The Biden Administration recently announced that it has changed how the Small Business Administration (SBA) will calculate the size of PPP loans for sole proprietors and independent contractors. Beginning in March, the SBA will switch to a new formula, which will increase the size of loans available to sole proprietors and independent contractors. The new formula will calculate loans size based on gross income, as opposed to net income, which is currently how the SBA calculates loan size. As a result, loans for the self-employed should significantly increase.
The goal of these changes is to account for the fact that 98% of small businesses in the U.S. have fewer than 20 employees. In fact, sole proprietorships are the most common form of business in the country. And yet, only 45% of PPP funds have gone to these small businesses. The new PPP rules seek to even out this disparity. To achieve this goal, the SBA will only accept PPP loan applications from businesses with fewer than 20 employees – including the self-employed – for the next two weeks. While this might seem like a good deal the self-employed, they might actually want to hold on applying during this window. This is because the new formula that allows for larger loans won’t go into effect until March. The SBA has confirmed that the new favorable formula will not apply retroactively to applications submitted this month.
If you have any questions about the Paycheck Protection Program, or any area of employment law, contact Thatcher Law Firm at 301-441-1400. www.ThatcherLaw.com. Email me at [email protected]. Follow us on: