Disaster Preparedness Economy Finance Resources

COVID relief: SBA issues new PPP guidance aimed at smallest businesses

U.S. Small Business Administration on Wednesday released new guidance on the changes to the Paycheck Protection Program. The  changes to the popular program focus on reaching the hardest-hit businesses. Here’s what you need to know about the changes in the final month of the PPP application period unless the program gets extended.

Among the changes in the new guidance: The SBA revamped the formula for calculating popular forgiveable loans to sole proprietors and some other businesses, making the program more attractive to the smallest firms, the Wall Street Journal reported.

The PPP is scheduled to end on March 31, but if you own a small business, don’t wait until the last minute to apply for the forgivable loan program. Many banks are setting their internal deadlines a week or two earlier so that they can make the deadline.

As of Feb. 28, the SBA approved 2.2 million PPP loans totaling about $156 billion, the Wall Street Journal reported. But that is only half of the funds available. After closing last August, the PPP reopened in January with $284 million in federal funding.  The forgiveable loans could go to second-timers as well as first-time borrowers. SBA data also showed that about a quarter of the loan dollars in the newest round have been approved for borrowers in low- and moderate-income areas. In total, applicants with fewer than 10 employees had been approved for nearly 30% of the approved dollar volume so far, according to the SBA data.

The rules released Wednesday change how sole proprietors, independent contractors and the self-employed can calculate the amount of funding they should receive. They do this by providing the option to focus on gross income rather than net profit.

Specifically, the new PPP application for self-employed workers and sole proprietors who file IRS Form 1040 Schedule C now asks for the total amount of gross income, found on line 7 of the tax form. Previously, Schedule C filers applying for PPP loans were asked to give the SBA their net profit, from line 31 on the form. Also, the SBA released updated guidelines for lenders on calculating loan amounts for Schedule C filers and new eligibility rules for borrowers, including those who had struggled with student loan debt, had non-fraud felony convictions or were non-citizen business owners.

The SBA said that borrowers who have already had their PPP loans approved can’t increase their funding amounts using the revamped formula. First-time PPP borrowers who use a gross income of more than $150,000 to calculate their loan amounts could be subject to a review by the agency.

These moves follow changes announced by the Biden administration in late February aimed at helping the smallest businesses access the PPP, including a priority application window for businesses with fewer than 20 employees through March 9.

The current iteration of the PPP ends on March 31 but small business organizations, chambers of commerce and nonprofit groups have been calling on Congress for an extension.


Leave a Comment