How it works

As one of two new loan programs, the PPP loans are designed specifically to provide small businesses and the self-employed (like independent contractors) with cash support. The loan amount you are eligible for is 2.5 times your average monthly payroll expenses—which can include payroll and health insurance premiums for W-2 employees, but not payments to ICs (more on this below). ICs can apply in their own right for up to 2.5 times their monthly “payroll” expenses—which includes their average “salary” and health insurance premiums.

Importantly, almost the entire amount of the PPP loan may be forgiven (no payback requirement) when applied toward qualifying expenses. These qualified expenses include items such as payroll costs and other designated business expenses listed in the CARES Act.

Because these loans will be available through a list of approved lenders, some terms may vary but the interest rate will be 1% on the portion of the loan that is not forgiven.

Things to consider

As of the guidelines released by the Small Business Administration (SBA) on April 3, contracting companies cannot use payments made to or on behalf of ICs as part of their “payroll” costs. This directly impacts the maximum loan amount, the authorized use, and the eligibility for loan forgiveness. ICs also do not count as employees for determining the size limits for PPP relief (500 or fewer employees). The rationale for this appears to be that independent contractors can apply for their own PPP loan and other relief. As a result, much of the language in the CARES Act appears to only be applicable to employees (not contractors), so we encourage you to discuss these matters with your own legal counsel.

Additional resources

SBA’s PPP Interim Final Rule (clarifies guidelines in relation to independent workforces)
Treasury Department’s borrower fact sheet
Sample application (learn what information to provide to your bank or credit union)