I want to talk about sole proprietor PPP loan applications.
More specifically, about PPP loans for sole proprietors who don’t employ other workers as W-2 employees.
But some backstory…
Why this Post for Sole Proprietors
Over the last few weeks, a nice fellow has been painting my house. Great painter. The house, when he’s done, will never have looked better.
Which doesn’t have anything to do with your sole proprietorship or with PPP loans. Except for one thing. In talking with the painter, I learned that he had failed to obtain a PPP loan earlier in the year. Though he clearly deserved one…
I also learned that his brother, another self-employed painter, failed to get a PPP loan.
And then, no surprise, their dad who is also a painter? Yeah, he failed to get a PPP loan, too.
Partly, the guys didn’t realize PPP loans amount to free money.
But mostly the PPP loan application program proved too complicated and confusing. Which turns out to have been true for too many small business owners.
Accordingly, I’m going to explain here how to fill out the PPP application for a sole proprietor without W-2 employees. The actual work of completing the application takes, no kidding, about two minutes.
But before I get to that, let me explain why I’m getting all pushy and nervous (on your behalf) about this.
Why Sole Proprietors Want to Get Ready to Apply for a PPP Loan
The actual PPP program ended August 8, 2020. A business owner can’t therefore apply for a PPP loan right now.
But business owners need to be ready to apply. Why? Proposed legislation from Senator Marco Rubio may restart the PPP briefly sometime after Congress returns after the Labor Day weekend.
And then, the other key thing to know. If Congress does restart the PPP, the pool of money may get drained fast.
Note: The new PPP loan “phase,” if it is based on Senator Rubio’s bill, will allow some borrowers get a second draw PPP loan. That will use up money fast. And it will also allow some earlier PPP borrowers to increase their earlier PPP loan balance. That will use up money fast.
You can understand why I’m nervous on your behalf… You want to plan ahead. You probably need to move fast.
Applying for a Sole Proprietor PPP Loan
To apply for a sole proprietor PPP loan, you want to have your 2019 1040 tax return done.
Why? Because the Schedule C page of your tax return sets the loan amount. See the fragment of a Schedule C shown below? That bottom line $48,000? That sets your loan amount if you’re a sole proprietor without employees.
The actual loan amount formula? You get 2.5 months of your average monthly Schedule C profits.
So, if you made $48,000 in 2019, that means you averaged $4,000 a month. I calculate this amount by taking $48,000 and dividing that value by 12 months.
And then the loan amount? Well, 2.5 times $4,000. So $10,000. That’s it. That’s the number for a sole proprietor without employees who made $48,000 in 2019.
Applying for PPP Loan
The top part of the form, shown below, provides the fields you fill in. Notice that you provide your name and address and your taxpayer identification number. And then you provide the monthly payroll amount and calculate the appropriate loan amount. And that’s the only hard part…
You will provide a bit of additional information in order to apply. For example, you will identify the sole proprietor by filling in a few blanks:
And then you go through some checklists.
The first checklist, for example, asks you indicate whether you (you’re the applicant) have or haven’t done some stuff:
The second checklist, shown below, asks if you’ve been in trouble with the law, whether the business’s employees (this just means you) reside in the US, and whether you’re a franchise operator:
Finally, a last checklist asks you to initial a small list of “certifications.” The first certification, for example? That you were “in operation” on February 15, 2020. The fragment below shows this part of the application:
But that is it. The only other thing you do is sign and date the application.
Like I said, for a sole proprietor without employees? This PPP application should be a snap. Two minutes or less. Once you have your Schedule C printed out or on the screen in front of you.
My suggestion? Grab the application. Get it filled out (using the information from your Schedule C form.)
Then talk with your regular bank about whether they will restart their PPP lending program if Congress restarts the program.
If they won’t? Talk any other local banks you know. The smaller community banks may be your best bet.
And then be ready to apply if Rubio’s bill passes.
P.S. Very possibly, the bank won’t actually have you fill out the official Small Business Administration application form. PPP lenders can create online versions you fill out using a computer. You should complete the actual PPP application, however, since it steps you through the calculations and collecting the needed bits of information.