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The Small Business Administration on Wednesday announced a new formula for the application and loan calculation for loans for the Paycheck Protection Program for the self-employed and gig workers.
For these small businesses, going forward will mean larger forgivable loan amounts.
The new PPP application for self-employed and sole proprietors submitting IRS Form 1040 Schedule C now requires the total amount of gross income found on line 7 of the tax form. Previously, supporters of Schedule C applying for PPP loans were asked to give the net profit to the SBA, starting from line 31 on the form.
In addition, the SBA has released updated guidelines for borrowers on calculating loan amounts for Schedule C and the new rules for borrowers, including those who struggled with student loan debt, had convictions without fraud or were non-civilian business owners.
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At the end of February, the Biden-Harris administration announced notices of the SBA program aimed at helping the smallest businesses obtain the forgivable loans. At the same time, the administration announced a priority application for some lenders – from 24 February, lenders only processed applications from businesses with less than 20 employees and will continue to do so until 9 March.
But this has led to confusion among some lenders and borrowers. While the priority window opened at the end of February, the new arrangements and the updated loan calculation formula for some lenders would only come into effect in the first week of March.
Now that the SBA has announced the updated application for sole proprietorships as well as the interim final rule with revision of loan calculations and their suitability, lenders should be able to work with their lenders to submit applications according to the new guidelines. To be sure, the money providers will process and implement the new information.
The new calculation is important for millions of sole proprietorships and self-employed and performance workers in the US, as it will lead to greater forgiving loans through the program.
Previously, the SBA used net profit as an income for wage costs for businesses without employees, although wage and profit are different measures.
In addition, the net income line on IRS Form 1040 includes Schedule C deductions, which reduced or eliminated the amount for some, which resulted in small loans or that were not eligible for the program. Using gross income – usually a larger number – will solve some of these problems.
This is an evolving news report. Check back for updates.
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