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Sole proprietors and gig workers could be eligible for much larger forgivable Payroll Protection Program loans thanks to new rules issued Wednesday from the Small Business Administration.
The new application for self-employed workers based the loan amount on gross income, rather than net profit, the criterion filers were previously judged upon. Since gross income is usually larger than net profit for businesses, barring extraordinary circumstances, the change should result in bigger loan amounts.
The rule changes make other accommodations too. They will allow small-business owners who are behind on their student loan payments to be eligible for PPP loans. They also make the application process easier to navigate for noncitizen business owners.
The rule changes were part of a 32-page interim final rule the SBA released Wednesday. They are not, however, retroactive, so any sole proprietors who got a low amount in the first round of PPP loans will have to reapply.
The Round 2 rules have been eagerly awaited by non-employer firms, who have wanted to take advantage of the two-week priority window for the smallest businesses. That window opened on Feb. 24 and runs through March 10, but any applications filed before the updated SBA rules would have been subject to the old rules.
Net income, which factors in deductions and overhead costs, is often less than gross income. Under the old rules, where net income was used to determine loan amounts, that meant sole proprietors and gig workers, such as Uber drivers, would potentially receive smaller loan amounts.
The PPP loans can be used to cover a variety of expenses including mortgage interest, owner compensation, business utility payments, and business operations.
The IRS reports more than 23.2 million Schedule C forms—the Form 1040 documents business owners and sole proprietors use to report income or losses to the government—were filed in 2018. And a 2019 Gallup survey reported there are 44 million self-employed professionals in the U.S.
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