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PPP Loan Changes Expected to Open Doors for Smallest Businesses

Feb. 23, 2021, 9:46 AM

Self-employed business owners and contractors are slated to get increased access to forgivable pandemic relief loans under forthcoming rule changes announced Monday.

Currently, contractors, sole proprietors, and self-employed people have to calculate their Paycheck Protection Program loans using their net profits, which lowers the amount they are eligible to receive.

The Small Business Administration will soon issue an interim final rule allowing these individuals, whose entities make up the vast majority of U.S. businesses, to instead use their gross income to calculate their loans, a White House official told Bloomberg Tax late Monday. Earlier, the White House announced several Paycheck Protection Program tweaks intended to expand the reach of the loan program, which offers government-backed loans that can be forgiven.

The SBA will provide details throughout this week and implement the change by the first week of March, the official said in an email. The planned rule change—which would allow affected businesses to qualify for larger loans—follows a recent request from dozens of small business organizations and companies.

“It only makes sense,” said Keith Hall, president and CEO of the National Association for the Self-Employed.

This far into the pandemic, Hall noted, “by definition, the net income from these businesses is going to be worse.”

Another Chance

A December relief law amended the loan program to allow small farmers and ranchers to apply using gross income, but left out non-employer businesses. The PPP reopened with new funding in January and nearly 2 million loans had been approved this round, as of Sunday.

Non-employer businesses with a net loss have been “shut out of the program” so far, according to Michael Greenwald, a partner at Friedman LLP in New York. The rule change “will certainly enable them to try to survive the economic uncertainty for a little bit longer,” he said.

The modification would be a game changer for minority business owners, said Dafina Williams, senior vice president at the Opportunity Finance Network, an association of financial institutions catering to underserved areas and businesses.

Minority business owners tend to be sole proprietors or independent contractors, and under the original rules, they would have qualified for loans as small as $50 to $100, Williams said.

While advocacy groups welcomed the Biden administration’s announcement, they indicated they will push for further PPP changes. A few groups—such as the Main Street Alliance and the National Association for the Self-Employed—said they plan on pressing lawmakers to make the change retroactive for people who have already applied for loans.

“We ask that Congress move just as swiftly to make the adjustment retroactive, so that businesses who missed out on the level of relief they needed previously might survive this perilous time and thrive as we move forward,” Ashley Harrington, federal advocacy director and senior counsel at the Center for Responsible Lending, said in a statement.

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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