The recent pandemic has had a big impact on businesses all over the country. Small entrepreneurs with limited resources have been particularly affected by cash flow issues. The impact on small businesses has had an impact on employees as well. Many businesses haven’t been able to pay their employees the wages due because they just aren’t making enough money. That has led to a spike in unemployment rates and issues like food insecurity. The government has come up with several programs and schemes to help business owners and their employees.
The PPP for independent contractors loan was one such program and it has helped thousands of businesses remain afloat during the pandemic. However, the problem is still ongoing and people who have taken out the loan are struggling to repay it. That’s where PPP loan forgiveness comes in.
What is PPP Loan Forgiveness?
PPP loan forgiveness is a program set up by the government to help people who have taken on a PPP loan but are struggling to repay the debt. Businesses that originally qualified for the PPP loan may be eligible for loan forgiveness as well. Under the right circumstances, you can get the entire loan amount forgiven so you don’t need to repay anything.
However, getting approval is difficult because the government has placed strict standards to ensure people don’t take advantage of the system. For example, getting PPP for independent contractors can be tricky so these contractors may not be eligible for forgiveness either.
PPP for Independent Contractors – Does It Work?
As an independent contractor, you’re considered an employee on your own payroll. That means you are still eligible for a PPP loan. As long as over 60% of the funds from the loan go to pay your own salary, you may be eligible for forgiveness as well. However, if you pay a temporary contractor or freelancer, you may not get loan forgiveness and will need to pay the money back within the stipulated time.
How Does Loan Forgiveness Happen?
As mentioned before, the government has several checks to ensure no one can take advantage of the system. When you apply for loan forgiveness, the government will first check how you used the funds from the loan. If you used it to handle payroll-related expenses like paying yourself a salary or paying employed individuals their wages, you are more likely to get loan forgiveness. You can also use the PPP loan for independent contractors to cover paid leave and absences due to illnesses.
However, if you use the funds to pay freelancers, contractors, and other such expenses. Your application will be denied. If you lay off employees during the pandemic after taking on the PPP loan, you may not be eligible for forgiveness either.
The standards for approval are high and if you spend less than 60% of the loan amount on payroll-related expenses, you may only get partial compensation or forgiveness. It is a good idea to keep a small number of people on the payroll even during the pandemic. That can help you balance productivity and business costs without losing too much money.
What’s the Process of Applying for Forgiveness?– PP for Independent Contractors
If you’re a self-employed individual, contractor, or freelancer, you can still benefit from the loan and get loan forgiveness. It is just a matter of making sure more than 60% of the loan amount goes towards your salary. Then you can apply for forgiveness through the SBA portal. The process depends on the loan amount and your type of business. If you’re an independent contractor and have a loan amount of less than $150,000, there’s a simplified form available to get forgiveness for PPP loans for independent contractors.
Keep all of your payroll documents and related expenses in order. Track every penny of the loan amount you spent and maintain a proper record of it. If the money is easy to track, the government will be more willing to forgive your loan.