Yes, you can get a PPP loan to start a business even if you haven’t formed an LLC.
Many startups, freelancers and side hustlers believe they are ineligible for a PPP loan because they have not formed an LLC or S-Corp. But, if you filed a Form 1040 Schedule C with your 2019 tax return, you are likely eligible for a PPP loan. Even if you have never formed an LLC or filed an incorporation status with your state, anyone who utilizes a 1040 tax form is considered a sole proprietor of a small business. As a result, your business may be eligible for a PPP loan.
But how do you go about getting one? This article will provide you with all the information you need regarding PPP loans beyond the question, “Can I get a PPP loan to start a business?”
Who May Apply To Get a PPP Loan To Start a Businness?
You may be eligible for a PPP loan as a sole proprietor or independent contractor if all of the following apply to you:
- You were in operation on February 15, 2020. You cannot anticipate receiving PPP payments if your business only recently started operating in March or April (barring a very small number of exceptions).
- You are in America the majority of the time. (You don’t have to be a US citizen);
- Your business has filed a 2019 or 2020 tax return with the IRS. This makes reference to a Schedule C on a Form 1040 for 2019 or 2020 that lists self-employment income from independent contractors.
- Organizations with close ties to China are not eligible for an additional draw PPP loan.
- Additionally, to be qualified for the loan, you must verify in good faith that it is “essential to finance [your] ongoing activities” (In other words, PPP loans should be your only way of accessing needed money.)
What if I Lack a Business Checking Account, an EIN, or Employees?
You can qualify even if you lack some of the usual trappings of a small business, such as a business checking account, an Employer Identification Number (EIN), or staff. As a sole owner who submitted the required 1040 Form on your 2019 tax return, you will be able to demonstrate that your side-hustle is, in fact, a small business, and your PPP loan application should be approved.
What Are the Requirements for Applying?
The second round of the PPP loan program is slightly different from the first. For example, the maximum number of employees was reduced from 500 to 300, and the maximum loan amount was reduced from $10 million to $2 million.
These changes are unlikely to effect you as a small firm, freelancer, or self-employed individual. Everyone who receives a 1099, as well as those with 1065s or 1120s but no workers, may be eligible. To be eligible, you must meet the following requirements:
- Your company must have been in operation prior to February 15, 2020.
- You must be a resident of the United States.
- For 2019, you must have filed a Form 1040 Schedule C.
- In your 2019 tax return, you must have showed a profit.
- For 2020, you must file Form 1040 Schedule C.
- You must be able to demonstrate a 25% decrease in gross receipts in a 2020 quarter compared to the same quarter in 2019.
- If you received a PPP loan in round one, you must spend it before applying for round two.
How Much Money Might I Possibly Receive?
The amount is established for corporations based on their average monthly payroll expenses. Companies can apply for a loan worth up to 2.5 times their typical monthly salary. Payroll calculations will not apply to you as an independent contractor or self-employed individual because you do not have any workers. Instead, your loan amount must be calculated using your 1040 tax form.
To determine your maximum loan amount, first subtract the amount from your 2019 Schedule C income on line 31 of your tax return. Then divide that total by 12. Next, multiply that number by 2.5 to get your maximum loan amount. Here are a few samples of how that might look:
Split by 12 X 2.5, net profit (Final Loan Line 31 Months Amount) $30,000 $2,500 $6,250 $60,000 $5,000 $12,500 $90,000 $7,500 $18,750
What Can I Do With the PPP Loan Money If I Don’t Have Any Employees or Payroll?
Self-employed individuals, independent contractors, and sole proprietors will be exempt from the necessity to maintain their employees’ employment status and current payroll. To qualify for loan forgiveness, you must spend any loan funds on a qualifying expense as specified in your forgiveness application. Some expenses that freelancers can deduct include:
- Cash gratuities
- COVID-related safety precautions
- Mortgage payments
- Costs incurred by suppliers
- Leave for parental, family, or medical reasons
- Civil unrest causes property destruction.
- Rent
- Pension benefits
- Sick leave
- Software
- Some operational supplier costs and expenses
- Utilities
- Costs of uninsured property damage caused by looting or vandalism in 2020
- Vacation
When Does the Loan Have to Be Paid Back?
Deferred payments are available on all PPP loans for a period of 10 months. If you achieve specific standards by spending your loan money on the above-mentioned permitted forgiving expenses, you may never have to pay anything back. You must, however, petition for forgiveness through your lender. Your lender will also provide you with additional repayment information based on your unique loan.
