SBA PPP Loan Guidance on Sole Proprietors & Self-Employed Businesses

First Southwest Bank • April 14, 2020

The following information is based on our interpretation of the CARES ACT, the SBA Interim Final Rule (and amendments), as well the guidance from the US Treasury in their FAQ’s (as updated).
How do I know if I am considered Self Employed or a Sole Proprietor?

  1. If you receive 1099 statements for income.

  2. If your income is reported in the Schedule C or Schedule F of your personal federal income tax return.

Is there a difference between how the loan amount is calculated and what I can use the loan proceeds for?
Yes. The loan amount calculation uses ONLY the eligible payroll/wage expenses, BUT you can use the money from the loan for more than just wages or payroll expenses, so long as those expenses do not exceed more than 25% of the loan.

What does the bank need from me to verify eligible payroll/wage expenses under the self-employed or sole proprietor category?

  1. If you are self-employed we can accept 1099 statements from your sources of income. We cannot use 1099 statements for contractors that you pay, since they can apply for their own PPP loan.

  2. We can accept a P&L statement from 2019 if it outlines owners’ compensation. If it does not, the Net Profits for business are used for the payroll/wage calculation.

  3. For sole proprietors we can also accept copies of banks statements with cancelled checks showing the amount paid to w-2 employees and the business owner

  4. Payroll summary reports for the 12 months preceding the loan OR the prior year (12 months) 2019

  5. 940 or 941 reports

Can we add or combine the different ways in which we pay individuals, that might account for our overall eligible payroll costs?

Yes. So long as they are all eligible methods of consideration for payroll expenses. For example: The owner pays commissioned employees in the sales staff; they pay w-2 wages for other employees; and they pay a stipend or per diem (instead of mileage) to their delivery drivers. These can all be combined to account for the eligible payroll costs of the company.

It is not acceptable for us to use Schedule E income of any kind, including rental income, distributions, withdrawals or guaranteed payments from S-Corps, LLC’s or other entities, that would be reflected in K-1 statements.

What documentation do I need to provide for loan forgiveness for the 8 week period after loan closing?

  1. Copies of checking account statements and cancelled checks to prove how you spent the money (need to show that at least 75% went towards eligible payroll/wages and 25% towards eligible rent, mortgage interest or utilities) AND how much you paid yourself or employees (if you do not have a payroll register).

  2. Copies of payroll registers or summary payroll reports for the 8 week period (most will likely not have quarterly payroll statements yet) but if you do, we can accept those as well.

  3. A P&L statement (for sole props only) for the 8 week period post loan closing showing eligible costs/wages/payroll.

  4. Most self-employed individuals will not yet have 1099 wage statements, so we can accept a statement from your 1099 provider on how much you have been paid to date.