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SBA Issues Updated PPP Guidance for Borrowers Using Gross Income to Calculate Loan Amounts
Practical Law Legal Update w-030-2106 (Approx. 4 pages)
SBA Issues Updated PPP Guidance for Borrowers Using Gross Income to Calculate Loan Amounts
by Practical Law Finance
| Published on 18 Mar 2021 • USA (National/Federal) |
The Small Business Administration (SBA) issued revised Paycheck Protection Program (PPP) guidance for PPP borrowers. The new guidance relates to an SBA interim final rule (IFR) that allows self-employed individuals to use gross income to calculate their PPP loan amount, and provides detailed information for borrowers in a variety of different scenarios.
On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP). The SBA has issued numerous interim final rules outlining the key provisions for implementing the PPP. For more information, see Practice Notes, Road Map to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act): Paycheck Protection Program and Road Map to the Consolidated Appropriations Act, 2021: Paycheck Protection Program.
On March 12, 2021, the SBA issued the following updated guidance on how to calculate maximum loan amounts for first draw (First Draw PPP Loans) and second draw PPP loans (Second Draw PPP Loans):
- Guidance on calculating maximum loan amounts for First Draw PPP Loans, including what documentation to provide – by business type.
- Guidance on how to calculate revenue reduction and maximum loan amounts for Second Draw PPP Loans, including what documentation to provide.
- Revised frequently asked questions (FAQs).
These materials relate to a new interim final rule that the SBA issued on March 3, 2021, which allows self-employed individuals who file Form 1040, Schedule C, Profit or Loss From Business to calculate their maximum loan amount using gross income instead of net profit.
The first two documents have been updated to include detailed guidance for borrowers in a variety of scenarios to use gross income in calculating maximum loan amounts, including:
- Self-employed individuals with no employees.
- Self-employed individuals with employees.
- Self-employed individuals who report farm or ranch income as an LLC, qualified joint venture, or partnership.
- Self-employed individuals who are eligible to use gross income from both Schedule C and Schedule F.
The revised FAQs add a new Question 66 that discusses the options lenders have to assist Schedule C filers who have already submitted a PPP loan application to use gross income to calculate their PPP loan amount.