On February 22, 2021, President Biden announced several updates to the Small Business Administration’s (“SBA”) coronavirus relief programs designed to assist participation in the Paycheck Protection Program (“PPP”) for the smallest of small businesses. Specifically, the Biden Administration introduced the following five changes:
- A 14-day period, beginning on February 24, 2021, during which only businesses with fewer than 20 employees can apply for PPP funds. When the PPP began in early 2020, funding was quickly exhausted (Congress then authorized additional funding that was not fully utilized when the first round of PPP ended in 2020), and there were numerous objections that small businesses had trouble applying for and receiving loans. Given that 98% of small businesses have fewer than 20 employees, this exclusive application period will ensure that lenders and community partners will have time to help the smallest businesses access PPP funds while permitting larger PPP-eligible businesses to apply for assistance before the Second Draw program expires on March 31, 2021.
- Revisions to the PPP funding formula to permit sole proprietors, independent contractors, and self-employed individuals to receive more financial support. For purposes of the First Draw PPP application, the maximum loan for sole proprietors was 2.5 times average monthly net profit based on the previous year’s tax return. Many of these workers received small loans or were ineligible for the program because the calculation of net profit includes tax deductions that might reduce or eliminate a sole proprietor’s average monthly profit. The updated formula will replace net profit with gross income, which is not reduced by tax deductions. Accordingly, sole proprietors, independent contractors, and self-employed individuals are now eligible to receive substantially more assistance.
- Eliminate exclusion that prevents small business owners with non-fraud felony convictions from obtaining PPP funds. Under the First Draw of PPP, a business was ineligible for a loan if any individual owning 20% or more of the business had either: (i) an arrest or felony conviction related to financial assistance fraud within the previous five years; or (ii) any other felony conviction within the previous year. The Second Draw PPP application eliminates the second restriction (the one-year look-back) unless the applicant or owner is incarcerated at the time of the application.
- Remove a restriction that prevents small business owners who are delinquent on their federal student loans from obtaining relief through the Paycheck Protection Program. For the First Draw of PPP loans, a company was ineligible for relief if any individual owning 20% or more of the business had defaulted on or was delinquent in federal debt – including student loans – at the time of the application. Based on U.S. Department of Education data from October 2017, about 27% of people who entered college since 2003 have defaulted and, if growth continues at that pace, the figure will be 38% by 2023. This change will broaden access to relief to a subset of individuals and companies previously shut out.
- Ensure access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP. Although the CARES Act is clear that all lawful U.S. residents may access the PPP, the application process was muddied for Green Card holders or those in the U.S. on a visa. Under the recently released guidance, companies owned in whole or in part by lawfully resident non-citizens who use an ITIN rather than a traditional Social Security Number should avoid an impediment to loan approval.
Additionally, the Biden Administration highlighted several steps the SBA has taken to eliminate waste, prevent financial fraud and abuse across all federal programs and to improve the SBA website.
Even if your company previously received a PPP loan, you might be eligible for a Second Draw PPP Loan. The Second Draw PPP Loan forgiveness terms are substantially similar to the First Draw PPP Loan forgiveness terms. Still, be aware that the calculation of the amounts that may be borrowed and certain other aspects have changed. As before, it is important to focus on the details for your particular business.
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