is calculated for independent contractors

For small businesses with employees, a portion of the funds provided by the PPP loan were reserved for payroll. There was also a portion of funds reserved for the "owner's share." 

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For independent contractors eligible for the current PPP loan round, the total funding is calculated based on the owner's share alone. This way, a no-employee operation is still getting support, but at a level that's in line with the original PPP loan.

The PPP loan lets eligible individuals get two draws, up to $20,000 each. To find out how much you're eligible for, refer to your gross income. You can find this on Line 7 of a Schedule C filing form 2019 or 2020. 

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Take the gross income for the year and divide it by 12 to get a monthly gross income. Take this new number and multiply it by 2.5. This is the total amount of funding you're eligible for with each draw. If the number you get is more than $20,000, then you're eligible for $20,000.

Say you made $53,000 in gross income last year. Your monthly rate is $4,416.66. Multiplied by 2.5, that equates to $11,041.61 per draw.

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You may only be eligible for a second draw if your 2020 income proves lower than your 2019 income (aka a revenue reduction). 

The new PPP loan is 100 percent forgivable

Small business owners with employees were required to provide proof that they allocated their payroll funds appropriately, specifically to employees or contractors within the U.S. However, since independent contractors are only getting the owner's share, there's no need for an appropriation process. Your eligibility for full forgiveness is automatic, so you can use the simplified PPP Loan Forgiveness Form 3508S to apply for forgiveness. You don't even need a business account to do so, though it doesn't hurt to have all your information in one place.

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How to apply

The SBA uses third-party lenders to help them allocate PPP loan funding. You can find lenders that match your needs on the SBA website. Additionally, you can refer to your accountant (as a self-employed individual, you're likely to have one) who may charge a small fee to help you through the entire process.

Once you're approved and you submit your application, the program you used will send you some documentation to sign, including a promissory note. The funding should drop in your account within 10 calendar days, though heavy demand may delay this. 

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Will the government extend the Mar. 31 deadline?

The House of Representatives on Mar. 16 passed a deadline extension for the new PPP loan application period. If the Senate approves the move, independent contractors and other self-employed individuals with no employees will have an additional two months to complete their application. This would push the deadline back to May 31.

Currently, the Small Business Administration (SBA) has until June 30 to process applications that come in ahead of the existing deadline. 

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