Self-employed and 1099 workers may be eligible for two rounds of PPP. Yes, that means that instead of receiving a maximum of $20,833.33, you can get a maximum of $41,666.66! (Food and accommodation businesses get up to $50,000). If you did not yet get any PPP, see our guide and eligibility calculator. For other business types, see our PPP Resource Center.
Table of Contents
- Second Draw PPP Requirements
- “Quickest Spend” Calculator
- Issue #1 – Finish Spending First Draw Funds
- Issue #2 – No Overlapping Covered Periods
- Bottom Line
- PPP Application Tips
Second Draw PPP Requirements
If you already received one round of PPP (First Draw), here are two eligibility requirements to get PPP Second Draw:
- Had a 25% reduction in at least one quarter of 2020
- Use our eligibility calculator to easily check if you had the 25% reduction.
- Finish Spending First Draw Funds
- Businesses that run payroll need to worry about “correctly” using the funds to pay their employees.
- Being that self-employed and 1099 workers don’t have to pay any employees, they don’t actually need to do anything other than wait a required amount of time to “use” funds correctly.
- If you first applied for PPP before August 8, 2020 (when PPP expired in 2020), enough time has definitely passed to be eligible for the second round of PPP in 2021.
- If you first applied for PPP in 2021, the calculator below will help you see if enough time has passed since you received the First Draw funds and you are considered to have used the funds correctly.
- No Overlapping Covered Periods
- The SBA may require a minimum of 8 weeks from when a business or self-employed person receives First Draw PPP until they receive Second Draw PPP. It’s unclear for now if the SBA will insist on the 8 weeks or not. See below for more on this.
Quickest Spend” Calculator
First Draw PPP
Second Draw PPP
Which Schedule C Should I Use?
Estimated PPP Amount
If you are eligible for both First and Second Draw, you would end up getting twice the amount!
If your NAICS code starts with 72 check this box
Issue #1 – Finish Spending First Draw Funds
For self-employed individuals, PPP is based on your income (gross or net) from either 2019 or 2020.
For PPP purposes, consider your annual income (either gross or net, whichever you used for your PPP) as your annual salary.
PPP is meant to cover 2.5 months of salary. So, divide your income (line 7 or line 31 of your Schedule C) by 12 (for your average monthly salary), then multiply that by 2.5 (to cover 2.5 months of salary) and that is your PPP amount.
Even though PPP covers 2.5 months (10.8 weeks) of salary, you can decide to stretch your PPP funds longer than 2.5 months, leaving you with a smaller weekly salary. You cannot, however, get more than your weekly salary (line 31 or line 7 divided by 52) each week.
The term “salary” is confusing to many people. Self-employed people don’t receive a salary. Don’t worry! Although we refer to it as a “salary”, you don’t actually need to pay yourself each week. You are self-employed and don’t run payroll, when you receive the PPP you can simply leave it in your bank account, or move it to your personal bank account if you got the funds sent to a business account. The only reason to keep track of this “salary”, is to calculate when you can be considered to have finished using your PPP funds.
The program deadline was extended from 03/31/2021 to 5/31/2021, enabling more people to be eligible for Second Draw simply by waiting 10.8 weeks after receiving First Draw funds. If 10.8 weeks from receiving First Draw funds will be after the program expires (5/31/2021), you have a problem. Even if 10.8 weeks finish before 5/31, there is a strong likelihood that funds will run out way before 5/31. This is where expenses enter the picture.
Although you can use 100% of PPP as payroll, you can also use up to 40% towards eligible expenses, shortening the length of time your PPP covers.
Say your income (line 7 or 31) is $52,000, and your are thus eligible for $10,833.33 in PPP (52,000/12×2.5). Your weekly “salary” would therefore be $1,000 (52,000/52). Without expenses, it takes 10.8 weeks to “spend” PPP funds ($1,000 a week x 10.8).
If you use 40% on expenses (40% of $10,833.33 is $4333.33), you are left with $6,500 as “salary”. At $1,000 a week, you finish PPP funds in 6.5 weeks, instead of 10.8 weeks.
Another potential solution is hiring an employee and spending the funds on payroll, giving you the option to finish even sooner than 6.5 weeks, as you are spending some of the PPP funds on a second salary.
However, even if you manage to finish spending the funds quickly, there still is a potential problem when leaving less than 8 weeks between receiving First and Second Draw funds: Overlapping Covered Periods.
