The Paycheck Protection Program has been redesigned to put small construction businesses and sole proprietors at the front of the line. Under updated rules from the Biden Administration, the Small Business Administration now prioritizes companies with fewer than 20 employees during an exclusive application window, making forgivable loans more accessible than ever for independent contractors and microbusinesses in the construction industry. These changes remove many of the barriers that prevented small builders from accessing relief in the first round of the program. For construction professionals who operate as sole proprietors or run lean crews, understanding these new PPP rules could mean the difference between weathering economic uncertainty and closing shop. If you are evaluating your business structure and financial options, consider reading about Alternative Septic Systems What Options Are Available When to better understand how project costs and regulatory factors affect construction financing decisions.
What the New PPP Rules Mean for Small Construction Businesses
The most significant change in the updated PPP is the exclusive application window for businesses with fewer than 20 employees. Until March 9, 2021, the SBA accepts applications only from these very small enterprises, meaning they do not have to compete with larger borrowers for processing time and funding availability. This shift directly addresses criticism from the first round of PPP, when many small construction firms were shut out while larger companies secured loans through established banking relationships.
Expanded Eligibility Categories
Beyond the size-based priority window, the new rules expand who can apply in several important ways:
- Self-employed individuals, sole proprietors, and independent contractors now qualify for larger loan amounts than under the original program rules
- Business owners with non-fraud related felony records can now participate
- Certain non-citizen residents, including Green Card and visa holders, are eligible to apply
- First-time PPP borrowers do not need to prove any revenue decline to qualify for a first-draw loan
These changes reflect a deliberate effort by the SBA to reach construction professionals and other small business owners who were historically underserved by the program. The emphasis is on ensuring that relief dollars flow to the smallest operators, not just to firms with existing banking connections and dedicated accounting teams.
No Preexisting Banking Relationship Required
One of the biggest obstacles during the first PPP round was that many lenders prioritized their existing customers, leaving independent contractors and microbusinesses without a banking relationship empty-handed. The new program landscape has changed dramatically. Hannah Smolinski, CPA and founder of Clara CFO Group, notes that many banks now welcome new applicants and online lenders such as PayPal have become major PPP issuers, making the application process far more accessible for small construction businesses.
How Sole Proprietors and Independent Contractors Can Qualify
Sole proprietors in the construction industry often assume they cannot access PPP funds because they do not run a formal payroll. The new rules clarify that this is not the case. As Smolinski explains, “You absolutely can get this money as a sole proprietor and use it to pay yourself.” The key requirement is demonstrating that your construction business generated a profit in either 2019 or 2020.
Calculating Your Loan Amount Using Schedule C
For sole proprietors without formal payroll, the loan calculation process is straightforward and relies on tax documentation you already have:
- Locate your 2019 IRS Schedule C, which documents your net profit or loss from your construction business
- Find Line 31, which shows your net profit. If this number is positive, you qualify for a PPP loan
- Divide the net profit figure by 12 to determine your average monthly earnings
- Multiply that average monthly amount by 2.5 to arrive at your total loan amount
The same Schedule C documentation serves as your basis for both the loan application and the forgiveness process. This means sole proprietors can potentially receive 100 percent forgiveness using the same tax forms they already file annually. As Smolinski puts it, “It is just finding the bank to begin with, making sure your tax documentation is in order, and then submitting it.”
Qualifying for a Second-Draw PPP Loan
If you already received a first PPP loan, you are eligible to apply for a second draw. However, second-round applicants must demonstrate at least a 25 percent revenue decline in any quarter of 2020 compared to the same quarter in 2019. Alternatively, you can show a 25 percent annual revenue loss for the full year if that is easier to document.
For second-draw loans under $150,000, the process includes a simplified forgiveness form with reduced documentation requirements at the time of application. However, you must keep all supporting records for four years in case of an audit. As one expert advises, “Do the calculations correctly. Save everything in a nice file. If you get audited, you do not want to be scrambling for reports three or four years down the road.”