4 Simple Strategies for Getting Your PPP Loan Approved
If the first round of PPP loans taught us anything, it is that time is of the essence when applying for these loans. Begin today by following the suggestions below to guarantee that your loan is submitted, authorized, and funded as soon as possible.
Determine Your Loan
First, you must demonstrate that your gross income decreased by 25% in any quarter of 2020 as compared to the same quarter in 2019. After you’ve confirmed that, you can compute your loan amount by averaging your total gross profits from 2019 on line 31 of your 1040 Schedule C tax return.
You’re out of luck if this value is negative. If it’s positive, multiply that figure by 12 to get your monthly average. Simply multiply your monthly average by 2.5 to determine your maximum loan amount.
Have all of your paperwork prepared.
To apply for a PPP loan as a freelancer, you will need the following documents:
- Schedule C of your 2019 1040
- Any 1099 forms that you received in 2019
- Bank statements to prove you were in business prior to February 15, 2020
- A copy of an unexpired government-issued driver’s license, passport, or other state-issued identification (copies of front and back)
- Borrower Application Form for PPP Second Draw
- Email address as of today
- To receive funds from your lender, you must provide electronic funds transfer details.
If necessary, apply to multiple lenders
Some lenders will only accept PPP loan applications from current clients who have business accounts. If you do not already have a business account with a bank or credit union, you may need to look for a lender who accepts freelancer applications. You are permitted to apply to many lenders in order to maximize your chances of approval. But, you must remove any current applications as soon as you receive lender permission.
Apply as soon as possible
The first round of PPP loans were approved on the basis of first-come, first-served. As a result, monies were quickly depleted for those who applied first. While round two includes some requirements for qualified borrowers with fewer than ten employees, time is still of the essence when applying for a PPP loan.
Don’t Forget to Request for Forgiveness When Your Loan Is Authorized
If you’ve used up all of the loan’s funds, you can apply for loan forgiveness at any point before the loan’s maturity date. Further information on how to fill out and submit your forgiveness application can be obtained from your lender. Note that in order to qualify for loan forgiveness, all monies must be spent on eligible costs.
PPP Loans for Overworked Freelancers
We understand that freelancers and side hustlers are extremely busy. Therefore, here are the major takeaways from round two PPP loans for you:
- You are free to apply without incorporating.
- You must have filed a 1040 Schedule C with the IRS in 2019.
- In 2019, you must have made a profit.
- You must have seen a 25% drop in gross profits in any quarter of 2020 when compared to the same period in 2019.
- During 2019, your loan amount can be up to 2.5 times your typical monthly income.
- When utilized for eligible purposes, loans can be forgiven up to 100%.
Can You Get a PPP Loan to Start a New Business?
Can you still acquire a PPP loan if your new business launched in 2020? Yes, but only if you have a working system on February 15, 2020.
How Long Do You Have to Have a Business to Get a Ppp Loan?
A PPP loan can only be applied for by companies that have been operating for at least 15 days as of February 15, 2020.
Can I Get a PPP Loan to Start If I Don’t Own a Business?
To be eligible for PPP loans, you don’t need to be registered as a business or have the LLC status. PPP funding applications are accepted from sole proprietors, independent contractors, and freelancers.
How Can I Get a PPP Loan to Start a Business
The following information is required if your lender is a PPP participant. Lender-specific guidelines and accepted paperwork are subject to change. These suggestions will be revised if and when the SBA issues new guidance.
Step 1: Start by logging into your PPP application.
When you make a PPP loan request on SBA.com®, you are sent to your PPP application with their partner. If your request was recently filed, you should already be here. Your application will be sent to one of the approved PPP lenders in the partner’s marketplace when it has been processed by the partner and has received the necessary data and supporting documentation.
The actions listed below will enable you to access your application again if you’ve already left the application portal. Your login information for the application site should have already been emailed to you by our partner. If you can’t find this email, you can reset your password using the email address from your loan request, then log in to access your application site. Your login information won’t change whether you access the partner’s website via SBA.com® or our partner. Select “Edit Application” to examine your existing information and fulfill any pending criteria after logging into the application portal.
The application then needs to be finished with our partner before being submitted to a lender.
Step 2: Add new business information or update current data
Please be sure to complete each field in this section. Please take your time reading the sections that follow.
