Do I Qualify for the PPP Loan?

Owen Yin

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May 31, 2021

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Editor’s Note: The Paycheck Protection Program (PPP) ended on May 31, 2021. Information on getting your loan forgiven can be found in our complete guide to PPP loan forgiveness. For other small business loans offered by the SBA, visit our guide to SBA loans.

2021 PPP loan eligibility

First draw PPP loans

If the following statements apply to your business, you were eligible to apply for your first PPP loan in 2021.

Your business was operational before February 15, 2020
Your business was open and operational
You had no more than 500 employees
If your business had multiple locations, you had no more than 500 employees per location

Second draw PPP loans

If the following statements apply to your business, you were eligible to apply for your second PPP loan in 2021.

You had used up your first PPP loan
Your business was operational before February 15, 2020
Your business was open and operational
You had no more than 300 employees
If your business had multiple locations, you had no more than 300 employees per location
You could show a 25% or greater reduction in gross revenue

Showing a 25% or greater reduction in revenue

A 25% or greater reduction could be shown in one of two ways:

Comparing your annual gross revenue as reported on your tax return in 2020 to 2019
Comparing your gross revenue in any quarter in 2020 with your revenue in the same quarter of 2019

For example, if a business wants to use the second quarter (Q2) of 2019 where they recorded $20,000 in gross revenue, they are eligible if they recorded a gross revenue of $15,000 or less in Q2 2020.

Further reading: How to Calculate a 25% Reduction in Revenue for PPP 2

General disqualifiers for the PPP loan

If any of the following statements apply to your business, you were not eligible for any PPP loan.

You were not in operation on or before February 15, 2020
You only employed household employees such as nannies or housekeepers (this is not considered a business)
An owner of 20% or more of the business had a prior fraud related criminal record
You, or any business owned or controlled by you or any of your owners, was delinquent or had defaulted on a loan from the SBA or any other Federal agency within the last seven years (this excludes federal student loans)
You or your business was bankrupt or were in bankruptcy proceedings
You were an officer or key employee of the lender you applyed with, or a close relative of one (you could only apply for the PPP with an unaffiliated lender)
Your business was a hedge fund or private equity firm
You did business in an industry that is generally not eligible for SBA 7(a) loans, such as speculation or multi-sales distribution

Additional PPP requirements by entity type

The following were additional PPP loan qualifiers broken down by each entity type.

Independent contractors

If the PPP loan application for independent contractors is unchanged for 2021, you will need a tax-ready 2019 or 2020 Schedule C from your personal Form 1040 tax return. While it does not have to be filed, it must be complete and accurate. You will need all your 1099-MISC forms (which are 1099-NEC forms in 2020) handy in order to complete your Schedule C.

You must have reported a net profit on your Schedule C in 2019 or 2020.

Further reading: Self-Employment, 1099s, and the Paycheck Protection Program

Sole proprietorships and Single-Member LLCs

If the PPP loan application process for sole proprietors is unchanged for 2021, you will need a tax-ready 2019 or 2020 Schedule C from your personal tax return. While it does not have to be filed, it must be complete and accurate.

You must have reported a net profit on your Schedule C in 2019 or 2020.

If you also have employees on payroll, you do not need a net profit, but you must have payroll tax forms 940 and 941/944 for 2019 or 2020.

Partnerships

Individuals should not submit separate applications, but only submit one PPP application on behalf of the partnership.

If you also have employees on payroll, you should have payroll tax forms 940 and 941/944 for 2019 or 2020. The SBA guidelines allow for payroll processor records containing equivalent payroll tax information, but your lender may not accept those.

PPP loans also provide coverage for the partners that can’t take a salary. You can include their self-employment earnings as reported on their Schedule K-1 capped at $100,000 and multiplied by 0.925

Further reading: PPP Loans for Partnerships: What You Need to Know

S corporations

Only S corps who have payroll are eligible for the PPP. If you were only paid through owner draws or distributions and did not pay payroll tax, you have no payroll costs to report and the PPP is not suitable for you.

C corporations

Only C corps who have payroll are eligible for the PPP. If you were only paid through owner’s draws or distributions and did not pay payroll tax, you have no payroll costs to report and the PPP is not suitable for you.

Nonprofits

You will need to have run payroll in 2019 or 2020 to qualify for the PPP. Faith-based organizations should also consult the SBA’s guidance on eligibility.

I was disqualified. What else can I do?

There are lots of other funding options out there! You can check out some of your options below.

A final note: all businesses are unique and it’s possible that this article did not fully cover your situation. If your situation is more complicated, a consultation with a CPA or your lender is highly recommended.

Explore alternative funding

If you don’t qualify for the PPP but still need cash flow to keep your operations going, here are resources we recommend looking into.

Support from government

SBA loans

SBA loans are loans from lending institutions, typically banks, that are backed by the SBA. Learn more in our complete guide to SBA loans.

The employee retention tax credit

You can be eligible for payroll tax credits if you keep your employees on payroll, if you paid COVID-19-related sick leave for employees, or if you had to suspend operations.

Further reading: Employee Retention Credits: A Simple Guide (COVID-19)

Private lenders

Banks, merchant processors, and other private lenders may offer lines of credit or other lending options. But the terms won’t be as favorable as the PPP and EIDL. Note: some of the below offers may have been changed due to COVID-19.

Traditional bank loans

We’ve compiled our recommendation of the best bank loans for small businesses.

Business line of credit

A line of credit is more flexible than a bank loan, and usually cheaper too. Here’s our recommendations of the best business lines of credit.

Business credit card

Using a credit card to float your business is usually a bad idea. However, some business credit cards offer 0% interest for the first year. Check out our recommendations for the top business credit cards to see if any fit your needs.

More PPP resources

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.