PPP Loan Revisions Under the Biden Administration

PPP Loan Revisions Under the Biden Administration

March 8, 2021

Last month, President Biden and Vice President Harris introduced revisions to the Paycheck Protection Program (PPP) loans through the Small Business Administration (SBA). These revisions began to take effect on February 24, and primarily impact small businesses. Highlights of the revisions include the following: 

Two-week limitation on what types of businesses are eligible to apply for PPP loans

From February 24 through March 9, only businesses with fewer than 20 employees are eligible to apply for PPP loans. This allows small businesses, which make up the majority of businesses in the US, to apply for loans without having to worry about lenders prioritizing larger clients over them.

As a reminder, the current round of PPP loans runs through March 31.

Larger businesses that haven’t yet applied will still be able to do so from March 10 through March 31. At this point, there is still a large amount of funding remaining in the PPP loan program. Please check with your bank to determine what process makes most sense for your business.

New maximum loan calculation for self-employed individuals and independent contractors who file on Schedule C

Another key change, that could potentially impact a variety of taxpayers, is updated SBA guidance on calculating maximum loan amounts for self-employed individuals and independent contractors filing on Schedule C of their individual tax return. Previously, these business owners were limited to the net income from their Schedule C for determining the loan amount for their own earnings. However, the SBA’s updated guidance, released on March 2, provides a revised calculation allowing for these small business owners to apply for their own earnings based on the gross receipts, not net income, of the business. This has the potential to substantially change the calculation and allow these businesses to qualify for a larger loan than they would otherwise be eligible for. A Schedule C with at least $100,000 of gross receipts and no employees would qualify for the maximum PPP loan (per person) of $20,833.

There are a couple of things to note with the updated calculation. First, its only applies to new loan applications. Therefore, if you have a Schedule C and have already applied based on the net income of the Schedule C, you cannot go back to request additional loan proceeds. However, the new calculation can be used for either a First Draw or Second Draw PPP loan. Second, the economic uncertainty safe harbor is different for these loans. With most loans, businesses are deemed to have met the safe harbor for having economic uncertainty if their loan was under $2 million. For these gross receipts calculations, however, any Schedule C that applies will not be able to use the safe harbor if their gross income is greater than $150,000. While this doesn’t mean that larger Schedule C’s should not consider applying for a loan, they should work to document their economic uncertainty and why they determined that they needed to take advantage of the PPP Loan program rather than seeking bank financing or other funding sources.

Currently, the PPP loan application window for both First and Second Round PPP loans is set to close on March 31. While there is a chance that this time period could be extended, there is no substantive guidance indicating that possibility at the present time. If your business has been impacted by COVID and has not yet taken advantage of the PPP loan program, we encourage you to review the qualifications and determine if it makes sense to do so now.

HBE is here to help. Please do not hesitate to contact your HBE advisor to make sure that you are taking advantage of all of the relief opportunities that may be available to your business at this time.

This communication and any applicable contents pertaining to COVID-19 employer relief provisions is based on our professional judgment given the facts provided to us and the COVID-19 employer relief provisions guidance as of the date of the communication. Subsequent developments changing the facts provided to us, or differences in the final guidance and regulations once they are issued, may affect the advice provided. These effects may be material.