Small Business Administration Releases New PPP Rules for Self-Employed Individuals
The U.S. Small Business Administration (SBA) recently issued new Paycheck Protection Program (PPP) rules to allow those who file Form 1040, Schedule C, Profit or Loss From Business to calculate their maximum loan amount using gross income instead of net profit.
The change is detailed in a 32-page interim final rule (IFR), “Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to Loan Amount Calculation and Eligibility.” The new IFR revises the maximum loan calculations for sole proprietors who file Schedule C returns and have not yet been approved for a first- or second-draw loan in the current phase of the PPP program.
If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of payroll costs based on either net profit or gross income minus expenses reported on lines 14, 19 and 26 of Schedule C. If a Schedule C filer has no employees, the borrower may elect to calculate the loan amount based on either net profit or gross income.
The new IFR provides different sets of maximum loan calculation instructions for Schedule C filers with no employees and with employees. These borrowers may use their PPP proceeds for the following:
- Owner compensation (if net profit is used) or proprietor expenses (business expenses plus owner compensation if gross income is used)
- Employee payroll costs
- Mortgage interest payments
- Business rent payments
- Business utility payments (for borrowers entitled to claim a deduction for such expenses on their 2019 or 2020 Schedule C, depending on which one was used to calculate the loan amount)
- Interest payments on any other debt incurred before Feb. 15, 2020
- Covered operations expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
- Covered property damage costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
- Covered supplier costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
- Covered worker protection expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
To mitigate the risk of fraud, the SBA also stated that a Schedule C filer reporting more than $150,000 gross income to calculate its first-draw PPP loan will not be able to claim the safe harbor provided for borrowers that, together with their affiliates, received PPP loans of less than $2 million. The SBA will review a sample of first-draw PPP loans made to Schedule C filers using the gross income calculation if the gross income used to calculate the loan amount exceeds the $150,000 threshold to assess whether the borrowers complied with the PPP eligibility criteria.
Additionally, the IFR also updated PPP eligibility rules to remove restrictions preventing loans from going to small business owners with prior nonfraud felony convictions or who are delinquent or in default on federal student loan payments. These changes are reflected on the updated borrower forms for first and second draws.
The SBA also released an updated set of FAQs and six updated or new application forms. The forms are as follows:
- Updated PPP borrower first-draw (Form 2483) and second-draw (Form 2483-SD) application forms
- New PPP first-draw (Form 2483-C) and second-draw (Form 2483-SD-C) borrower application forms for Schedule C filers using gross income
- A revised lender application form for PPP loan guaranty (Form 2484)
- A revised PPP second-draw lender application form (2484-SD)
For more information, visit tscpa.com/covid19.