Larger APP Loans For Freelancers, The Freelancers Have Not Started Yet –

Larger APP Loans For Freelancers, The Freelancers Have Not Started Yet

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Millions of freelancers and concert workers got good news this week.

The Biden administration on Monday changed the way the Small Business Administration’s Paycheck Protection Program calculates forgivable loans for smaller businesses and sole proprietors.

But there is a catch. The updated formula, which will likely lead to larger loan amounts for non-employer businesses, including sole proprietors and independent contractors, won’t take effect until the first week of March.

While the SBA has provided some information on how the loan formula will change, it has yet to communicate the details of how to calculate loans under the new rules to lenders.

That means business owners who want to apply in the two-week priority window for smaller businesses with fewer than 20 employees starting today may want to wait to make sure their applications are subject to the most up-to-date rules.

“Loans submitted prior to official rule changes are subject to the rules in effect at the time of application, ” said Carol Wilkerson, an SBA spokeswoman.

To ensure sole proprietors receive the benefit of the changes, it is recommended that lenders do not submit their application to the system until the SBA’s written guidance is issued, according to management.

A few days could mean the difference between a loan that keeps a sole proprietor afloat and one that doesn’t go very far.

What is known about the formula change so far

For businesses with employees, the maximum PPP loans are 2.5 times the average monthly payroll costs, according to the SBA. As a proxy for payroll costs for individual workers, the SBA used net earnings information from tax returns, although payroll and earnings are different measures.

Additionally, the net profit line includes deductions, which reduced or eliminated the earnings figures for some, generating small loans or making them ineligible for the program.

Instead, the updated formula will use gross income as a proxy for payroll costs, a number greater than net income, which means that many businesses will get more money in forgivable loans.

“It’s a tremendous change,” said Keith Hall, president and CEO of the National Association of Independent Workers.

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The change is important, as sole proprietorships are the most common business structure in the U.S. The IRS says there are about 41 million freelancers in the country, and in 2018, more than 27 million people filed a return with an IRS Schedule 1040. Form C for sole proprietors, according to the agency.

Many of these companies have been particularly affected by the coronavirus pandemic. About 70% of those non-employee businesses are owned by women and people of color, and 95% of black businesses and 91% of Latino businesses are sole proprietorships, according to SBA data.

But so far, very little SBA forgivable funding has gone to sole proprietorships; According to a recent NASE poll, nearly two-thirds of its members said they got no money from the program.

Much of that was due to confusion in the show’s early days around eligibility and forgiveness, which is expected to become clearer today, Hall said. “Many of the reasons that those small business owners did not apply for or were not approved for an APP loan, I think many of those barriers have been removed,” he said.

Loans submitted prior to official rule changes are subject to the rules in effect at the time of application.

Carol wilkerson

SBA Spokesperson

Questions remain

Other small businesses besides sole proprietors may also want to proceed with caution when applying for a PPP loan, even during the two-week priority window.

Changes that make some student loan borrowers, legal nonresidents, and those with criminal records eligible for loans also take effect the first week of March, according to the SBA.

And there are other questions about the timing of sole proprietorship applications, especially those who have already got an approved loan but would get more with the new formula: there is no process to amend a sparse loan or withhold an application that is currently pending.

“All the unknowns at this point,” said Alex Cohen, CEO of Liberty SBF.

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