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Self-employed workers and workers are eagerly waiting for the Small Business Association to update the guidelines of its Paycheck Protection Program, which could mean larger loans for the group.
The Biden administration last week announced changes in the way the SBA will calculate forgivable loans for individual owners and other small businesses without employees. The updated formula – which is likely to lead to higher lending amounts for non-employers, including individual owners and independent contractors – will be announced this week.
It is not yet clear when the SBA will update its guidelines during the week, which means that those who would benefit from the change must still wait to submit their applications for the program.
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“Loans sent before the changes to the official rules are subject to the rules in force at the time of application, ” said Carol Wilkerson, a spokesman for the SBA.
This has led to the frustration of some who wish to take advantage of the two-week priority subscription window for smaller companies that went into effect on February 24 and ends in the second week of March. Obviously, individual homeowners will still be able to apply for PPP loans until the program deadline at the end of the month; they simply will not receive priority treatment when the 14-day exclusivity window closes.
For now, lenders are working to help borrowers prepare what they can for the updated guidelines.
“We have always taken the ‘Hey, we don’t have all the answers’ approach, but we are going to go as far as possible without the answers,” “said Ed Barry, CEO of Capital Bank, based in Rockville, Maryland.
Barry added that the bank is also working to raise awareness among small businesses that may not realize that they are now eligible for a PPP loan.
What is known about the formula change so far
For companies with employees, maximum PPP loans are 2.5 times the average monthly payroll costs, according to the SBA. As a substitute for payroll costs for individual workers, the SBA used net income information from tax returns, although payroll and profit are different measures.
In addition, the net profit line includes deductions, which have reduced or eliminated the profit figures of some, generating small loans or making them ineligible for the program.
Instead, the updated formula will use gross revenue as a substitute for payroll costs, a higher number than net revenue, meaning that many companies will get more money on forgivable loans.
Loans submitted prior to changes to the official rules are subject to the rules in force at the time of application.
Carol Wilkerson
SBA spokesperson
“It’s a tremendous change,” said Keith Hall, president and CEO of the National Association for the Self-Employed.
The change is important, as sole proprietorships are the most common business structure in the United States. The IRS says there are about 41 million self-employed workers in the country and, in 2018, more than 27 million had filed an IRS 1040 Form C declaration for sole proprietors, according to the agency.
Many of these companies have been particularly affected by the coronavirus pandemic. About 70% of these companies without employees are owned by women and people of color, and 95% of companies owned by blacks and 91% of Latin companies are sole proprietors, according to SBA data.
But so far, very little forgiving funding from the SBA has gone to individual companies – according to a recent NASE survey, almost two-thirds of its members said they had not received any money from the program.
Much of this was due to confusion in the early days of the program around eligibility and forgiveness, which we hope will be clearer today, Hall said.
“Many of the reasons why these small business owners did not apply or were not approved for a PPP loan – I think many of those barriers have been removed,” he said.
The questions remain
To be sure, other changes to the PPP program that the Biden government announced last week take effect today, March 1 – some student loan takers, non-legal residents and those with certain criminal backgrounds are now eligible to apply for forgivable loans.
Still, there are other questions for individual homeowners about the timing of applications, especially for those who have already obtained an approved loan, but would get more out of the new formula. To date, there is no process for changing a scattered loan or withholding an order that is pending.
“All the unknowns now,” said Alex Cohen, CEO of Liberty SBF.
If you are a small business with a story to share about PPP, send an email to Carmen Reinicke at [email protected]
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