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Everything Related to the PPP Loan for the Self-Employed
Everything Related to the PPP Loan for the Self-Employed
Although it may feel like the pandemic days are behind us, small business owners and those self-employed still remember the panic and anxiety around paying their employees. With companies shut down, little business income, long waits for supply chain items and the uncertainty of the future, employers were stuck with difficult decisions surrounding the future of their business and the employees that work for it.
Millions of small business owners applied for the Paycheck Protection Plan (PPP) to help cover business costs, like employee payroll. You might have some questions like – are self-employed individuals eligible to apply for this loan? Is there any 1099 PPP forgiveness? Is the income taxable?
Key Takeaways
- The PPP loan came into effect as a response to the pandemic to aid small businesses and those self-employed
- There were three rounds of applications, allowing some businesses to avail the loan more than once
- You need to apply for loan forgiveness from the lender or pay back the money
Table of contents
What is the PPP loan?
In March 2020, the U.S. federal government established the PPP to help self-employed individuals, sole proprietors and certain nonprofit organizations under the Coronavirus Aid, Relief and Economic Security Act (CARES).
The main goal of the PPP loan was to help those impacted by the pandemic. Organizations and self-employed individuals can apply for PPP low-interest loans to help cover payroll and other business costs.
There were three rounds of funding with the first two ending in August 2020. After those rounds finished, the third and final round was authorized by the CAA. There were three funding categories during the final round of the PPP loan for organizations and self employed individuals:
First-draw loans
Second-draw loans
Special cases
Who qualifies for the PPP loan?
A small business with 500 employees or less qualifies to apply for the loan. This includes LLCs, private nonprofits, S Corps, certain faith organizations, C Corps and veteran groups.
If you’re a self-employed individual, like a sole proprietor or independent contractor, and you file Schedule C of Form 1040, you’re also eligible to apply. Although sole proprietors don’t have any employees, they still qualify for the PPP loan for self employed individuals.
If you own a small printing business and have 50 employees, you’ll most likely be eligible for the PPP loan since you have less than 500 employees.
Loan Requirements
Individuals can apply for the self employed PPP loan with any lender that is a participant in the program. To qualify for the PPP loan for self employed individuals, you need to meet certain requirements.
The PPP self employed loan isn’t considered taxable income by the IRS, but the business will need to report loan forgiveness if used to cover business costs. The reporting depends on the business entity. If you’re a sole proprietor, you’ll report this on Schedule C.
PPP loan forgiveness self-employed
Well, a loan is a loan, and the PPP loan is no different. Essentially, money was loaned to companies and businesses to help keep them afloat during the peak pandemic times. But at some point, the borrower will want the money back.
If you received a loan, you’ll need to apply for PPP loan forgiveness for self employed through the financial institution or you’ll be required to pay back the money.
There are certain requirements when it comes to the PPP loan forgiveness for self employed borrowers.
Current PPP Loan News
The PPP loan program ended on May 31, 2021. This means that applications are no longer open after this date. However, you might still need to apply for loan forgiveness or pay back the loan if you haven’t already done so.
Disqualifications for the loan
It would be too simple if every business qualified for the PPP loan. The IRS doesn’t make things easy and there’s an extensive list of parameters that can disqualify your loan application.
Defaulted on an SBA loan
If you defaulted on a Small Business Administration (SBA) loan in the past, you’re suspended or automatically excluded from any small business federal funding. This includes bankruptcy.
Criminal Activity
If you’ve been convicted of any criminal activity or were in jail, on parole, or probation at the time of application, your application will not be approved. This is also the case if you were convicted of a felony in the past five years.
When the business started
Your business needs to have been operational before February 20, 2020. Even missing the deadline by one day will automatically disqualify you from getting approval.
Private equity firm or hedge fund
Private equity firms and hedge funds are involved in investments and therefore disqualified from the loan. Generally, they are also ineligible to apply for any SBA loans. Some portfolio companies may be considered if they meet the affiliation rules regarding ownership and control.
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