Latest Changes to PPP Program Include Bigger Loans for Schedule C Filers

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As previously reported here, President Biden directed the Small Business Administration (SBA) to impose an exclusive two-week window where only the smallest businesses – those with fewer than 20 employees and sole proprietors – can apply for Paycheck Protection Program (PPP) loans. He also instructed the SBA to change the loan calculations so certain small businesses could get bigger loan amounts, and ease certain eligibility restrictions. The restricted window on new PPP loan applications runs February 24 through March 9, 2021.

On March 3, 2021, the SBA issued an interim final rule that made other updates to the PPP program, as directed by President Biden. Specifically, the new rule modifies the loan formula for Schedule C filers to allow the use of gross income when calculating the amount of the loan.  Additionally, it updates eligibility rules to remove restrictions preventing PPP loans going to small business owners with certain prior felony convictions or who are in default on federal student loan payments. These changes are designed to allow the PPP to reach smaller and lower income businesses, including the self-employed, sole proprietors and independent contractors, who have not yet exhausted the relief that a forgivable PPP loan may provide during the COVID-19 pandemic.

To implement the provisions of the new rule, the SBA issued new application forms for first and second draw PPP loans, along with separate versions for Schedule C filers for first and second draw loans.

Simultaneously, the SBA posted an updated FAQ that addresses topics like lobbying activities by PPP recipients, the impact of a borrower’s bankruptcy on loan forgiveness and eligibility for a second draw loan, eligibility for second draw loans based on the use of first draw proceeds, applicability of SBA size standards to second draw loan applications, and the interplay of receipt of PPP loans and eligibility for the Employee Retention Tax Credit (ERTC). The FAQ notes that “payroll costs that are qualified wages for the Employee Retention Credit are not eligible for loan forgiveness if the employer elects to claim the credit for those amounts. (Additional guidance from the IRS is available at https://www.irs.gov/pub/irs-drop/n-21-20.pdf.)”

With the ongoing changes to the PPP, those who may wish to apply should continue to check for updated requirements and guidelines. See our PPP Overview and Guide to Loan Forgiveness for more information.  The PPP loan program closes on March 31, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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