Gross (line 7) vs Net (line 31): As of 3/3/21, you can use either line 7 (gross income) or line 31 (net income) to calculate your PPP. You can also change from net to gross between First and Second Draws. However, the “salary” amount is based on whichever one (line 7 or 31) you used when applying for PPP. So, if you used line 31 to calculate your PPP, you cannot use line 7 to calculate your weekly “salary”.
Issue #2 No Overlapping Covered Periods
When you get a PPP loan, you are meant to use the funds within the “covered period” and then after the covered period finished, you can ask for the loan to be forgiven, turning the loan into a free grant. The covered period of PPP is between 8 and 24 weeks. You can choose how long you want your covered period to be – any length between 8-24 weeks. As above, self-employed people without employees don’t actually need to take any action to use their funds, but are still bound by the timing requirements.
In order to have your loan forgiven, the SBA states that the First and Second Draw PPPs cannot have overlapping covered periods. So the same time period cannot be used for both First and Second Draw.
From the SBA (emphasis added):
For purposes of loan forgiveness, the covered period is the period beginning on the date the lender disburses the PPP loan and ending on a date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement, and (ii) ending on the date that is 24 weeks after the date of disbursement.
The covered periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the borrower must use all proceeds of the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan.
https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Forgiveness-Requirements-and-Loan-Review-Procedures.pdf
If the minimum size of a covered period is 8 weeks, and the two covered periods (from First and Second Draw PPP) cannot overlap in order to be eligible forgiveness, then receiving Second Draw PPP less than 8 weeks after receiving First Draw PPP can cause an issue with forgiveness for the Second Draw PPP, as the covered period will start before the covered period from the First Draw PPP finishes.
Perhaps the second part of the sentence “the borrower must use all proceeds of the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan” comes to qualify that the real issue with overlapping covered periods is using up the funds from First Draw. If you correctly used all First Draw funds in shorter than 8 weeks, then (based on this logic) you should be able to apply (and be forgiven) for the Second Draw PPP even though it is technically overlapping part of the 8-week covered period of the First Draw PPP.
Bottom Line
We recommend having the full 8 weeks (or 10.8 weeks if no expenses) between receiving First and Second Draw funds (just in case the SBA demands 8 weeks space for forgiveness). However, if waiting the full 8 weeks between First and Second Draw will cause you to miss out on Second Draw alltogether, then perhaps consider going with just 6.5 weeks (if you had 40% expenses), as long as you are considered to have correctly used all your funds from your first round of PPP (based on the calculator above).
The issue with “overlapping periods” is only about forgiveness. In other words, having used up your funds from First Draw, you are eligible for Second Draw, even if the covered periods overlap. There is a chance that the SBA will insist on an 8-week gap in order to have the loan forgiven. Again, we don’t think that will happen, but it definitely could.
When to apply for Second Draw: When applying for PPP, it takes time until you actually receive your funds. So consider applying for Second Draw 3-4 weeks after receiving First Draw funds in your bank account, but ensure that you reach only receive the funds after your 6.5/8 week mark. Many lenders will help you out with this process as well.
Obvious disclaimer: We are not the SBA. This article is not legal or financial advice and is here for educational purposes only.
Tips for successful PPP application
- Calculate your PPP eligibility
- Our recommended partner PPP banks, along with tips and tricks for each partner bank.
- PPP Resource Center
- Step-by-step Eligibility Guide
Links with guidance from the SBA
- Forgiveness Form 3508S
“… The Covered Period begins on the date the loan was originally disbursed. It ends on a date selected by the Borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement.” - Second Draw Application Form
“… The Applicant received a First Draw Paycheck Protection Program Loan and, before the Second Draw Paycheck Protection Program Loan is disbursed, will have used the full loan amount (including any increase) of the First Draw Paycheck Protection Program Loan only for eligible expenses.” - Guidance from the SBA (IFR)
“… it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight week covered period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period“
CHANGES
- March 3, 2021: Rule change: Self-Employed people can now apply for PPP based on gross income (line 7)
- March 5, 2021: SBA declining all Second Draw applications from those with First Draw during 2021.
- March 13, 2021: SBA preliminary approving Second Draw applications with a First Draw in 2021.
<Written in collaboration with ChaiPlus1.com>
This article was originally published on 02/01/2021. Last updated 04/18/2021