Only a small percentage of eligible self-employed workers, freelancers, gig workers, and sole proprietorships received Paycheck Protection Program (PPP) loans. Those that did receive loans received their funds much later than other companies.
Paycheck Protection Program data through January 2021 posted by the Small Business Administration (SBA) shows that only 1.1 million first-draw loans have been made to nonfarm independent contractors, self-employed individuals, and sole proprietorships, otherwise known as Schedule C businesses. Our research shows that this represents only 5.8% of the tax returns with positive net income filed in 2018 by these business types.
The Schedule C businesses that did receive loans got them much later than larger companies. While 97% of companies with over 200 employees received their funds in April or May of 2020, only 61.5% of Schedule C businesses did so. The mixture of newly approved loans included an increasing percentage of these very small businesses in June, July, and August as more of them became aware of the program and banks caught up with loan processing.
IRS Statistics on Income (SOI) data shows 19.6 million nonfarm sole proprietors filed Schedule C showing positive net income in 2018. We estimate these 19.6 million very small businesses were eligible for a PPP benefit of $112 billion under the rules in place prior to March 4, 2021, which calculated the maximum loan amount as 2.5 times net income and payroll. Only $20 billion in PPP loans were approved to these businesses, leaving $82 billion in unclaimed benefits.
On March 4, 2021, the SBA issued rule changes for calculating the maximum loan amount to Schedule C businesses from 2.5 times net income and payroll to 2.5 times gross income and payroll. We predict this will have a dramatic impact on the rate at which Schedule C businesses apply for PPP loans. Our study found a very high correlation between the projected benefit of applying and the likelihood a business receives a PPP loan.
- Only 5.8% of eligible Schedule C businesses received a PPP loan through January 2021.
- Less profitable Schedule C businesses have a smaller potential benefit and are less likely to receive a PPP loan.
- While higher than other industries, only 21% of Schedule C hotels and 12% of Schedule C restaurants received a PPP loan.
- Surprisingly, only 9% of eligible Schedule C certified public accountants (CPAs), bookkeepers, and tax preparers received PPP loans.
- Schedule C businesses received $20 billion in PPP loans, leaving an estimated $82 billion of unclaimed benefits. Potential benefits will substantially increase under the new rules allowing loan amounts to be based on gross instead of net income, which will likely increase applications to the program.
- Larger employers received their first-draw PPP loans much earlier than Schedule C businesses and applicants with only one employee. This likely secured more jobs than would otherwise have been the case.
- On February 22, 2021, U.S. President Joe Biden’s administration announced plans to increase the maximum loan amount for Schedule C businesses to 2.5 times gross income instead of net income. Given our evidence that the potential benefit is an important factor in explaining why Schedule C businesses don’t apply, this change should have a large impact.
- The two-week freeze―from February 24, 2021, through March 9, 2021―on PPP loans for larger businesses will have differing effects on first-draw and second-draw loans:
- The Biden administration’s freeze on larger employers may not be necessary for first-draw applications as only 1% of January first-draw loans went to applicants with more than 20 employees.
- The Biden administration’s freeze on applications for second-draw loans will likely benefit small employers since 13% of second-draw loans in January were to applicants with more than 20 employees. However, the freeze would likely have been more effective in January 2021.
The Paycheck Protection Program was created to provide relief to small businesses impacted negatively by the COVID-19 pandemic. Starting in April 2020, businesses with fewer than 500 employees could apply for loans equal to 2.5 times their average monthly payroll (plus certain expenses). If the funds were used for payroll, rent, mortgage interest, or utilities, the loan would be forgiven and become a grant.
Beginning in January 2021, small businesses with 300 or fewer employees that have already received a first-draw loan may apply for a second-draw PPP loan. Second-draw loans are limited to $2 million. In addition, second-draw applicants must show at least a 25% reduction in quarterly income from any quarter of 2020 when compared to the same quarter of 2019.
Special rules apply to Schedule C businesses in determining the amount of payroll. Since the net income of the Schedule C is taxed as compensation to the owner, it qualifies as payroll for PPP purposes. Therefore, a Schedule C business with positive net income, even if there are no employees, can still qualify for a PPP loan. Furthermore, the PPP loan based on the net income of the Schedule C can be forgiven regardless of how it is spent.
The maximum loan for Schedule C businesses from April 2020 through February 2021 was 2.5 times the sum of net income plus payroll. This calculation changed on March 4, 2021, to use gross income instead of net income. Not only will this increase the potential benefit of applying, but it will also potentially allow Schedule C businesses with negative net income to qualify.
