Update: The SBA issued the rule discussed in this article on Wednesday March 3rd. You can get coverage from Quartz over. read the new regulation on the PPP admission requirements for sole proprietorships here.
The US Small Business Administration (SBA) is expected to enact a rule on Monday that will make Paycheck Protection Program (PPP) loans more generous for entrepreneurs without employees.
Businesses and non-profit organizations with no employees have always been eligible for PPP loans. However, while loans to companies with employees are based on payroll, companies without employees currently receive loans based on net income. The new rule awaited by the SBA will instead cap loan amounts from gross income of sole proprietorships, greatly expanding the amount of money they are eligible for.
Sole proprietorships who have already received loans are unlikely to receive larger loans retrospectively, according to a report in the New York TimesNor are they likely to return the previous loans and apply again instead. It is not clear yet whether the new rule imposes restrictions on the use of the credits to be enacted. (Employers must spend at least 60% of the loan on payroll in order for it to be awarded.)
Focusing PPP on small businesses
The expected new rule is part of a series of changes to PPP permission announced from the Biden administration last week, which focused on expanding small business access.
As of February 24, only companies with fewer than 20 employees (including those with zero employees) can apply for loans; this lasts until March 9th, after which all companies that are eligible according to the rules of the program can apply again. “The 14-day exclusive filing period will allow lenders to focus on servicing these tiny businesses,” the White House said in a statement last week.
However, without employees, companies have waited for the SBA to issue their new eligibility rule before applying; even if this rule comes out on Monday, the two-week time window that focuses on small businesses will be nearly cut in half. The final deadline for applying for a business PPP loan is March 31st.
PPP loans to sole proprietorships
As the name suggests, the paycheck protection program was should save jobs by offering employers forgivable loans that would help them meet their wage bills amid the pandemic. (Disclosure: Last Month, Quartz has received a PPP loan.) But like many other aspects of the program, PPP loans to sole proprietorships were unfairly distributed.
“For non-employer companies, the credit delay between mostly black and mostly white neighborhoods increased to almost three weeks. reported Analysts at the Brookings Institution, a Washington DC think tank, last September. Almost a third of the companies without employees are majority owned by People of Color, according to SBAcompared to 18% of companies with employees.
