With just one week to go to the Paycheck Protection Program’s exclusive 14-day credit window for companies with fewer than 20 employees, the US Small Business Administration has released highly anticipated guidelines for lenders on the latest changes. The problem: some borrowers will not like what they see.
The 32-page document, known as the tentative final settlement, released on Wednesday, encompasses many of the changes to the PPP that the Biden administration proposed last Monday. Among other things, President Biden called on the SBA to change the credit formula for sole proprietorships, independent contractors and self-employed entrepreneurs – called Schedule C filers – so that they can apply for loans that match their gross income rather than their net income, taxes and other expenses away. Biden also approved an exclusive loan window for the smallest borrowers that began February 24th and ends March 9th.
“The paycheck protection program is a bipartisan effort. Democrats and Republicans helped get it passed,” Biden said in his announcement of the changes. “But Democrats and Republicans have also raised concerns about improving it. With their contributions, we are doing that in our administration: improving.”
As well-intentioned as the changes are, the new guidance is likely to disappoint some business owners.
For starters, it’s now clear that you have to wait at least eight weeks before you can apply for a second drawing loan – which can be a blow to business owners like Jennifer Moxley who were hoping to be able to apply for both the initial this round. as well as the second draw. A waiting period of eight weeks makes it impossible for someone to receive a second drawing loan before the end of the current PPP round on March 31 – even if they could easily spend the loan proceeds during this time.
Under the previous net income formula, Moxley applied for her first PPP loan with BlueVine, a non-bank lender based in Redwood City, California, in early February. At just over $ 6,000, she says, it was a minor thing. “I’m not ungrateful, but I have to pay people and I have rent and that’s not that much money,” she says.
Like many self-employed entrepreneurs, Moxley, who runs Sunshine Media Network, a Charlotte, North Carolina-based media company, doesn’t pocket much of her income. While the nine-year company does well – she says it typically employs around 30,1099 people – she invests most of her income back into her business. If Moxley were able to apply for a second drawing loan based on her gross income, she would be entitled to the maximum that a self-employed entrepreneur could receive as gross income under the new formula – i.e. $ 20,833 – in 2019 that exceeded the individual profit cap of $ 100,000 . “When the White House said you were going to get special treatment … I said, ‘Oh my god, this is amazing.'”
Then, as details emerged, Moxley said she started asking if she should even apply. “It’s a joke,” she says. “Small business owners like me miss doing what they see fit.”
According to the new guidelines, Moxley cannot retrospectively change their previous loan amount either and be based on the new formula. “If you applied earlier this week and your loan has been submitted and approved by the SBA, all you can do is cancel the loan and start over,” says David Patti, a spokesman for the client bank in charge of the loan has closely monitored the latest PPP changes. And if you cancel and apply again, which you can only do if the money has not yet been in your account, Patti suggests that you may run into delays that could postpone your loan approval beyond the program end date. “You run the risk of the lender not reaching you on time,” he says. “It’s a difficult situation. [We’re] I hope there will be more clarity in the coming days. “
In addition, the new tour offers a safe haven for solo preneurs. While the SBA previously stated that it would only automatically review all loans over $ 2M, it is now making an exception for Schedule C borrowers with higher gross incomes. Given that higher income borrowers are believed to have other available sources of liquidity, they may need to provide retrospective evidence that they needed the loan.
PPP and the solo preneur
The challenges that entrepreneurs like Moxley now face are only part of the difficult PPP experience for solo preneurs. While the original calculation was based on net income versus gross income, founders who don’t pay well – which is the case with many sole proprietorships – the biggest inequalities in PPP for this group are not the government’s fault, says Keith Hall , President and CEO of the National Association for the Self-Employed, a business association based in Dallas.
“Small business owners – especially the self-employed – don’t have the resources that other large companies have. They have no one to do the job for them,” says Hall. “When they take the time to run the application, they are taking the time to sell to the next customer.”
And many sole proprietorships, independent contractors, and the like don’t even know they are eligible for the program, says Martin Moll, founder and advisor of Breakaway Bookkeeping and Advising, a virtual network of accountants and consultants in Tualatin, Oregon. “We find that many of the audiences President Biden is trying to reach don’t know that applying for a loan is even an option. Either they stopped paying attention when they found out they didn’t qualify last year , or rather, many sole proprietorships are just too busy to make a living to take the time to look at the options available to them. “
The stimulus package recently passed by the House of Representatives and currently being negotiated in the Senate is designed to address this problem. The new bill includes $ 175 million for a “Community Navigator” program designed to increase awareness and participation in Covid-19 utility programs for business owners. The program would prioritize improving access for businesses owned by socially and economically disadvantaged people, women and veterans. However, it’s also worth noting that the House bill does not include an extension of the PPP beyond the existing March 31 end date.
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