2021-13: Increased PPP loans available to sole proprietors - Spidell

2021-13: Increased PPP loans available to sole proprietors


The SBA and Treasury Department have released a new interim final rule that allows Schedule C filers to calculate their maximum PPP loan amount using gross income.

The new rule only applies to borrowers whose loans have not yet been approved. A borrower whose first or second draw PPP loan has already been approved cannot increase their loan amount based on the new calculation methodology.

Under the new rule, if a Schedule C filer has no employees, the borrower calculates its loan amount based on either net profit or gross income from 2019 or 2020. If a Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on the following amounts from 2019 or 2020:

  • Net profit; or
  • Gross income minus expenses reported on the following lines from the Schedule C:
    • Line 14 (employee benefit programs);
    • Line 19 (pension and profit-sharing plans); and
    • Line 26 (wages (less employment credits)).

The annual $100,000 owner compensation cap still applies.

A borrower that elects to use the gross income alternative formula and reported more than $150,000 in gross income on their return may be subject to audit by the SBA to prove that they made a “good faith” certification concerning the necessity of the loan.

The revised rule provides step-by-step loan calculation methods as well as revisions to the rules regarding qualified expenses and loan forgiveness to reflect the changes necessitated by using the gross income formula.

The rules also expand eligibility for the program to owners who have non-financial fraud felony convictions in the last year or who are delinquent or in default on their federal student loans.

The interim final rule can be found at:

https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Amount-Calculation-and-Eligibility.pdf

New application forms are available at:

https://home.treasury.gov/system/files/136/PPP-Borrower-Application-Form-for-Schedule-C-Filers-Using-Gross-Income.pdf

https://home.treasury.gov/system/files/136/PPP-Second-Draw-Borrower-Application-Form-for-Schedule-C-Filers-Using-Gross-Income.pdf

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