At the beginning of the PPP loan program, many banks were limiting applications to their existing customers, which likely tended to be larger businesses. Additionally, during the first round of funding initiated by the CARES Act, sole proprietorships couldn’t apply until the second week of the program. Loans are funded on a first-come, first-served basis, and the first wave of funding was exhausted within 13 days, leaving many of these very small businesses unfunded.
To address the perception that larger employers are being given favorable treatment, the Biden administration limited all first and second-draw applications from February 24, 2021, through March 9, 2021, to companies with fewer than 20 employees. Our analysis appears to support the assertion that larger businesses received their loans much faster.
Only 5.8% of an Estimated 19 Million Eligible Schedule C Businesses Received a PPP Loan
Only 5.8% of Schedule C businesses eligible for a PPP loan received one through January 2021.
Prior to February 22, 2021, Schedule C business owners could receive a PPP loan equal to 2.5 times their average monthly net income plus payroll. We obtained IRS data that shows 19,634,588 Schedule C businesses showed positive net income in 2018, and therefore should qualify for a PPP loan. These small businesses could also qualify if they had payroll, even if they had negative net income. However, since the IRS does not provide data on businesses with negative net income and positive payroll, they are not included. This likely makes the actual number of eligible Schedule C businesses even greater than our estimate.
First-draw Loans by Business Type
Number of PPP Loans Issued by the SBA
Percentage of Total
C Corporations (C-corps)
Limited Liability Companies (LLCs)
S Corporations (S-corps)
Nonprofit & Other
PPP loan data from the SBA reports that 1,132,921 Schedule C businesses have received a first-draw loan. This sounds impressive until compared to the estimated 19 million that qualify.
Why Aren’t Schedule C Businesses Applying?
Suzanne Robitaille, a sole proprietor specializing in corporate communications and business writing, says she initially didn’t believe she was eligible but, after receiving some good advice, she applied.
“I thought it would be too daunting, but it was easy … I think a lot of freelancers just felt shunted from the process given that it involved tax returns and an application,” said Robitaille.
Gary Romano of Civitas Strategies, who has helped more than 200 Schedule C businesses apply for PPP loans, agrees with Robitaille. Romano says that, for many of these microbusinesses, “even just finding their tax forms can be difficult as they work long hours and take care of their own families.” One business owner recently told Romano that “I tried to apply last summer, but it was confusing. I didn’t get what they were asking for so, finally, I gave up.”
Romano also points out another barrier to applying for a PPP loan.
According to Romano, “For many [Schedule C businesses], a meager 2019 profit means a PPP loan isn’t worth the effort.”
The Biden administration has recognized this and has changed the calculation to allow Schedule C businesses to qualify for loans of up to 2.5 times gross income instead of net income. It will be interesting to see if this change increases the number of Schedule C businesses applying.
Which Schedule C Businesses Are Applying?
We define the “PPP percentage” as the number of PPP loans approved divided by the number of 2018 Schedule C’s filed with positive net income. We investigate the possible explanations of the low PPP percentage by examining it across 93 industries. The industry with the highest percentage approved is Management of Companies and Enterprises (NAICS #551), with a rate of 45.8%. This industry is most likely individuals receiving a stipend for serving on a board of directors.
Five Industries With the Highest and Lowest PPP Percentages
Highest PPP Percentage
Lowest PPP Percentage
Management of Companies & Enterprises
Oil & Gas Extraction
E-shopping and Nonstore Retailers
491 & 492
Delivery & Messenger Services
Finding 1: Profitable Companies Were the Most Likely to Apply
Some Schedule C businesses are very small, part-time activities where the owner may not feel it is worth the effort to receive the benefit of the loan. We estimate the average benefit for each industry as 2.5 times the monthly average of payroll plus net income. Consistent with this explanation, we find a highly significant positive correlation (p<.0001) between the PPP percentage and the estimated benefit.
Less profitable businesses aren’t as likely to apply for a PPP loan, perhaps because the benefit is too small.
The above figure presents the loan percentage for the industries with the highest estimated benefit from PPP loans, shown left-to-right from highest to lowest benefit. Gas stations have the highest average potential benefit of $30,055 and a PPP percentage of 29%. While 29% is much better than most Schedule C businesses, it still seems very low considering the number of employees it takes to operate a gas station. With the exception of Management of Corporations and Enterprises, the loan percentage tends to decrease as the estimated benefit decreases, which makes intuitive sense.
