The Paycheck Protection Program CARES About Sole Proprietorships and the Self-Employed

by | Apr 1, 2020 | Business Services

With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress established the Paycheck Protection Program (PPP).  The PPP provides qualifying small businesses impacted by the COVID-19 pandemic with SBA loans that can be used to cover payroll as well as other operational costs.  The best part is, these loans are potentially forgivable.  While traditional small businesses with less than 500 employees will significantly benefit from PPP, so can sole proprietors and independent contractors.  PPP loans are also available for “eligible self-employed individuals” which are defined as individuals who regularly carry on a trade or business and would otherwise be able to receive paid leave if employed by someone other than himself or herself.

Eligible self-employed individuals, sole proprietors, or independent contractors can apply for a PPP loan and use the proceeds just like any other qualifying business.  An overview of the terms of the loan under the program is as follows:

Maximum loan amount: Qualifying borrowers can obtain a PPP loan for 2.5 times their average monthly payroll costs (not to exceed $100,000.00/year for each employee) based upon the prior year’s expenses, up to a maximum of $10,000,000.  UPDATE: Gross or Net Payroll Under the Paycheck Protection Program?

What if you file a Schedule C?  In typical government fashion, the definition of payroll costs has led to some confusion.  One portion of payroll costs is:

“the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000.00 in 1 year, as prorated for the covered period”

So what does that mean?  As defined, this seems to indicate that you include people you are paying as an independent contractor (up to $100,000.00 per contractor) and whatever your Schedule C profit was (up to $100,000.00).

UPDATE: How to Obtain a PPP Loan if You Receive a K-1

Allowable uses for PPP proceeds: Loan proceeds can be used for the same specific “allowable uses” that apply to other small businesses.  The uses include: payroll costs; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums; employees’ salaries, commissions, or similar compensations; payment of interest on any mortgage obligation; rent; utilities; and interest on any other debt obligations incurred prior to the covered period.  

PPP loans used for the allowable purposes and that meet other simple requirements may be eligible for forgiveness and may not need to be repaid.  The CARES Act and specifically the Paycheck Protection Program, provide a great opportunity for businesses to continue to operate amidst the Coronavirus pandemic.  Burke Costanza & Carberry remains committed to providing guidance and counsel to its clients as we all move forward in these unprecedented times.   Should you have any question regarding the CARES Act or Payroll Protection Program, please contact Chad Nally at, for additional information. 

More about Chad W. Nally

More about Chad W. Nally

Chad Nally is a Partner at Burke Costanza & Carberry, LLP and a member of the firm’s litigation and business practice groups. Chad’s practice primarily focuses on representing both businesses and individuals in the areas of creditor’s rights, collections, and commercial litigation. Chad is also a disabled veteran who assists other veterans with their legal needs.