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

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

On Monday, the Small Business Administration is expected to release an update to the sole proprietorship version of the PPP loan application, incorporating a rule change that allows businesses without employees to make more money from the PPP than what is required. was previously allocated to 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.

“This is a radical change,” said Sam Sidhu, vice president and chief operating officer of Customers Bank, a regional lender based in Wyomissing, Pa., With 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 PPP cycle using the original calculation. One client, a fitness instructor, will now be eligible for $ 12,900, up from $ 1,100; another, an Uber driver, will be eligible for a loan of $ 20,833, compared to $ 3,300.

As of Monday, sole proprietors, independent contractors and self-employed people can apply for a PPP loan equivalent to the number shown in line 7 of their Schedule C tax form, i.e. their gross income . Previously, businesses had to report their net income, or line 31 on the form, which removes taxes and other expenses from the calculation.

As Sidhu notes, there is a huge advantage for these companies. But, as with it is not entirely clear what is PPP. There are a lot of open questions.

First, it is not clear whether the increase in the loan will be retroactive for those who have already received a first-draw P3. In a public discussion Thursday, Neil Bradley, director of policy for the US Chamber of Commerce, noted that this issue could be clarified by the next direction the SBA is expected to offer with the updated app. Under the current rules, Bradley notes, you couldn’t go back and get that extra money. But he adds that the SBA can change this rule.

At the very least, says Bradley, while it’s not retroactive, you’re basically guaranteed to get more money for your second draw than your first. Note that you still need to demonstrate a 25% drop in revenue in a quarter in 2020 from 2019, or a 25% loss for the full year of 2020 from 2019.

Under the PPP, companies are required to allocate 60% of their loan proceeds over labor costs, while the remaining 40% can be spent on a range of expenses, including rent, PPE and technological equipment. For sole proprietors, independent contractors and the self-employed, Bradley points out that it is generally assumed that all of their loan proceeds are in fact their labor costs. In other words, you currently don’t need to split your loan so that 60% is spent on payroll, while the rest is spent on other eligible expenses, because “the assumption is that the whole thing is will support your income ”. he says.

This assumption might not hold because gross income – that is, before taxes and expenses – is inherently greater than your net income, suggests Bradley. If the purpose of PPP for Schedule C filers is to replace the net income you would have received had the pandemic not occurred, then it does not follow to suddenly have a number higher than this. that you actually won before the pandemic. Ultimately, Bradley suggests, it can be difficult to justify general treatment of loan proceeds. But it’s up to the SBA to assess.

There is also a lack of clarity on what actually counts as a salary expense for this group of business owners. Although Bradley notes that it is generally assumed that the loan proceeds from a Schedule C filer are considered full payroll, the issue has never been specifically addressed by the SBA.

While these borrowers are not held to the same standard of remittance as employers – that is, they can use most of the loan proceeds for things that are not strictly considered like payroll – they can almost immediately spend their first-draw loans. This means, Sidhu says, that nothing prevents Schedule C filers from applying for both their first and second draw loans at the same time. He notes that many of these borrowers have racked up huge debts during the pandemic, so it wouldn’t be at all difficult for them to find eligible uses for their first-draw loan proceeds, in addition to payroll. They could, for example, reimburse the rent on a storefront or unpaid equipment leases, he suggests.