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Loan Forgiveness Requirements and Allowable Uses
Understanding how to spend PPP funds properly is critical to securing full forgiveness. The program requires that at least 60 percent of the loan be used for payroll and payroll-related costs. The remaining 40 percent can cover specific non-payroll expenses.
Allowable Non-Payroll Expenses
The SBA recognizes these categories of non-payroll costs under the updated rules:
- Rent for your construction business premises or equipment storage
- Utilities including electricity, water, internet, and phone service
- Mortgage interest on business property
- Property damage costs from riots or civil unrest not covered by insurance
- Business software and cloud service expenses
- Personal protective equipment and worker safety supplies
Construction businesses often have significant non-payroll costs that fall neatly into these categories, making it easier to use the full 40 percent allocation for qualifying operational expenses.
Covered Period Flexibility
The covered period for using PPP funds can now range from 8 to 24 weeks. This flexibility allows construction business owners to align loan spending with their project cycles. If you spend all the funds within 8 weeks, you can apply for forgiveness immediately. The maximum 24-week window provides ample time for sole proprietors whose income fluctuates with seasonal construction demand.
Any portion of the loan not forgiven must be repaid over five years at a 1 percent interest rate, making it a remarkably affordable source of capital even if full forgiveness is not achieved.
Tax Deductibility of PPP-Funded Expenses
A critical update that benefits all PPP borrowers: business expenses paid with forgiven PPP loan funds are now tax-deductible. The COVID-19 relief bill signed in December 2020 explicitly superseded earlier IRS guidance that would have disallowed these deductions. This means construction business owners get both the benefit of loan forgiveness and the tax deduction for the underlying expenses, maximizing the financial advantage of the program.
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Key Deadlines and Funding Availability
Timing is crucial when applying for PPP funds. The program operates on a first-come, first-served basis, but Congress authorized $284 billion for the reopened program in December 2020. This funding includes specific set-asides designed to reach the smallest businesses.
Application Timeline
| Milestone | Date | Details |
|---|---|---|
| Exclusive small-business window opens | February 2021 | Only businesses with fewer than 20 employees can apply |
| Small-business priority window closes | March 9, 2021, 5 p.m. ET | After this date, all eligible businesses can apply |
| Second-draw application deadline | March 31, 2021 | Final date to submit PPP applications |
| First-time borrower applications | Ongoing until March 31 | No revenue decline proof required for first draw |
Funding Set-Asides and Remaining Balance
Congress allocated $15 billion each to community lenders and small depositories specifically to issue PPP loans to underserved businesses. The legislation also reserved a portion of total funding for:
- First-time PPP borrowers
- Businesses with 10 or fewer employees
- Loans under $250,000 in low-income areas
As of late February 2021, nearly $150 billion in PPP funding remained available. SBA data shows that approximately 94 percent of approved loans were for amounts under $250,000, indicating the program is successfully reaching smaller borrowers. A quarter of the reopened program’s loan volume has gone to applicants in low- and moderate-income communities.
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Practical Steps to Apply
If you are a construction sole proprietor or small business owner ready to apply, follow these steps to prepare:
- Gather your 2019 tax returns, specifically Schedule C if you are a sole proprietor
- Calculate your loan amount using the net profit formula outlined above, or compile payroll reports if you have employees
- Research participating lenders. Major banks and online lenders such as PayPal are accepting new applicants without requiring existing accounts
- Prepare documentation for forgiveness at the same time you apply. For loans under $150,000, keep records of revenue decline (second draw) and all spending for four years
- Submit your application before the March 31 deadline to ensure processing time
The updated PPP rules represent the best opportunity small construction businesses and sole proprietors have had to access forgivable federal relief. With dedicated funding, expanded eligibility, and a streamlined application process, the program is designed to put cash in the hands of the construction professionals who need it most. Taking action before the deadline could provide your business with working capital that you may never have to repay.