On February 22, 2021, President Biden announced several changes to the Paycheck Protection Program (PPP) which are designed to help more small businesses in need of a PPP loan. Beginning on February 24, 2020, only businesses with fewer than 20 employees are allowed to apply for PPP loans. This 14-day exclusionary period will end on March 9, 2021, at 5 p.m. Eastern Standard Time.
The Biden-Harris administration released a Fact Sheet that explains the motivation for the changes, noting that small businesses account for 44% of U.S. GDP, two-thirds of net new jobs, and employ almost half of American workers. President Biden also stated that although 90% of American businesses are considered small businesses, many small business owners were unable to secure PPP funding because they were “muscled out of the way” by larger companies.
The administration has already implemented the following changes to the PPP since President Biden’s inauguration:
- increased the share of funding for small businesses with fewer than 10 employees by 60%;
- increased the share of funding for businesses in rural communities by 30%; and
- increased the share of funding for minority-owned businesses by 40%.
According to the Fact Sheet, the following new changes will be made to the PPP:
- provide an exclusionary, 14-day application period for businesses with fewer than 20 employees (discussed above);
- provide a new calculation formula that will allow sole proprietors, independent contractors, and self-employed individuals to use gross income (rather than net profit reported on tax returns) to calculate PPP loan amounts;
- allow small business owners who own at least 20% of the business with a non-fraud felony arrest or conviction within the previous year to apply;
- allow small business owners who are delinquent or in default on a federal debt—including student loans—within the last seven years to apply; and
- allow lawful U.S. residents who are non-U.S. citizens to apply for assistance.
The Small Business Administration will work with the Departments of the Treasury and Education to remove the student loan delinquency restriction and increase access to the PPP. The Biden-Harris administration will adopt reforms included in the PPP Second Chance Act to eliminate the previous-year felony restriction, provided that the owner or applicant is not incarcerated when applying for a PPP loan.
Unfortunately, the short window and timing of the announcement of the changes has led to some confusion among small business owners, many of whom had already submitted PPP loan applications prior to February 22, 2021. While the updated calculation formula for PPP loans would benefit many sole proprietors, the SBA has indicated that small businesses are subject to the rules in place at the time of their application. Furthermore, even though the new calculation formula is now in effect, the SBA has not published updated instructions or guidance on its website.
As the end of the exclusionary period approaches on March 9, and the window for all PPP applications closes on March 31, 2021, it may be time to consider an extension to the PPP application deadline.
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