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Paycheck Protection Program (PPP) and Loan Forgiveness for Sole Proprietors

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The PPP is a government loan program intended to help small businesses weather the financial effects of the COVID-19 pandemic.

This post is going to focus on the PPP loan as it relates to and affects one-person operations such as 1099 contractors, sole proprietors, solo LLCs, and gig economy workers.

Determining Eligibility and Applying For The PPP

To apply for a PPP loan you need to find a lending institution and submit an application. You can access the Small Business Administration (SBA) website to find a lender near you or apply from your Azlo dashboard through one of our lenders.

As a sole proprietor, 1099 contractor, single-member LLC, or a gig economy member, you may be eligible for a PPP loan. Speak with a lender and fill out an application to determine exact eligibility.

Loan details As with any loan, it’s important to understand the terms.

The PPP loan has a two-year maturity timeline with a 1% interest rate. The interest begins to accrue as soon as funds land in your account.

If your loan is forgiven (either fully or partially), so is the applicable interest.

For portions of the loan that are not forgiven, all payments are deferred for six months, during which time the interest accrues at a rate of 1%.

There is no prepayment penalty for paying off the loan early.

The PPP loan can be forgiven if you follow certain criteria as outlined below.

How much money can you receive?

As the name implies, the Paycheck Protection Program has the intention of helping protect your income. You can receive a loan amount that is based on your salary, up to $100k per annualized period. But, one important caveat is that 2019 earnings come into play as well.

When determining how much money you can receive, you have to include 2019 business earnings. If you only made $50,000 in 2019, you have to calculate an equivalent 8-week salary (based on 2019 earnings), and the loan amount can’t surpass that.

PPP Loan Forgiveness

The SBA has structured the PPP loan so that those that are eligible for the loan are also inherently eligible to have it forgiven if certain criteria are met.

It is strongly recommended that you keep detailed documentation of how you use the loan so that you have an easier time having it forgiven.

What are the criteria for PPP loan forgiveness?

In order to have your loan forgiven, you need to use a certain amount of the loan exclusively for payroll expenses (as a sole proprietor, essentially you are going to use the loan to pay yourself).

Originally, forgiveness of the PPP loan was possible if recipients of the loan spent at least 75% of the loan on payroll expenses within 8 weeks of receiving the loan. The other 25% was eligible to be forgiven as long as it was spent on ‘non-payroll forgivable’ expenses, as explained below.

However, the House of Representatives recently voted to extend the 8 week period to 24 weeks and will soften the 75% threshold to only 60% to be used for payroll expenses.

You can have 100% of the loan forgiven. Or, a portion of the loan can be forgiven, depending on how you spend the money.

For example, under the new thresholds, if you use 60% of the loan for payroll expenses, 10% on non-payroll forgivable expenses, and 30% on other miscellaneous costs, then 70% of the loan is eligible for forgiveness and the remaining 30% would have to be repaid

Keep in mind that this new rule is, well, very new. You will probably continue to see for a period of time the original 75%/25% ratio criteria for loan forgiveness. Make sure you check with your lender about how they are handling this change.

What exactly is included in payroll expenses?

This is broken down very well in the Azlo PPP loan forgiveness webinar. But basically, payroll includes cash compensation and benefits.

Cash compensation includes salary, commissions, tips, and some leave. Employer-paid payroll benefits include health insurance, retirement contributions, and state and local taxes.

The other 40% can be used to cover other financial obligations as they relate to maintaining your business operational.

What non-payroll expenses are considered forgivable?

A good rule of thumb is if you file for a tax deduction for the cost of utilities under normal (pre-Covid era) circumstances, you can probably use 40% of your PPP loan for those expenses. These include:

  • Mortgages interest payments (but not principle)
  • Rent
  • Utilities - as they relate to your business. The SBA considers utilities as electricity, gas, water, internet, and transportation - again, as necessary to conduct business.

These expenses need to be “essential” for running your business. If not essential, it probably will not count as a forgivable expense.

Can I use more than 60% of the loan to cover payroll costs and still have the loan forgiven?


What if you don’t meet the 60% payroll threshold, does that mean that no part of the loan is forgiven?

No. In this case, the portion of the loan that was used for payroll costs or other forgivable costs can be forgiven while the rest of the loan will have to be paid back, at a 1% interest rate. So you won’t get the entire loan forgiven, but a portion of it will be eligible to be forgiven.

Will individual lenders have different requirements in order to have the PPP loan forgiven? In essence, no. But there may be some level of interpretation on the part of each lender of the documents required from the borrower.

What steps do you need to take in order to have your loan forgiven?

It’s important to note that you have to apply for forgiveness with your lender.

Again, maintaining thorough documentation of PPP loan amounts and how you used the funds will help you and the lender when it comes to forgiveness.

So keep invoices, salary, and receipts for payments made (like utilities).

If you are a sole proprietor and don’t have a business bank account, you may want to think about opening one up in order to simplify the documentation process. Trying to separate business expenses from personal ones in a personal banking account can quickly become overwhelming.

How can you prove that you are paying yourself from the loan?

Again, if you don’t have separate business and personal bank accounts, things can get murky and complicated. If you have a separate business account, you can more easily show that you are paying yourself. For example, you could transfer an amount monthly or bi-monthly from your business account to your personal and label that transfer as a salary or a draw.

Can you contribute to your retirement accounts with PPP funds?

As a sole proprietor, you receive earnings based on your work, and then decide how to save and spend your earnings. For determining PPP loan amounts, the loan is on your earnings only, so retirement contributions aren’t factored into that in terms of loans.

If you receive a PPP loan and then pay yourself a draw or salary (and if you want the loan forgiven you are aiming for at least 60% of your total PPP for payroll), you can then choose how to save your salary.

Are you still thinking about applying for the PPP loan?

If you are on the fence about applying for a loan, the best thing to do would be to reach out to a lender.

In the first round of PPP, funds were extinguished very quickly. However, at the time of this writing, about $120 billion in PPP funds still remain available for small businesses and sole proprietors to take advantage of.

Be sure to check out the Azlo COVID-19 resource center for more useful information on loans and other tips and inspiration for keeping your business going!

Evan Thomas
Evan Thomas lives in Seattle and enjoys writing about personal finance, small business, and healthcare. He is passionate about improving people’s physical and financial well-being as well as exploring our great planet. You can find him at

Hi there! This post exists to offer you (hopefully) useful information and insights, but it cannot take the place of personalized professional advice. Please consult a qualified expert if you have questions about your business. Also, Azlo doesn’t endorse any third-party sites that are linked here.

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