For some sole proprietors, getting a Paycheck Protection Program loan during the pandemic has been something of a fool’s errand.
First, some couldn’t get any traction with banks because their loan size was too small; the lenders make more when they lend more, naturally. Others found that when they did find a lender to take them on, the amount they qualified for was a pittance compared with what they expected. Some reportedly qualified for just $1.
The Biden administration today announced a series of fixes–including a modification of the loan formula for sole proprietors and an exclusive lending window for the smallest borrowers–that should allow for a more equitable distribution of relief funds. The forgivable program, which relaunched on January 11, has awarded more than $140.2 billion to about 1.9 million small businesses to date, with an average loan amount of $73,000.
Here are the latest changes in detail:
1. A 14-day exclusive application period, starting February 24, for businesses and nonprofits with fewer than 20 employees. The SBA in a release specified that it will still process all applications that lenders had already submitted to the agency before the start of the exclusivity period.
2. A modification to the PPP loan amount formula for sole proprietors, independent contractors, and self-employed individuals, allowing them to use the gross income line on their Schedule C tax forms. Previously, businesses needed to remove taxes and other expenses from the calculation. The SBA is further setting aside $1 billion for those types of businesses in low-to-moderate income communities. The changes are expected to take effect the first week of March.
3. The SBA will allow access to the loan program without regard to a borrower’s federal student loan delinquency status. Borrowers who have been convicted of a non-fraud felony also will be allowed access to the program, as long as they were not incarcerated when they applied. Both changes take effect the first week of March.
4. Immigrant entrepreneurs who lawfully reside in the U.S. and pay taxes will also be allowed to apply for PPP loans. This has always been the case, but the Biden administration noted that a lack of guidance from the SBA has created inconsistency in access for Individual Taxpayer Identification Number (ITIN) holders like Green Card holders or people in the U.S. on a visa. To ensure this, the SBA notes that it will, as of the first week of March, begin allowing business owners to use their ITIN to apply for the program.
Keith Hall, president and CEO of the National Association for the Self-Employed, applauded the changes, in a statement. “The revised PPP calculation and reforms released today is welcome news for not only the self-employed, but the countless additional small businesses who will now be eligible to apply for loans they need to survive during this ongoing pandemic,” he said.
Hall further commended the exclusive lending period for the smallest borrowers. But he also argued that more still needs to be done to help the smallest businesses, encouraging lawmakers to continue to push for another stimulus package. Currently members of Congress are negotiating what they plan to include–or, given recent upbeat economic news, questioning whether more relief is needed at all. Whatever the outcome, Hall said, with the pandemic and vaccine concerns still in overdrive–along with the potential for coronavirus variants to foil a recovery–“this cannot be the end of support for the small business community.”