For individual entrepreneurs, there has never been a better time to apply for a PPP loan


If you are a sole proprietor, independent contractor, or self-employed entrepreneur, now is the best time to apply for a loan from the Paycheck Protection Program.

On Monday, the Small Business Administration is expected to release an update to the sole proprietorship version of the PPP loan application, which represents a change in the rule that allows businesses without employees to get more money from the PPP than is allowed. previously assigned them. Companies with less than 20 employees also now have an exclusive window to request funds, until March 9.

The changes are part of a series of revisions requested by the Biden administration aimed at making the $ 284.5 billion forgivable loan program more equitable and accessible to smaller businesses.

“It’s a sea change,” says Sam Sidhu, vice president and chief operating officer of Clientes Bank, a regional lender based in Wyomissing, Pennsylvania, in reference to the revised sole proprietorship calculation. He notes that some of his business clients will see loan amounts that are very different from what they received in the first round of APP using the original calculation. One client, a fitness instructor, will now be eligible for $ 12,900, compared to $ 1,100; another, an Uber driver, will qualify for a loan of up to $ 20,833, up from $ 3,300.

Starting Monday, sole proprietors, independent contractors, and the self-employed can apply for a PPP loan equal to the amount indicated on line 7 of your Schedule C tax form, that is, your gross income. Previously, businesses needed to list their net income, or line 31 of the form, which removes taxes and other expenses from the calculation.

As Sidhu points out, there is a great advantage to these businesses. But, as with everything related to PPP, not everything is clear. There are many open questions.

Can existing borrowers request more money?

First, it is unclear whether the loan extension will be retroactive for those who have already received a first draw APP. In a discussion at city hall Thursday, Neil Bradley, policy director for the US Chamber of Commerce, noted that this issue may be clarified with the upcoming guidance that the SBA is expected to offer along with the updated application. Under current rules, Bradley notes, he couldn’t go back and get that extra money. But he adds, the SBA can alter this rule.

At the very least, Bradley says, even if it’s not retroactive, you’re basically guaranteed to get more money for your second drawing than your first. Note that you must still demonstrate a 25 percent drop in revenue for any 2020 quarter compared to 2019, or a 25 percent loss for the full year 2020 versus 2019.

Does the forgiveness test change for these borrowers?

Under the PPP, companies must allocate 60 percent of their loan proceeds to payroll costs, while the remaining 40 percent can be spent on a variety of expenses including rent, PPE and technology equipment. For sole proprietors, independent contractors, and the self-employed, Bradley notes that it is generally assumed that all of your loan proceeds are actually your payroll costs. In other words, you don’t currently need to split your loan so that 60 percent is spent on payroll while the rest goes to other allowable expenses, because “the assumption is that everything will support your income.” he says.

That assumption might not be valid since your gross income, meaning before taxes and expenses, is inherently greater than your net income, suggests Bradley. If the goal of the PPP for Schedule C taxpayers is to replace the net income that you would have received if the pandemic had not occurred, it is not recorded, then suddenly have a number higher than what you actually earned before the pandemic. In the end, Bradley suggests, it can be difficult to justify a general treatment of loan funds. But that is up to the SBA to evaluate.

What really is a payroll expense for Schedule C filers?

There is also a lack of clarity on what is actually considered a payroll expense for this group of business owners. While Bradley notes that a Schedule C filer’s loan proceeds are generally assumed to count as all payroll payments, the SBA has never specifically addressed the issue.

If these borrowers are not subject to the same forgiveness standard as employers, that is, they can use most of the loan proceeds for things that are not strictly considered payroll, they can spend your first draft loans almost immediately. That means, Sidhu says, there is nothing stopping Schedule C taxpayers from applying for their first and second draft loans at the same time. He points out that many of these borrowers have racked up huge debts during the pandemic, so it wouldn’t be difficult for them to find eligible uses for their first loan proceeds, other than payroll. You could, for example, pay back rent for a store or unpaid equipment leases, he suggests.

“If you are a first withdrawal borrower and use the funds according to SBA guidelines, that is, you spend the first withdrawal money first, you can request a [second-draw] loan, and you can do it on the same timeline between now and March 31, “he says.” It’s really going to have a massive impact. “

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