How To Receive PPP Forgiveness as a Sole Proprietor

The Xendoo team has compiled many resources on the PPP to help small business owners everywhere. Check out our additional resources here:

What do I need for my PPP application?

Your Guide to PPP Loan Forgiveness

Paycheck Protection Program Guide

Many business owners that are sole proprietors are searching for information on how to make sure their PPP loan is fully forgiven. The PPP loan can be forgiven entirely if it’s used properly and if businesses can prove that.

But, as a sole proprietor, how can you prove the funds were used on a payroll if you don’t have payroll?

A concept called owner compensation replacement was introduced to help answer that exact question.

As a sole proprietor, your loan is based on your 2019 net profit divided by 12 – this is what gets you to a monthly average net profit. Your loan amount should be equal to this number times 2.5. This means that your PPP loan should roughly be ten weeks worth of your net profit. Since as a sole proprietor, you likely do not have payroll to spend those funds on, owner compensation replacement will help you receive forgiveness.

How does this work?

As a sole proprietor, you can automatically receive eight week’s worth of net profit forgiven – this is the “owner compensation replacement” concept. For the funds to be fully forgiven, the remainder of your PPP funds will need to be spent on the approved expenses which have been mentioned: rent, utilities, and mortgage interest.

The amount of owner compensation replacement eligible for you to claim for forgiveness is calculated as follows:

Take your reported net income in 2019 on your Schedule C and multiply that by 8/52 or 0.154.

Sole proprietors will still need to prove expenses to receive forgiveness. It is strongly recommended to keep very careful and clean documentation of all expenses that were paid using the PPP funds. Expenses for rent, utilities, and mortgage interest will need to be proven to receive forgiveness. For the owner compensation replacement, sole proprietors will need to provide their 2019 Schedule C. This will allow you to be able to claim the eight weeks of net profit for forgiveness.

Please note that the updated guidance provided by the SBA does not allow for self-employed individuals to claim the entire amount of the PPP fund as income replacement. To receive forgiveness, the funds must be used as outlined. 


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

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