Do I Qualify for the PPP Loan?

Editor’s note: On Tuesday, May 4th the PPP ran out of general funds and the SBA stopped accepting new PPP loan applications. A reserve of funds is still available for community financial institutions that lend to businesses run by women, minorities, and underserved communities. Additionally, a reserve of funds remains for applications previously submitted but not yet reviewed by the SBA. If you have already submitted your loan application, however, this does not guarantee you funding.



If you’re looking to apply for a PPP loan, you’ll first need to confirm you meet the requirements for the second round of PPP. These requirements are different depending on whether you’re looking for your first or second PPP loan.

2021 PPP loan eligibility

First draw PPP loans

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

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

Second draw PPP loans

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

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

Showing a 25% or greater reduction in revenue

A 25% or greater reduction can 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 are not eligible for any PPP loan.

  • You were not in operation on or before February 15, 2020
  • You only employ household employees such as nannies or housekeepers (this is not considered a business)
  • An owner of 20% or more of the business has a prior fraud related criminal record
  • You, or any business owned or controlled by you or any of your owners, is delinquent or has 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 is bankrupt or is currently in bankruptcy proceedings
  • You are an officer or key employee of the lender you are applying with, or a close relative of one (you may only apply for the PPP with an unaffiliated lender)
  • Your business is a hedge fund or private equity firm
  • You do 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

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.

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.

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.

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.

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.

How to apply for the PPP

On January 6, 2021, the SBA released two sets of guidance: one for first draw PPP loans and another for second draw PPP loans.

PPP loan applications for both first and second time borrowers are open now.

Check in with your lender for information on how to submit an application with them.

Further reading:

I think I’m 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

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)

The Express Bridge Loan

You can borrow up to $25,000 for disaster-related purposes from a lender you have an existing banking relationship with.

Further reading: The Express Bridge Loan Pilot Program (A Simple Guide)

Support for self-employed individuals

Federal stimulus checks

The federal government is providing up to $600 to eligible individuals. You can check the status of your payment at the IRS Get My Payment site.

Pandemic Unemployment Assistance

Self-employed individuals and independent contractors are eligible for unemployment benefits if they find themselves unemployed, partially unemployed, or unable to work due to COVID-19. Visit your state’s Department of Labor site to apply.

Further reading: Unemployment Benefits and the CARES Act

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 in 2021.

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 in 2021.

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

What’s Bench?

We’re an online bookkeeping service powered by real humans. With Bench, you get a dedicated bookkeeper and powerful reporting software for a crystal clear view of your financial health. All of our services are eligible expenses for PPP forgiveness, and we’ll even provide support in applying for the PPP (or getting that loan forgiven). Whatever happens next, we’re right there with you. Get started on a free trial today.


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.

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