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Self-employed people still waiting for new PPP rules that would mean bigger loans

Freelancers and workers alike are eagerly awaiting the Small Business Association to update its paycheck protection program guidelines, which could mean larger loans for the group.

The Biden administration last week announced changes to the way the SBA will calculate forgivable loans for sole proprietorships and other small businesses without any employees. The updated formula – which will likely lead to larger loan amounts for non-employer businesses, including sole proprietors and independent contractors – will be announced this week.

It’s still unclear when in the week the SBA will update its guidelines, meaning those who would benefit from the change would still have to wait to submit their applications to the program.

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“Loans submitted before official rule changes are subject to the rules in force at the time of application, ” SBA spokesperson Carol Wilkerson said.

This has led to the frustration of some who want to take advantage of the two-week priority application window for smaller businesses which went into effect on February 24 and ends the second week of March. Of course, individual businesses will still be able to apply for PPP loans until the program deadline at the end of the month; they just won’t get priority processing once the 14-day exclusivity window closes.

For now, lenders are working to help borrowers prepare what they can to be ready for the updated guidelines.

“We’ve always taken the approach of ‘Hey, we don’t have all the answers, but go as far as we can without the answers,” said Ed Barry, CEO of Capital Bank, based in Rockville, Md.

Barry added that the bank is also working to educate small businesses who may not realize they are now eligible for a PPP loan.

What we know about the change of formula so far

For businesses with employees, the maximum PPP loans are 2.5 times the average monthly salary costs, according to the SBA. As a replacement for wage costs for individual workers, the SBA has used information on net profits from tax returns, even though payroll and profits are different measures.

In addition, the net profit line includes deductions, which have reduced or eliminated the number of profits for some, resulting in small loans or making them ineligible for the program.

Instead, the updated formula will use gross income as a surrogate for labor costs, a higher number than net income, meaning many businesses will get more money in the form of forgivable loans.

Loans submitted prior to formal rule changes are subject to the rules in effect at the time of application.
Carol wilkerson
ASB spokesperson

“It’s a huge change,” said Keith Hall, president and CEO of the National Association for the Self-Employed.

The change is significant because sole proprietorships are the most common business structure in the United States. Form C for sole proprietorships, depending on the agency.

Many of these companies have been particularly affected by the coronavirus pandemic. About 70% of those unemployed businesses are owned by women and people of color, and 95% of black-owned businesses and 91% of Latino-owned businesses are sole proprietorships, according to SBA data.

But so far, very little repayable funds from the SBA have gone to individual businesses – according to a recent NASE survey, nearly two-thirds of its members said they received no money from the program.

This was due in large part to the confusion in the early days of the program around eligibility and forgiveness, which hopefully is clearer today, Hall said.

“Lots of reasons these small business owners haven’t applied for or been approved for a P3 loan – I think a lot of those hurdles have been removed,” he said.

Questions remain

Certainly, other changes to the PPP program that the Biden administration announced last week take effect today, March 1 – some student loan borrowers, legal non-residents and those with certain criminal records are now eligible to apply for forgivable loans.

Still, there are other questions for Sole Proprietorships regarding the timing of applications, especially for those who have already gotten a loan approved but would get more with the new formula. So far, there is no process to amend a scattered loan or withhold a currently pending application.

“All unknown at this time,” said Alex Cohen, CEO of Liberty SBF.

If you are a small business with a story to share on PPP, email Carmen Reinicke at [email protected]

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