How to Utilize PPP Loans
A sole proprietor can pay himself using the PPP loan to cover payroll costs, rent, utilities, and mortgage interest. The amount depends on average monthly net profit. Keep accurate records and separate personal and business expenses. Pay yourself reasonable salary within PPP guidelines.
Sole proprietors or independent contractors with no employees can get a maximum $20,833 PPP loan. The entire amount is eligible for forgiveness as owner compensation. You can pay yourself in a lump sum, weekly checks, or transfer from business to personal account.
Loan Forgiveness and Guidelines
As a sole proprietor with employees, use 24 weeks of payroll and 40 percent for interest, rent and utilities for forgiveness. Forgiveness guidelines on headcount and salary don’t apply to self-employed owners. Sole proprietors must pay full self-employment taxes themselves.
Use PPP funds for owner compensation to cover loss of income. To get full owner compensation, use 11 weeks covered period. Owner-employees with less than 5 percent ownership stake are exempt from PPP owner-employee rule for forgiveness.
Challenges and Options
Many lenders refused accepting both W2 and Schedule C forms from sole proprietors. Sole proprietors have two options: Use the money received to pay themselves, which allows most loan forgiveness. Or, reapply for a bigger loan. Single member LLCs still struggle to get PPP loans.