Changes in PPP loans are expected to open doors for small businesses

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Self-employed entrepreneurs and contractors will have more access to forgivable pandemic loans, according to rule changes announced next Monday.

Currently, contractors, sole traders, and the self-employed must calculate their Paycheck Protection Program loans using their net profit, which lowers the amount they qualify for.

The Small Business Administration will soon issue an interim final rule that will allow these individuals, whose entities make up the vast majority of U.S. companies, to instead use their gross income to calculate their loans, a White House official told Bloomberg Tax at the end of Monday. Earlier, the White House announced several changes to the Paycheck Protection Program intended to increase the range of the loan program, which offers government-backed loans that can be forgiven.

The SBA will provide details this week and implement the change by the first week of March, the official said in an email. The planned change to the rules – allowing affected businesses to qualify for larger loans – follows a recent request from dozens of small business organizations and companies.

“It only makes sense,” said Keith Hall, president and CEO of the National Association for Self-Employed.

Well into the pandemic, Hall noted, “by definition, the net revenues of these companies will get worse.”

Another chance

A law imposed in December amended the loan program to allow smallholders and ranchers to apply using gross income, but omit businesses that are not employers. The PPP has been reopened with new financing in January and nearly 2 million loans had been approved this round, as of Sunday.

According to Michael Greenwald, a partner at Friedman LLP in New York, so far non-employers with a net loss have been “excluded from the program.” The rule change “will certainly allow them to survive the economic uncertainty a little longer,” he said.

The change would be a game changer for minority business owners, said Dafina Williams, senior vice president at the Opportunity Finance Network, an association of financial institutions targeting disadvantaged areas and businesses.

Minority business owners are usually sole proprietorships or independent contractors, and under the original rules, they would be eligible for loans as low as $ 50 to $ 100, Williams said.

While advocacy groups welcomed the Biden government’s announcement, they indicated they will push for further PPP changes. A few groups – such as the Main Street Alliance and the National Self-Employed Association – said they intend to pressure lawmakers to retroactively implement the change for people who have already applied for a loan.

“We ask Congress to act just as quickly to make the adjustment retroactively so that companies that have missed the level of relief they previously needed can survive this dangerous time and thrive as we go forward,” he said. Ashley Harrington, federal advocacy director and senior adviser at the Center for Responsible Lending, said in a statement.

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