Insights into the world of small business lending and development

New Round of PPP targets aid for smallest businesses during the pandemic

The White House recently announced new changes to the Paycheck Protection Program (PPP) to better focus federal relief funds and aid struggling small businesses that may have been left behind during the first rounds of funding. The changes come at a critical time, when our research reveals that minority-owned businesses have greatly struggled to secure capital compared to their white counterparts. 

Below you will find preliminary guidance to participate in the new application for PPP loans.

Update: On March 3, the SBA released the following rules regarding the special window of applications:

  • Self-employed business owners with no employees will be eligible for a loan equal to their 2019 or 2020 gross income, divided by 12, multiplied by 2.5. 
    • Self-employed and sole proprietors can also refinance an EIDL Loan made between January 31 and April 3, 2020.  
  • The new rules only apply to loans made as of March 3, 2021.
  • If gross income exceeds $150,000, the SBA may audit so it’s important to keep detailed information.
  • For those who receive loan forgiveness on their PPP loans, the maximum forgivable amount cannot exceed $20,833 ($100,000 / 12 * 2.5).
  • The rules on eligible PPP expenses still apply. 

Here’s what we know:

  • The new timeframe to apply provides a dedicated 2-week window, starting Wednesday, February 24, where only businesses with fewer than 20 employees will be able to apply for PPP loans.
  • The U.S. Small Business Administration (SBA) will implement new changes to the PPP loan calculation formula for sole-proprietors, independent contractors and self-employed applicants to ensure they receive more relief.
    • The updated formula will use gross income as a stand-in for payroll costs, a larger number than net income, meaning many sole -proprietors and self-employed firms will get more money in forgivable loans.
    • The announcement establishes a $1 billion set aside for these businesses without employees located in low- and medium-income areas​
  • Expands PPP eligibility to small business owners with non-fraud felony convictions​
    • To expand access to PPP, the Biden-Harris administration will adopt bipartisan reforms included in the PPP Second Chance Act, which would eliminate the second restriction (the one-year look-back) unless the applicant or owner is incarcerated at the time of the application.
  • Allows firm owners who are delinquent on their federal student loans to apply​
    • The Small Business Administration will remove the student loan delinquency restriction to broaden access to PPP loans.
  • Expands PPP eligibility to certain non-citizen small business owners who are lawful U.S. residents by clarifying they may use their Individual Taxpayer Identification Number (ITIN) to apply.

What we don’t know:

  • How the SBA will determine PPP eligibility for sole proprietors and self-employed individuals
  • When the SBA will release rules regarding that eligibility
  • What to do if you are a sole proprietor or independent contractor who already has a pending PPP application. We advise you to contact your bank or credit union to let them know you are interested in learning more about whether you can qualify for a higher PPP amount based on the new rules.

What happens next:

The SBA still needs release rules around determining PPP eligibility amounts for sole proprietors, self-employed and independent contractors, as well as rules for qualifying for the other cases (i.e. lawful residents, borrowers delinquent on federal student loans, etc.). These will likely come in the form of an interim final rule and made available on the SBA’s website. 

We will continue to update this page as more information becomes available in the coming days.

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