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 Paycheque 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. 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 asked by the Biden administration to make the $ 284.5 billion forgivable loan program fairer 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 round of PPP 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 qualify for a loan of up to $ 20,833, compared to $ 3,300.
As of Monday, sole proprietors, independent contractors and self-employed people can apply online @ green day for a P3 loan equivalent to the figure shown on line 7 of their Schedule C tax form – that is, their gross income. Previously, businesses had to report their net income, or line 31 of the form, which removes taxes and other expenses of the calculation.
As Sidhu notes, there is a huge benefit to these companies. But, as with all things PPP, all is not clear. There are a lot of open questions.
Can existing borrowers ask for more money?
First, it is not clear whether the increase in the loan will be retroactive to 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.
Does the forgiveness test change for these borrowers?
Under the PPP, companies are required to allocate 60% of their loan proceeds to payroll costs, while the remaining 40% can be spent range of expenses including rent, PPE and technical 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 “it is assumed that everything is fine. support your income, ”he says.
This assumption might not hold since gross income – that is, before taxes and expenses – is inherently greater than your net income, suggests Bradley. While the purpose of PPP for Schedule C filers is to replace the net income you would have received had the pandemic not occurred, it doesn’t suddenly track a number higher than what you actually have. 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.
What is a salary expense for Schedule C filers, really?
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 a Schedule C filer’s loan proceeds are considered full payroll, the issue has never been specifically addressed by the SBA.
While these borrowers are not required to meet 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 spend their first-draw loans almost immediately, provided the SBA changes the time frame in which a borrower can use the funds. Currently, the period covered begins as soon as the loan funds arrive in the borrower’s account and lasts for eight weeks. The SBA has expressed interest in shortening that time to just 14 days, Sidhu confirms. If that happens, he adds, 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, pay off storefront rent or unpaid equipment leases, he suggests.
“If you are a first-draw borrower and use the funds according to the ASB guidelines – that is, you spend the first-draw money first – you can actually apply for a [second-draw] ready, and you can do it within the same timeframe by March 31, “he said.” This is really going to have a huge impact. ”
Clarification: An earlier version of this article lacked specificity regarding the timing between the first and second pulling loans. Borrowers currently have to wait eight weeks from receiving their first draw loan before they can apply for a second draw loan.