Sole Proprietors and PPP Loan Forgiveness: Beware

Last week I wrote about how loan forgiveness for the solo sole proprietor will work. I had to strike through a lot of my thoughts as new information came in.

So now, a week later, what do we know?

The Typical Solo Sole Prop Will Probably Have Some Loan Remaining

PPP loans are forgivable if the proceeds are used for salaries, benefits, and payment of rent, mortgage interest or utilities. The caveat on this is that “no more than 25%” of the loan forgiveness can come from rent, interest or utilities. For 100% of solo sole props, this means they will have at least some loan remaining in the end.

Why? Let’s look at the calculation.

Let’s say a sole proprietor has 2019 net income of $48,000. Their PPP loan limit is easy enough to calculate: $48,000 / 12 = $4,000 x 2.5 = $10,000. They’ll get a $10,000 PPP loan.

Now the forgiveness comes in. These are advertised as being “fully forgivable.” But here’s where the “gotchas” set in.

Loan forgiveness for a sole proprietor is automatic, in an amount equal to 8/52nds of their net income (or put another way, 8 weeks of their2019 net income).

So in our example above, you would express their $48,000 of income as a weekly number. $48,000 / 52 = $923. Then multiply by 8 = $7,384. This is automatic regardless of how the proprietor actually spends their PPP funds. They could withdraw all $10,000 of PPP for themselves and it doesn’t matter — their forgiveness is $7,384.

Now, what about payment of rent, interest or utilities?

One: The Home-Based Business

Many sole proprietors work from home. Even if they take a home-office deduction on their tax return they cannot count those expenses toward PPP forgiveness. Home-related expenses are explicitly prohibited in the interim final guidance on PPP loans.

So a home-based proprietor will have ZERO additional expenses to count towards the PPP. Let’s say our proprietor with $48,000 of income and a $10,000 PPP loan works from home. They will get the automatic $7,384 forgiveness … and nothing else. They will end up with a loan of $10,000 – $7,384 = $2,616.

Two: Business with Separate Office Space

Let’s say our sole proprietor rents office space somewhere. Their lease payment and utilities would indeed count towards their PPP forgiveness. Let’s say they pay $3,000 of rent and utilities during the loan forgiveness period.

They get $7,384 of automatic forgiveness, plus $3,000 of rent and utilities. They have used up all of their $10,000 PPP loan so all should be forgiven, right?


Rent, interest and utility forgiveness can make up “no more than 25%” of the forgiveness amount. They get $7,384 of forgiveness which is considered “payroll” forgiveness. This is automatic. To calculate the “no more than 25%” part, you need to do some algebra.

$7,384 / .75 = $9,845. This is the maximum amount of loan forgiveness this proprietor can receive! They would end up with a loan of $10,000 – $9,845 = $155. Not a huge loan, but still not full forgiveness.