The SBA announced on 2/22/21 at: https://www.sba.gov/article/2021/feb/22/sba-prioritizes-smallest-small-businesses-paycheck-protection-program:

  • The SBA will Allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants

Since first being introduced last March, the PPP formula required that sole proprietors, independent contractors, and self-employed individuals base their PPP loan calculation on their net income as reflected on the Schedule C filed as part of their personal tax returns.  Anyone earning $100k or more generally qualifies for the maximum PPP loan of $20,833.

The new formula is based on gross Schedule C revenue instead of net income.  Any business earning less than $100k that has expenses, therefore, should be able to get a higher PPP loan with this formula.

According to an article written by the American Institute of CPAs on 3/3/21 available at: https://www.journalofaccountancy.com/news/2021/mar/ppp-borrowers-can-use-gross-income-sba-rules.html:

The new IFR allows a Schedule C filer who has yet to be approved for a PPP first- or second-draw loan in the current, $284.5 billion phase of the program to elect to calculate the owner compensation share of its payroll costs based on either net profit (as reported on line 31 of Schedule C) or gross income (as reported on line 7 of Schedule C). If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either net profit or gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of Schedule C. If a Schedule C filer has no employees, the borrower may simply choose to calculate its loan amount based on either net profit or gross income.

And according to an article written by the American Institute of CPAs on 3/5/21 available at: https://www.journalofaccountancy.com/news/2021/mar/aicpa-calls-on-sba-to-change-unfair-ppp-guidance-deadline.html, there are some pitfalls with the new rules, including:

  1. The new formula only applies to new PPP loans. Loan already approved can’t be increased.

 

  1. “The March 31 deadline for PPP applications to be pushed back, in part because the changes mandated by the new IFR are significant enough that lenders won’t be able to implement them into their PPP portals for at least a week”.

Please reach out to your bank or PPP1 lender for more info.

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