Can Businesses with Independent Contractors Qualify for PPP Loans?

Small business owners, especially those in the real estate and gym industries, are often puzzled about whether their operations, which primarily rely on independent contractors, are eligible for the Paycheck Protection Program (PPP) loans. This article aims to provide clarity on these matters by examining the latest eligibility guidelines and providing expert advice.

Understanding PPP and Independent Contractors

The PPP is a government-backed loan program designed to help businesses retain employees and maintain payroll. Originally, the program excluded independent contractors from qualifying, but recent updates by the Small Business Administration (SBA) now allow for more flexibility based on the nature of the contractor work.

Eligibility for PPP Loans

According to the SBA, businesses that use independent contractors can still apply for PPP loans as long as the independent contractors are eligible to apply for the Economic Injury Disaster Loan (EIDL) advance. This advance is a bridge loan to help cover 20,000 to 10,000 dollars in economic losses for small businesses and self-employed individuals, sole proprietors, independent contractors, and non-profit organizations.

Real Estate and Gym Industries

For businesses in the real estate and gym industries, the reliance on independent contractors is common. Real estate agents and property managers, as well as personal trainers and fitness instructors, often receive a commission or salary. However, many of these independent contractors may not qualify for direct PPP loans. This does not necessarily mean that their employing companies are ineligible.

Employing Companies and PPP Eligibility

The key factor in determining PPP eligibility for companies that employ independent contractors is whether the company itself has a payroll. If the company has employees on payroll, it may still be eligible for PPP loans, even if it relies heavily on independent contractors.

Companies should carefully review the SBA guidelines to ensure that they meet the current eligibility criteria. The criteria for wages, gross receipts, and other factors have been updated frequently, and companies should consult the most recent versions of the guidelines. As of the latest update, the eligibility criteria include:

The business must have been in operation on February 15, 2020. The business must have experienced a decline in revenue of at least 25% in any quarter in 2020 compared to the same quarter in 2019. The business must have fewer than 500 employees, with exceptions for certain industries and nonprofit organizations. The business must use the loan for payroll, rent, mortgage interest, utilities, and certain other allowable expenses.

Consulting a CPA

Given the complex and rapidly changing nature of the PPP eligibility criteria, it is highly recommended that business owners consult with their certified public accountants (CPAs). CPAs can provide personalized advice based on the specific circumstances of the business, including the nature of the independent contractor work and the company's financial situation.

Conclusion

While the PPP programs initially limited eligibility to businesses with payroll employees, recent changes have expanded this eligibility to businesses with significant reliance on independent contractors. Companies in the real estate and gym industries should carefully review the updated guidelines and consult with CPAs to determine their eligibility for PPP loans.

It is crucial to stay informed about the latest changes in PPP eligibility, as these can significantly impact a business’s financial health and recovery. By adhering to the current guidelines and seeking expert advice, business owners can make informed decisions about applying for PPP loans and navigating the recovery process.