New PPP Rules for Freelancers, Entrepreneurs and Sole Proprietors – Quartz
Entrepreneurs, freelancers and sole proprietors in the United States can now access much larger Paycheck Protection Program (P3) loans, as a result of a new rule released Wednesday by the Small Business Administration (SBA). The rule allows entrepreneurs without employees to calculate their loan eligibility using gross income rather than net income, making loans much more generous, especially for businesses with little or no profit.
The change was first announced by the Biden administration last week as part of a package of new measures to improve access to loans for small businesses. This included a 14-day period during which only companies with 20 or fewer employees could apply for PPP loans. Sole proprietors were eligible to apply during this time, but were waiting for the SBA to clarify the details of the new arrangement to ensure they received the largest amounts. They don’t have much time to take advantage of the 14-day window announced by the administration, as the SBA rule comes halfway. (Businesses without employees can still apply after the 14 day period has ended, but after that date, businesses with more than 20 employees will also be able to do so.)
What expenses are eligible
The rule also clarifies how sole proprietors who calculate their eligibility for gross income assistance can spend loans to be canceled, and sets new criteria for auditing applications. Businesses without employees can spend money to cover a number of expenses, including rent and utilities, and can be compensated up to $ 20,833. (Companies with employees must spend 60% of PPP loans on payroll to be eligible for loan cancellation.)
New rules for audits
The rule also sets out new criteria for determining which candidates are eligible for review. The SBA does not require small borrowers to certify that they are applying in good faith, which affects their eligibility for the audit. But the rule released this week said sole proprietorships who report annual gross income of more than $ 150,000 may be eligible for SBA audits and will not be deemed to have applied in good faith.
The new SBA rule also removes previous eligibility restrictions on business owners who have been convicted of non-financial crimes within the past year or are behind on student loans.
“The rule change is an important and long overdue correction to provide PPP support to sole proprietorships, which represent 24 million of America’s 30 million small businesses,” said Karen Mills, former SBA administrator under the Obama administration. and senior researcher. at Harvard Business School. “Importantly, a very high percentage of sole proprietorships are owned by women and entrepreneurs of color. So this change will also help get capital where it’s needed most. “
No change for those who have already received loans
The new formula does not apply retroactively to those who have already received PPP loans.
“All the sole proprietors who have taken smaller loans before (based on their net income on their tax return), or who have been denied loans entirely, are out of luck,” Mills told Quartz. . “These sole proprietors should be given the option to reapply or ‘top up’ those pre-existing loans to what they would be under this new rule.”
The deadline to apply for the PPP is March 31st.