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SBA Updates PPP Loan Calculations for Schedule C Filers

The change applies to independent contractors SBA called “disadvantaged” in its earlier calculation system that looked at net profits. Now gross income may be used.

WASHINGTON – On Wednesday, March 3, the U.S. Small Business Administration (SBA) announced updates to the Paycheck Protection Program (PPP) that reflect Biden Administration changes to loan calculations for borrowers. They apply to independent contractors, sole proprietors, or self-employed workers (Schedule C borrowers).

Under the updated system, these borrowers are eligible to use either net profit or gross income when calculating the total loan amount they’re eligible to receive. Under the previous system, they could only consider net profit.

These changes reflect concerns that these individuals, who frequently don’t have any employees, were disadvantaged in the earlier calculation.

PPP borrowers are eligible to receive loans of up to 2.5-times their average monthly payroll costs from before the pandemic. Schedule C borrowers were required, however, to use “net profit” when calculating their loan amounts, which subtracts business expenses from the total amount, leaving them eligible for a lower percentage of their actual income than other businesses with employees who simply use payroll costs.

Under the updated rules, Schedule C borrowers now can elect to use gross income, though they can still use net profits if they prefer.

SBA released an updated application form and interim rule reflecting the changes, and the agency is in the process of revising its PPP FAQ document.

Important note: The changes don’t apply to PPP borrowers who already received their loans or applied for one under the earlier regime. NAR says it’s advocating for them to be made retroactive, however, so early-program participants can get the full amount they would receive in funds under the current calculations.

Source: National Association of Realtors® (NAR)