For some solopreneurs, the latest PPP rules are bad news
With only a week to go in the paycheck protection program 14 day exclusive loan window for businesses with less than 20 employees, the US Small Business Administration has released long-awaited guidance for lenders on the latest changes. The problem: some borrowers won’t like what they see.
The 32-page document, known as provisional final rule, released Wednesday, covers many of the PPP changes that the Biden administration requested last Monday. Among other things, President Biden asked the SBA to change the loan formula for sole proprietors, independent contractors and self-employed workers entrepreneurs – called Schedule C filers – allowing them to apply for loans equal to their gross income, rather than their net income, which eliminates taxes and other expenses. Biden also authorized an exclusive loan window for smaller borrowers, which launched on February 24 and ends on March 9.
“The Paycheque Protection Program is a bipartisan effort; Democrats and Republicans helped push it through ”, Biden said in his announcement of the changes. “But Democrats and Republicans have also expressed concerns about its improvement. With their contribution, that’s what we are doing in our administration: improving it.”
As well-intentioned as the changes are, the new guidelines will likely leave some business owners disappointed.
For starters, it’s clear by now that you’ll have to wait at least eight weeks before you can apply for a second draw loan, which could be a big blow to business owners like Jennifer Moxley who were hoping they could apply for both. their first and second draw loans this round. An eight week waiting period prevents someone from getting a second loan before the end of the current P3 cycle on March 31, even though they could easily spend the loan proceeds during that time.
Using the previous net income formula, Moxley applied for his first PPP loan in early February from BlueVine, a non-bank lender based in Redwood City, California. At just over $ 6,000, she said, it was a pittance. “I’m not ungrateful, but I have people to pay and I have rent and it’s not that much money,” she says.
Like many independent entrepreneurs, Moxley, who runs Sunshine Media Network, a Charlotte, North Carolina-based media company, doesn’t pocket much of his income. Although the nine-year-old company is doing well – she says it typically employs around 30,1099 people – she is reinvesting most of her income back into her business. If Moxley could apply for a second loan based on her gross income, she would qualify for the maximum that an independent contractor could receive under the new formula – $ 20,833 – as gross income in 2019 exceeded the individual income limit of $ 100,000. “When the White House said you were going to get special treatment … I was like, ‘Oh, my god, this is amazing.'”
Then, as details began to emerge, Moxley says she began to question whether or not to apply. “It’s a joke,” she said. “Small business owners like me fail to do what they think is right.”
Under the new guidelines, Moxley also cannot retroactively change his previous loan amount and base it on the new formula. “If you applied earlier this week and your loan has been submitted to the SBA and approved, there is nothing you can do but cancel the loan and start over,” says David Patti, spokesperson. from the Customers Bank, which closely monitors the latest PPP changes. And if you cancel and reapply, which you can only do if the money hasn’t reached your account yet, Patti suggests that you might run into delays that could put off your loan approval beyond the date. end of the program. “You run the risk of the lender not getting to you on time,” he says. “It’s a difficult situation. [We’re] hoping there is more clarity in the next few days. “
In addition, the new directives reclaim a refuge for solopreneurs. While the SBA previously said it would only automatically audit all loans over $ 2 million, it now makes an exception for Schedule C borrowers with higher gross incomes. Since high income borrowers are presumed to have other sources of cash available, they may have to retroactively prove that they needed the loan.
PPP and the solopreneur
The challenges that business owners like Moxley face today are only part of the difficult PPP experience for solo entrepreneurs. While it is true that basing the original calculation on net income over gross income is almost always lacking in founders who do not pay themselves well – which is the case for many sole proprietors – the greatest inequalities in the world are PPPs for this group are not the government’s fault, says Keith Hall, president and CEO of the National Association for the Self-Employed, a Dallas trade association.
“Small business owners – especially the self-employed – don’t have the resources that other large businesses have. They don’t have anyone to apply for them,” Hall said. “If they take time to make the request, they take time to sell to the next customer.”
And many sole proprietors, independent contractors and the like don’t even know they’re eligible for the program, says Martin Moll, founder and advisor of Breakaway Bookkeeping and Advising, a virtual network of accountants and advisers in Tualatin, Ore. “We find that a large portion of the target audience President Biden is trying to reach don’t know that applying for a loan is even an option. Either they stopped paying attention when they found out they weren’t. qualified last year or, more likely, sole proprietorships are just too busy earning a living to take the time to research their options. “
The stimulus package which was recently passed by the House of Representatives and is currently being negotiated in the Senate intends to address this issue. The new bill contains $ 175 million for a “community navigator” program, which would help increase awareness and participation in Covid-19 relief programs for business owners. The program would prioritize increasing access among businesses owned by socially and economically disadvantaged individuals, women and veterans. But, it’s also worth noting that the House bill does not contain an extension of the PPP beyond its current end date of March 31.