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The Small Business Administration released a new application and loan calculation formula on Wednesday for Paycheck Protection Program loans for the self-employed and handyman.
For these small businesses, this means larger loans that can be forgiven in the future.
The new PPP filing for self-employed and sole proprietorships filing IRS Form 1040 Schedule C now asks for the total amount of gross income, found on line 7 of the tax form. Previously, Schedule C filers applying for PPP loans were asked to provide the SBA with their net profit, starting at line 31 on the form.
In addition, the SBA has released updated lender guidelines for calculating loan amounts for Schedule C filers and new eligibility rules for borrowers, including those who struggled with student loan debt, had convictions for non-fraud crimes, or were non-citizen owners.
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The Biden-Harris administration announced updates to the SBA program in late February to help the smallest businesses access the loans to be forgiven. At the same time, the administration announced a priority window for applications for some borrowers – starting February 24, lenders will only process applications from companies with fewer than 20 employees and will continue to do so until March 9.
But that created confusion for some borrowers and lenders. Although the priority window opened at the end of February, the new eligibility rules and updated loan calculation formula would not take effect for some borrowers until the first week of March.
Now that the SBA has released the updated sole proprietorship application, as well as its interim final rule with revisions to loan amount calculation and eligibility, borrowers should be able to work with their lenders to file applications under the new guidelines. Certainly, it will take some time for lenders to process and implement the new information.
The new calculation is important to millions of sole traders and self-employed and handy workers in the US because it will lead to larger loans through the program that can be forgiven.
Previously, the SBA used net profit as a substitute for wage costs for companies without employees, even though payroll and profit are different measures.
In addition, the net income line on IRS Form 1040 Schedule C includes deductions, which reduced or eliminated the amount for some, leading to small loans or making them ineligible for the program. Using gross income – usually a larger number – solves some of these problems.
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