If you’re a self-employed sole proprietor who files a Schedule C along with your 1040 tax return, a recent announcement by the Small Business Administration (SBA) may come as good news. Congress intended for the Paycheck Protection Program (PPP) forgivable loan program to provide broad relief to small businesses. However, many small businesses reflect nominal income on their Schedule C or even a loss which means a small PPP loan or none at all.

Beginning with applications after March 3^rd, self-employed PPP loan applicants can apply for their first draw and second draw PPP loan using gross income (line 7 of their Schedule C) rather than net income (line 31 of their Schedule C).  Loans will continue to be capped at $20,833 for the applicant assuming their Schedule C reflects at least $100,000 on their 2019 or 2020 Schedule C (either line 7 or line 31).  Loans can also include 2.5 months of the average payroll for employees of the applicant if any.  The maximum loan for each employee is also capped at $20,833.  Ask us or your banker if you have questions about the amount of loan you might qualify for.

As before, you must have been in business as of February 15, 2020.  A significant change to the PPP rules for self-employed borrowers is the economic necessity of safe-harbor.  Previously, the economic safe-harbor for all borrowers was set at $2 million.  That is, the assumption was that borrowers with loans less than $2 million needed the money to stay in business.  The new rule has reduced this safe-harbor for self-employed first draw borrowers to $150,000. So, if this is your first PPP loan and you base your loan on the gross income reported on line 7 of your Schedule C – be sure you really need this tax-payer funded loan to maintain your operations or you may be challenged by the SBA when you apply for loan forgiveness.

PPP loans are available through March 31^st so time is of the essence if you intend to apply.  We recommend you reach out to your lender as soon as possible to apply.  As always, we are available to help answer your questions throughout your PPP journey.