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Mom & Pop Businesses Move to Front of the Line for PPP Loans

Published on: Published in: Taxes

Article Highlights:

  • 14-Day Exclusive Application Period for Small Businesses and Nonprofits
  • Limited to 19 Employees
  • Loans Based on Gross Income Rather than Wages
  • Certain Restrictions Removed

At the direction of the White House and effective on Wednesday, February 24, 2021, the SBA will establish a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. This will give lenders and community partners more time to work with the smallest businesses to submit their applications, while also ensuring that larger PPP-eligible businesses will still have plenty of time to apply for and receive support before the program expires on March 31, 2021.  In addition, these small businesses will be able to base their loans on gross income. Although details are sketchy, sources have indicated loans are available based upon 2.5 times the average 2019 monthly gross income, rather than net profit. 

In addition, the SBA will:

  • Allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula as mentioned earlier;
  • Eliminate an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal; 
  • Eliminate PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP; and
  • Ensure access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use an Individual Taxpayer Identification Number (ITIN) to apply for the PPP loan.

A critical goal from Congress for the latest round of PPP loans was to reach small and low- and moderate-income (LMI) businesses who have not received the needed relief a forgivable PPP loan provides. Congress provided a $15 billion set-aside for small and LMI first draw borrowers. With existing policies, the current round has only deployed $2.4B to small LMI borrowers, in part because a disproportionate amount of funding in both wealthy and LMI areas is going to firms with 20 or more employees. The less than 20 exclusivity period, combined with the changes to expand access for sole proprietors, allowing applicants with ITINs, and permitting those with delinquent student loan debt to participate will help achieve Congressional goals. 

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