- Double-check the address’s accuracy, paying close attention to the 5-digit zip code in particular (it must be the 5-digit zip code and not the 9-digit zip code) (it must be the 5-digit zip code and not the 9-digit zip code).
- Verify that you’ve chosen the appropriate business category. This has an impact on any documents you would have to submit.
- Business Tax ID: Please double-check that the 9-digit tax identification number you submit here is entered correctly the first time. Make sure the ID number contains nine digits, and then double-check it for any mistakes.
- Your loan request should be for 2.5 times your typical monthly payroll costs. The answer shouldn’t be 0. The limit should be set at no more than a few hundred million dollars. Check out their PPP loan calculator for assistance.
- Make sure there are 1 to 500 employees. 1099 employees and independent contractors must enter 1. Zero is not a frequently used number.
Step 3: Add fresh business data requirements
You must fill out these new mandatory fields on the application’s “Business Information” page.
- Your filing with the Secretary of State’s office must begin on the same day as this one.
- Select “industry” from the list of suggestions that show when you start typing. If your industry isn’t listed, choose the option that most closely resembles it. The SBA cannot accept applications without an industry.
Step 4: Log in or verify ownership
Verify the applicant’s ownership interest on the first “Owner Information” page. It takes more than 0% ownership.
Step 5: Add or validate additional owner information
Then, as required, finish or verify each owner’s information (if any). If a person owns at least 20% of the company, their information must be disclosed. The date of birth is one of the required fields on the “Additional Owner” page. (On the “E-Sign” page, you will also be prompted for the applicant’s owner’s birthdate.)
Each owner’s driver’s license front and rear must be reproduced in color. You need to upload the copies to the “Documents” section, since we wanted to make sure you were aware of this in advance (you will be requested to do so next).
Step 6: Upload or Confirm Documents
To guarantee that your PPP application is complete, you must upload the necessary paperwork to the “Upload Your Documents” page, check that it is accurate, and add any missing documents.
Please submit the following documents with your application, if you haven’t already:
- If the owner owns 20% or more of the business, a color copy of the front and back of each owner’s driver’s license must be personally given. Verify the driver’s license’s validity one last time.
- The following payroll papers are acceptable, according to the SBA’s apparent priority list:
Business requests seeking PPP financing:
- In the quarter, 941 tax returns were submitted (2019, 2020 Q1)
- Tax returns each year: 944 (2019)
- the year’s worth of payroll records
- bank statements for the most recent fiscal year
Requests for PPP loans from independent contractors or self-employed individuals:
- Tax Schedule C on Form 1040
- 1099s (under which you were compensated) (under which you were paid)
- Financial reports and costs for 2019
For all candidates
- bank statements for business accounts
- Any more proof of your payroll expenses?
Step 7: Check your email to see if any additional information has been sent to you by our affiliate or your lender.
Your application will be made public on our partner’s lender marketplace once it has been authorized and finished with them. The decision to accept your application and issue you a PPP loan rests with a PPP lender. Your lender and/or the partner will send you a confirmation email if your application is approved. To ensure you may acquire your loan, be sure to thoroughly read these emails and adhere to all directions.
How Can I Start My Own Business with No Money?
Selling your services is the fastest way to launch a business without any capital. Being better than the typical person at something allows you to create a business that benefits them, even if you haven’t fully mastered it.
Is PPP Still Available 2023?
On May 31, 2021, the Paycheck Protection Program (PPP) came to an end. A PPP loan forgiveness program may be available to current debtors.
What Is the Cheapest Fastest Way to Start Your Own Business?
These suggestions for low-cost company ventures will pique your entrepreneurial interest:
- Personal or virtual assistant.
- Event planning services.
- Errand/concierge service.
- Content creation.
- Professional reviewer.
What Is the Easiest Business to Start with Little Money?
With a little startup cash, food delivery is one of the most profitable businesses. It doesn’t require much money to get started. This kind of business is even open to home entrepreneurs.
Conclusion
This page, which sought to provide more information, was about the Paycheck Protection Program, or PPP. The first and second PPPs differ just a little bit. Since the first round of PPP was unable to assist all small companies, the SBA began the second round in compliance with the Economic Aid To Hard Small Business, Nonprofits, and Venues Act. On March 31, 2020, it began.
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CAN I GET A PPP LOAN TO START A BUSINESS: References