Finding 2: Industries Affected by the Pandemic Were More Likely to Apply
To investigate whether the PPP percentage is related to the effects of the pandemic, we selected eight industries that we believe should feel a large impact.
21% of hotels and 12% of restaurants received PPP assistance.
Hotels and restaurants were much more likely to receive PPP assistance than other businesses, with a PPP percentage of 21% and 12%, respectively. While these percentages are higher than other businesses, they still seem very low. Surprisingly, taxi and ridesharing services only received PPP assistance at a rate of 3%, which is well below the average for Schedule C businesses. It’s possible that many of these businesses are very part-time and not profitable enough to make the paperwork worthwhile. That might also explain the low rate for performing artists.
Finding 3: Businesses With More Financial Knowledge Applied More Often
To investigate the effect of financial sophistication on PPP percentage, we choose five industries that we believe should have high financial sophistication compared to other Schedule C businesses.
While better than other industries, accountants reporting income on Schedule C only received PPP assistance 9% of the time.
All five industries that we assumed have a higher-than-average financial sophistication also have a higher PPP percentage than other industries. While it appears that a lack of financial sophistication could be a factor, the PPP percentages for accountants and lawyers is pretty shocking. Only 9% of Schedule C accountants—which include CPAs, bookkeepers, and tax preparers—received a PPP loan. Many independent bookkeepers are part-time, so perhaps the benefit of the PPP loan was not great enough.
PPP Loans to Schedule C Businesses Took Longer Than Other Businesses
Of the more than 1.1 million Schedule C businesses receiving a PPP loan, roughly 62% of them received their loan in April or May 2020. In contrast, almost 88% of the other 4.2 million businesses received PPP loans in April or May 2020.
The chart and table below present first-draw loans made to Schedule C businesses compared to other, mostly larger businesses.
The above figure demonstrates a clear trend where the percentage of first-draw loans to other businesses decreases while the percentage of loans to sole proprietorships increases. Schedule C businesses only received 13% of loans in April, whereas they received 57% of the July and August loans. There is a second spike in funding for non-Schedule C businesses in January when additional funding becomes available.
This is consistent with banks allowing larger customers, who are generally not Schedule C businesses, to apply first. It also might be that Schedule C businesses took longer to understand the rules and gather the data to apply.
Schedule C Businesses Received Less than 17% of Second-draw Loans Approved in January
Schedule C businesses received 110,665 of the 664,708 of the second-draw loans approved in January 2021.
Fewer second-draw PPP loans were approved for Schedule C businesses in January 2021 than expected.
The 16.6% of second-draw loans received by Schedule C businesses in January 2021 is slightly better than the 13.3% of first-draw loans received in April 2020. While this is a modest increase, it is smaller than we expected. The pool of applicants for second-draw loans consists of businesses that have received first-draw loans, minus larger businesses that don’t qualify under the stricter rules of the second draw. Since 21% of companies receiving first-draw loans are Schedule C businesses, we expect that 21% of second-draw loans should go to Schedule C businesses.
It appears that the PPP program may still be favoring non-Schedule C businesses with the second-draw process, or Schedule C businesses went out of business at a higher rate than larger businesses.
Businesses With Over 20 Jobs Received Their First-draw PPP Loans Earlier
To provide detail on the timing of loans to smaller vs larger businesses further, we move beyond looking at Schedule C businesses and investigate all 5.3 million first-draw loans issued. While nearly all larger businesses received their PPP loans in the first two months of the program, businesses with only one employee waited much longer.
More than 97% of applicants reporting 200 jobs or more received their loans in April or May 2020.
Only 1% of first-draw loans approved in January 2021 were to companies with greater than 20 employees.
Number of First-Draw Loans by Jobs Reported and Month
2 to 5 Jobs
6 to 20 jobs
21 to 50 jobs
51 to 100 jobs
101 to 200 jobs
Over 200 jobs
In April 2020, 20% of PPP loans went to companies with only one employee whereas about 82% of loans went to companies with one employee in January 2021. This is consistent with small companies having to wait longer for their funding than larger companies. While it may be unpopular to fund larger companies first, it likely resulted in the largest number of jobs being secured since processing one loan saved 200 or more jobs.
