On Wednesday, March 3, the SBA announced updates to the Paycheck Protection Program (PPP) to reflect announced changes from the Biden Administration to loan calculations for borrowers who are independent contractors, sole proprietors, or self-employed (“Schedule C borrowers”). Under the updated system, those borrowers are eligible to use either net profit or gross income when calculating the total loan amount they are eligible for.
These changes reflect concerns that those borrowers, who frequently do not have any employees, were disadvantaged in the earlier calculation system. PPP borrowers are eligible to receive loans of up to 2.5x their average monthly payroll costs from before the pandemic. Schedule C borrowers however were required to use their “net profit” when calculating their loan amounts, which subtracts business expenses from the total amount, thus leaving them eligible for a lower percentage of their actual income than other businesses with employees who simply use payroll costs. Under the updated rules, Schedule C borrowers now can elect to use either gross income or, if they prefer, net profits. An updated application form and interim rule has been released by the SBA reflecting these changes, and the agency is in the process of revising its PPP FAQ document.
Notably, these changes will not apply to PPP borrowers who have already received their loans or applied for one under the earlier regime. NAR is advocating for them to be made retroactive so early-program participants can get the full amount they would receive in funds under the current calculations.