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  • Writer's pictureMarcus P. Miller, CFP®

PPP Loans

PPP ("Paycheck Protection Program") Loans are the newest and hottest topic of conversation for small business owners. Why? Well, for starters they may be life saving to the small business struggling to pay its employees. After all, that was the intent of the program. For many others it's an incredible boon to their business allowing them to grow. Isn't that the secondary purpose of the program? Small businesses all around are applying for PPP loans even when they are doing okay. These "First Draw" loans don't seem to have many disqualifying hurdles to jump over to qualify.

There are so many stories about people getting PPP loans and buying cars and vacations with the money. However, these people are the exception since most of them don't actually own businesses. They are abusing the system and should be punished. For those of you who actually own a business and operate it as such, there is nothing to fear.

Simple rules to follow if you get a PPP loan

You should only use 40% (Max) of the loan towards non-payroll costs. This means your supplies, rent, mortgage interest (not mortgage principle), utilities, worker protection. This is where people go wrong since typically a Tesla isn't considered an "authorized purpose".

You should use 60% (or more!) towards payroll costs. Use more of the loan for payroll and you're in the safe zone. After all, it is called the "Payroll Protection Program".

Document, document, document. There is a chance the SBA will ask you to demonstrate how you spent the money. That is easiest if you use a payroll or accounting program. However, you could document these in a ledger, notes regarding payroll, or perhaps even a memo. Remember, they key is to demonstrate how much you spent on payroll. Increasing that number will keep you out of hot water. Then demonstrate how much you spent on everything else. That should be easy with receipts.

Sole Proprietors / Independent Contractor

Is your own income payroll? Yes. Typically you would record income on Schedule C of your IRS 1040 (tax form). This line on either your 2019 or 2020 taxes can be used to show your normal income. Take line 31 and multiply by 0.20833 (the equivalent of 2 1/2 months of normal income). That is the amount most Lender Service Providers will quote you on. Keep in mind that the maximum Payroll that can be claimed for any individual is $100,000, making the maximum PPP Loan for a Sole Proprietor $20,833. If your income was less than $100k for 2019 and 2020, take the higher and multiply by 0.20833 for you PPP Loan amount.

Lender Service Providers

LSP's have been popping up left and right. A simple search for PPP Loans will show multiple advertisements from companies looking to process your application. These should be considered low cost solutions as the Small Business Administration (SBA) provides them with a small fee each time they process an application. They are essentially the middle man between the applicant and the SBA. Keep in mind that this small fee means they have little revenue to hire loan officers, support staff, or infrastructure. They are leaning on technology, marketing tunnels, and cheap software to push as many of these applications through in as little time as possible.

The better option may be to apply through a local branch of an institution you trust. The SBA has a search tool on their website.

Simple Rules for applying for PPP Loans

Be honest and forthright with the Loan Service Provider. Often they are only following and law and wish to help you the best they can. If they ask for a P&L, staff numbers, or 1040 Schedule C they're acting in your best interest.

PPP is designed for small business, meaning less than 500 people. However, some business types fall under a "per location" rule which allows for some much larger businesses to receive PPP funds.

Loans are for 2.5 months of payroll + and prior EIDL loans.

Be prepared to provide documentation about how the money was spent if you intend to apply for forgiveness. Remember to spend at least 60% on payroll and 40% or less on other "authorized purposes".


The contents of this post should not be considered financial advice. The post is meant to start conversation about the PPP program and its applications to small business owners. Every person's financial situation is unique and should be evaluated individually. Do your own research or speak with a financial advisor to determine the correct actions to take.

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