First launched in April 2020, the Paycheck Protection Program offers forgivable loans to small business owners affected by the ongoing pandemic. A January 2021 update expanded eligibility for the program and allowed for “Second Draw” loans to struggling businesses in need of another round of funding. Now, a new set of rules has further expanded the program to help the country’s smallest companies.
One of the biggest changes came in the Small Business Administration’s recent announcement that it will only process applications from sole proprietors and businesses with fewer than 20 employees for two weeks starting Wednesday, February 24, 2021. That’s great news for the 98% of small businesses in the United States that fall into those categories.
Other highlights of the new rules include:
- More funding for sole proprietors, independent contractors, and self-employed individuals. The loan amount formula for these businesses will change from using net profit to gross income (taken from IRS tax form 1040, Schedule C).
- $1 billion reserved for businesses with no employees and located in low- and moderate-income communities.
- Expanded eligibility for immigrant entrepreneurs, formerly incarcerated business owners, and those behind on student loan payments.
But are you still wondering what these new rules mean specifically for you and your business?
We recently hosted an Ask-Me-Anything (AMA) session where Matt Brewster, Hello Alice’s director of capital partnerships, answered dozens of questions about the program. Below, you can play back a recording of the session and read a list of answers to the most frequently asked questions we’ve received from small business owners so far. You can also view our step-by-step how-to guide for a detailed breakdown of the lending program.
Frequently Asked Questions (FAQ)
When is the two-week period during which only applications from certain businesses will be processed?
The SBA will only process applications from sole proprietors and businesses with fewer than 20 employees from Wednesday, February 24, 2021, until Tuesday, March 9, 2021, at 5 p.m. ET. All other businesses may prepare an application, but their application will not be processed.
How will the new rules affect sole proprietors, independent contractors, and self-employed individuals?
These applicants previously calculated their PPP loan amounts using net profit, which resulted in loans for as little as $1 under the old rules. The formula now calculates loan amounts using gross income — a change that will result in larger loan amounts for these businesses.
I filed a business loss. Does that change mean I can still apply?
Yes! Because the new rules calculate your loan amount using gross income, you will be eligible based on that amount.
I have already received two PPP loans. Do these rules mean I qualify for a third loan?
Unfortunately, no. This is not a new round but rather new rules for the current round.
I applied for a PPP loan before February 24, but my application is still pending. Should I apply again?
It depends. If you have fewer than twenty employees but are not a sole proprietor, independent contractor, or self-employed, we don’t recommend applying again. The recent rule changes will only expedite your application. If you’re a sole proprietor, independent contractor, or self-employed, then you should contact your lender immediately to update your application to calculate your loan amount using gross income instead of net profit.
What is the difference between a First Draw and a Second Draw PPP loan?
As the name suggests, Second Draw loans are for those who already received a PPP loan. There are separate eligibility requirements and loan calculations for each round. You can read more about the differences in another blog from earlier this year.
I am a sole proprietor who already received a Second Draw loan under the old rules. Can I re-apply to see if my loan amount would be higher under the new ones?
There is currently no way to re-apply or amend your application if you have signed a loan agreement with a lender. According to the most current SBA guidance, “Loans submitted prior to the official rule changes are subject to the rules in effect at the time of application.” This may change later in the week when the administration releases the full, detailed rules.
An important note: If you have not finalized a pending PPP loan, it is not too late to re-apply under the new rules for a potentially larger loan amount. Contact your lender and have them amend the application if it hasn’t been submitted to the SBA yet.
You said the SBA had not announced the detailed rules. Does that mean I should wait to apply?
If you are a sole proprietor or another structure using a Schedule C (Form 1040) for your taxes, you should pause until the official rules are announced later this week. If you are another business structure with fewer than 20 employees, you should apply as soon as possible. The new rules will not have any significant effect on your ability to get a loan.
How do I find a lender?
We recommend that you use our interactive guide. Based on the information you provide, we will route you to a lending partner that is a good match for you and your business.
Should I apply through my bank?
It depends. Many banks — particularly those with many customers — are being bombarded with applications. If you have a banking relationship and have received a PPP loan with that institution, you should consider borrowing from them. We also encourage you to explore alternative lending options outlined in our guide, especially if you experience difficulty accessing your first draw lender.
What kind of documentation do I need to apply?
While documentation requirements can vary based on your business type, you will want to grab your 2019 tax return and internal financial statements. These financial statements could be your QuickBooks or even an Excel sheet you use to track your finances. Your lender will confirm whether or not you’re eligible and will help you with the final paperwork.
Do you have to complete taxes for 2020 to apply for a PPP loan?
My entire team consists of independent contractors with no employees. Will I quality for PPP to help pay operating expenses?
PPP loans are awarded based on payroll costs. If you receive a salary or other wages from your business, that salary can be used towards your PPP calculation. Independent contractors do not count towards payroll costs, and they may apply separately for their own PPP loan. If your business has no payroll costs, then you will not qualify for PPP.
I am part of a two-person S corporation. Do both of us have to apply?
No, the business will only need to apply once.
I have a felony conviction. Can I apply for PPP?
Yes, as long as your felony is not fraud-related.
Do I have to have a certain credit score to qualify?
No, you do not need a credit score or credit history to apply for PPP.
Could the PPP loan affect my credit score?
In almost all cases, no. Most lenders will not report the loan to the credit bureaus, and if you spend at least 60% of the loan amount on payroll and other allowable expenses, your loan will be forgiven.
Can I apply for both the Economic Injury Disaster Loan (EIDL) and PPP?
Yes, you can apply for and receive funding from both relief programs. Your PPP loan amount will also not be affected in any way.
Have another question about the PPP loan not answered above? We put together a step-by-step guide to walk you through every part of the program.