Official SBA PPP 1.0 FAQ had this answer:

  1. Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?

Answer: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020. Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

Are newly established businesses that don't have any 2019 documents still allowed to pick 01/01/2020-02/29/2020 period for PPP 2.0 average payroll cost calculation purposes?

If not, this seems like brutal omission in PPP 2.0 rules, because it creates two weird situations:

  1. Since gross receipts for businesses established in early 2020 are literally undefined for tax year 2019, then how could such recently established businesses ever testify that their gross receipts in 2020 dropped by 25% compared to corresponding quarter in 2019?
  2. Those businesses that complied with California's AB-5 and on January 1, 2020 reclassified 1099-MISC workers into W-2 employees have effectively disqualified their "misclassified" employees from letting them to apply for PPP on their own. And in addition government under PPP 2.0 rules is asking these employers to dilute payroll costs for these employees reported on 2020Q1 941 form not just over first 2 months of 2020, but rather all 12 months of 2020.

2 Answers 2


Because the lender/SBA bases your company's average monthly income on a full year (2019 or 2020), your loan eligibility is much less than it would be if based on a Jan-Feb 2020 snapshot.

An option for the employees in 2020 who were contractors in 2019 might be to apply for their own PPP loans based on their 2019 contractor income.

  • Since I posted the question SBA has updated FAQ - sba.gov/sites/default/files/2021-03/PPPFAQs%203.2.21-508.pdf - the reference to answer #14 is gone now. I wonder if there is another source than FAQ to figure out if some PPP 1.0 rules should be inherited by PPP 2.0. Commented Mar 4, 2021 at 18:51
  • Lender just said that I can't use 1/1/2020-2/29/2020 data for PPP 2.0. Have to use whole 2020, which leads to 5x lower loan. On a hindsight it seems like it would have been better idea just to ignore California's AB5 and not reclassify 1099 workers to w2 employees. At least then they would been able to apply for PPP themselves. Now it is too late and their 2019 1099 wage data can't be used for PPP application purposes by anyone. Commented Mar 23, 2021 at 18:39
  • That covered period is period over which the PPP loan must be used so that loan could qualify for forgiveness. Commented Mar 24, 2021 at 17:04
  • Thanks, changed my answer Commented Mar 24, 2021 at 19:20
  • Saw your updated answer, lenders are denying PPP applications "for employees in 2020 who were contractors in 2019" because they were not self employed on or around February 15, 2020 (this requirement is covered in SBA PPP FAQ when eligibility is determined). I believe these are unintended consequences of California's Assembly Bill 5 that required employers to reclassify many 1099 workers into w2 employees starting from 1/1/2020. My best bet is that California politicians who were involved in AB5 and PPP completely missed AB5 negative impact on PPP. Commented Mar 25, 2021 at 15:27

Just called NorCal regional SBA center that connected me with 3rd party company assisting SBA in these kind of questions.

They told me that it is up to lender's discretion to figure out how average payroll costs should be calculated if it is non-standard situation (e.g. if new business and/or business was impacted excessively by COVID19 lockdowns).

They suggested to use different lender if lender is not willing to understand situation.

Will update answer depending on what the new lender will decide.

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