What self-employed, gig employees must learn about new PPP lending guidelines

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The Small Business Administration released a new application and credit calculation formula for Paycheck Protection Program loans for self-employed and gig employees on Wednesday.

For these small businesses, this means larger loan amounts that can be forgiven in the future.

The new PPP application for self-employed and sole proprietorships submitting the IRS Form 1040 Schedule C now asks for the total gross income amount on line 7 of the tax form. Previously, Schedule C applicants applying for PPP loans were asked to report their net income from line 31 on the form to the SBA.

In addition, the SBA released updated guidelines for lenders on how to calculate loan amounts for Schedule C applicants and new eligibility rules for borrowers, including those struggling with student loan debt, not convicted of fraud or business owners who were not citizens.

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The government of Biden-Harris announced updates to the SBA program in late February to make it easier for the smallest businesses to access the forgeable credit. At the same time, the administration announced a priority application window for some borrowers. As of February 24, lenders have only processed applications from companies with fewer than 20 employees and will do so through March 9.

However, this has created confusion for some borrowers and lenders. While the priority window opened in late February, the new eligibility rules and updated credit calculation formula for some borrowers didn’t go into effect until the first week of March.

After the SBA publishes the updated sole proprietorship application as well as the tentative final rule with changes to the loan amount calculation and eligibility, borrowers should be able to work with their lenders to submit applications according to the new guidelines. Of course, it will take time for the lenders to process and implement the new information.

The new calculation is important for millions of sole proprietorships, self employed, and gig workers in the United States as it will result in larger unsuccessful loans under the program.

Previously, the SBA used net profit as a substitute for labor costs for companies with no employees, although payroll are different measures.

Additionally, the net income line on IRS Form 1040 Schedule C includes deductions that reduced or eliminated the amount for some, resulting in small loans or making them ineligible for the program. Using gross income – generally a larger number – will solve some of these problems.

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