There was fierce competition for funds in the early days of the program. Lending Tree reported that 60% of small businesses it surveyed applied for their PPP loan by April 7, 2020, which was only five days into the program. However, only 5% of the small businesses surveyed had received their funding by April 22, 2020. This competition for funds appears to have hurt the chances of small companies obtaining PPP funds early in the program significantly.
Of the 33,837 applicants reporting over 200 jobs, 32,878 (97%) received their loans in April or May 2020. This is much higher than for borrowers reporting one job, who received only 63% of their loans in April or May 2020.
Starting February 24 and ending March 9, 2021, only companies with fewer than 20 employees can apply for either first-draw or second-draw loans. However, only 1% of first-draw loans approved in January 2021 were to companies with greater than 20 employees, perhaps making the Biden administration’s rules to limit new applications unnecessary, at least as it pertains to first-draw loans. We’ll look at the distribution of second-draw loans in the next section.
Over 86% of January Second-draw Loans Were to Companies With 20 or Fewer Employees
Companies began taking their second-draw loans in January 2021.
The two-week freeze on second-draw loans for applicants reporting 20 or more jobs should have an impact on the distribution of second-draw loans as 13% of January 2021 second-draw loans went to companies reporting at least 20 jobs.
The following figure and table present the January 2021 second-draw loans made.
The January 2021 approval of second-draw loans seems to have improved the odds of a small company receiving a loan compared to the April 2020 approvals of first-draw loans. In April 2020, companies with 20 or fewer employees received 83% of the loans approved whereas this percentage increased to 87% for January 2021 second-draw loans. Still, 13% of loans approved went to companies with over 20 employees, so the Biden Administration’s freeze on PPP application for these larger companies should have a significant effect on approvals. However, the freeze would have likely had a larger impact if it had occurred in January 2021.
The Biden administration’s focus on providing PPP funding for Schedule C businesses seems well justified as the vast majority of eligible Schedule C businesses have not received assistance. We expect the increase in potential benefits from calculating loans based on gross instead of net income will have a dramatic effect on the number of Schedule C businesses applying for loans. However, more needs to be done to educate freelancers, self-employed workers, gig workers, and other sole proprietorships that they are eligible for the PPP program.
Because the application process can be overwhelming for workers who don’t often deal with banks and tax returns, perhaps PPP grants to these businesses could be automatic with no application necessary. After all, the government already has the needed tax return information.
Methodology and Data
SBA Paycheck Protection Program Data
Our loan data is from Paycheck Protection Program data posted on the SBA website on February 1, 2021. The data set contains 5,373,949 first-draw loans and 664,708 second-draw loans for a total of 6,038,657 loans.
For our analysis of the percentage of Schedule C businesses receiving PPP loans, we identified 1,333,476 first-draw loans to farm and nonfarm sole proprietorships by a business type of “Independent Contractor,” “Self-Employed Individuals,” or “Sole Proprietorship.” Since we only have tax return data for nonfarm (Schedule C) filers, we eliminated loans to farmers and ranchers with NAICS codes 1100 through 1128. The result is 1,132,921 loans made to Schedule C businesses.
The SBA also reports 1,481,028 loans to LLCs. LLCs with only one owner can choose to report income on Schedule C or report income as a C-corps or S-corps. Most single-owner businesses that go through the trouble of forming an LLC choose to be taxed as an S-corp to save employment taxes. However, at least some of the loans to LLCs were loans to Schedule C businesses, but we have no way of identifying them.
Schedule C Tax Data
We obtained tax information for businesses filing Schedule C in 2018 to estimate the number that should be eligible for a PPP loan in 2020 or 2021. Schedule C businesses only need to show a profit to qualify for a PPP loan.
We obtained 2018 Schedule C tax return information from the IRS SOI Tax Stats – Nonfarm Sole Proprietorship Statistics page. Specifically, the 2018 Microsoft Excel file for Business Receipts, Selected Deductions, Payroll, and Net Income. The file provides industry-specific cumulative amounts as well as the number of returns filed, making it simple to calculate per return averages within each industry. The database reports 27,117,163 total Schedule C’s filed in 2018, with 19,634,588 Schedule C’s filed reporting positive net income. These 19 million Schedule C businesses should qualify for a PPP loan if they are still in business.
We separated both the PPP loan data and the Schedule C tax data into industries based predominantly on three-digit NAICS codes. For some three-digit industries with many Schedule C filers, we divided companies further by four-digit NAICS code. In some instances, we combined three-digit industries because of a lack of observations within each industry. The result was a separation into 93 industries.