On Feb. 22, 2021, the Biden-Harris administration announced changes to the Small Business Administration (SBA) Paycheck Protection Program (PPP). These changes include a 14-day exclusive access period, starting Wed. Feb 24, under which only businesses with fewer than 20 employees can apply for loans and a change in how sole proprietors, independent contractors and self-employed individuals calculate their loan amounts. Also included in the announcement are changes in eligibility for certain borrowers with prior non-fraud felony convictions, borrowers who are delinquent on their federal student loans and borrowers who are non-citizens but lawful U.S. residents.
The 14-day exclusive access period comes with little warning to non-qualifying borrowers. However, 2021 PPP has been open to all borrowers since Jan. 19, 2021 and has approved over 1.9 million loans totaling over $140 billion. With 37 days left until the March 31, 2021 end of the program, approximately $144 billion remains untapped.
The Biden-Harris administration’s changes in loan amount calculation may help many sole proprietors, independent contractors and self-employed individuals. For these borrowers, the total loan amount may now be based on gross income instead of net income, which is generally found as ‘net profit’ on Schedule C. These borrowers could use the 2019 or 2020 Schedule C amounts to determine the loan size and the requirement to use net profit significantly limited loan sizes. In extreme cases, the loan sizes were limited to only $1. However, the administration has yet to release guidance for lenders on these changes. Such guidance may not come until next month, leaving these borrowers in a potential bind.
Finally, as many potential 2021 PPP borrowers may be aware, the SBA approval for the loan is taking longer than the 2020 PPP approval. The SBA has changed its approval process to insert fraud checks prior to authorization. Additionally, while lenders have received guidance on how to overcome certain error codes during the approval process, the clearance process to get the loan through the system does still take extra time.