Paycheck Protection Program FAQs for Independent Contractors

The Paycheck Protection Program (PPP), authorized under the CARES Act, allows certain small businesses and independent contractors to obtain loans to fund payroll and other operating expenses. The below reflects guidance received to date from the CARES Act, Small Business Administration, and Department of Treasury as it pertains to independent contractors.

Question: Can a third party obtain a PPP loan and use the proceeds thereof to pay me?

Answer: No. Under the PPP, businesses may not use their independent contractor payroll to determine their loan amount. That is, businesses that obtain a PPP loan cannot include in their payroll costs the costs of its independent contractors. Instead, independent contractors may obtain their own loans under the PPP.

Question: Can independent contractors obtain a PPP loan?

Answer: Yes, independent contractors are eligible to receive PPP loans on their own behalf.

Question: When can independent contractors start applying for PPP loans?

Answer: Independent contractors may apply for a PPP loan starting on April 10, 2020 and ending on June 30, 2020.

Question: How do independent contractors apply for a PPP loan?

Answer: Independent contractors may apply through any existing SBA lender and through any participating bank. Interested independent contractors should consult with its local lender as to whether it is participating. A list of eligible SBA lenders can be found at

Question: What are the eligibility requirements applicable to independent contractors that want to obtain a PPP loan?

Answer: To be eligible for a PPP loan, the independent contractor must operate under a sole proprietorship or as an independent contractor or eligible self-employed individual and have been in operation on February 15, 2020.

You are ineligible for the PPP if any of the following statements are true:

  • you are engaged in illegal activity;
  • you are a household employer (ex: you employ nannies or housekeepers);
  • you are incarcerated, on probation, or on parole;
  • you have criminal charges brought against you;
  • you have been convicted of a felony within the last five years; or
  • you have obtained a loan from the SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and has caused a loss to the government.

Question: What documentation must independent contractors submit to obtain a PPP loan?

Answer: To show eligibility for the PPP loan, the independent contractor must submit certain documentation, including payroll tax filings reported to the IRS and Forms 1099-MISC. If you do not have this documentation, you must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount. Independent contractors should work with their lenders to determine what documentation and forms will be required.

Question: What can independent contractors pay using PPP loan proceeds?

Answer: Independent contractors can use proceeds from a PPP loan to fund their:

  • “payroll costs,” which, for independent contractors, include wages, commissions, income, or net earnings from self-employment or similar compensation. Note that payroll costs are capped at $100,000 on an annualized basis;
  • interest on mortgage obligations incurred before February 15, 2020;
  • rent on a lease agreement that was in force before February 15, 2020;
  • utilities for which service began before February 15, 2020.

Note that it is not clear at the current time whether interest on mortgages, rent, and utilities would include such costs relating to an independent contractor’s personal residence, as opposed to a place of business, or how and to what extent such costs would qualify where the independent contractor’s personal residence is used for business purposes.

Question: What is the maximum amount that independent contractors can borrow under the PPP?

Answer: The amount of the PPP loan provided to the independent contractor will be calculated based on the sum of payments of any compensation to or income of the independent contractor that is a wage, commission, income, or net earnings from self-employment or similar compensation, not to exceed $100,000 in one year (or prorated if the independent contractor has not worked for more than a year). After aggregating your payroll costs (which may not exceed $100,000), you will divide by 12, then multiply by 2.5 to obtain your maximum loan amount. For example, and generally speaking, the maximum loan amount for an independent contractor that had $80,000 in payroll costs in calendar year 2019 would be calculated as follows:

$80,000 ÷ 12 x 2.5 = $16,667

To calculate your payroll costs when determining your loan amount, you can aggregate the costs during the previous 12 months or from calendar year 2019.

Question: What if the independent contractor was not in business from February 15, 2019 through June 30, 2019?

Answer: For any independent contractor that was not in business from February 15, 2019 through June 30, 2019, the maximum loan amount may be calculated using his or her payroll costs from January 1, 2020 through February 29, 2020. The independent contractor will multiply this amount by 2.5 to obtain the loan amount.

Question: Is any portion of the PPP loan forgivable? Do I have to pay it all back?

Answer: Expenses incurred on payroll costs and other eligible costs during the 8-week period following receipt of the loan from the lender may be forgiven and do not need to be repaid. For expenses to be forgiven, a loan forgiveness application (which has not yet been released to the public) must be completed after the 8-week period. Keep records of your payroll and other business expenses, as these will be required in order to complete the loan forgiveness application.

Question: What happens if less than all of the PPP loan is forgiven after 8 weeks?

Answer: Any remaining loan amount that is not forgiven must be repaid within 2 years, which will incur an interest rate of 1% per year.

Question: When do independent contractors have to repay a PPP loan?

Answer: There is a six month deferment of principal and interest on all PPP loans. All PPP loans must be paid in full after two years from the date the PPP loan is made.

To stay abreast of the emerging legal issues raised by the coronavirus pandemic, Lewis Rice has formed a COVID-19 Task Force, which brings together subject matter authorities from various practice areas within the Firm who stand ready to assist our clients as they navigate these complex challenges. Our attorneys are closely monitoring these developments as they occur and will make regular updates to our COVID-19 Resource Center. If your business is unsure about any aspect of the PPP, or the federal government programs available, please reach out to one of the authors above or another member of the Task Force.