The smallest businesses get additional PPP help. What you need to know before you apply

The smallest businesses that have had the most difficulty accessing forgivable loans from the paycheck protection program will soon receive additional help.

The Biden government on Monday announced changes to the pandemic relief program, which aims to help small and minority businesses, as well as individual entrepreneurs.

Starting Wednesday, the Small Business Administration will only accept PPP loan applications from companies with fewer than 20 employees for two weeks.

The administration is also making various changes to the program, including increasing loan amounts for sole proprietorships and sole proprietorships, removing restrictions on criminal student loan debt and convictions for non-fraud crimes, and allowing some non-civic entrepreneurs.

The aim is to expand access

The changes will even improve the playing field for the companies that make up the bulk of small businesses – 98% of small businesses employ fewer than 20 people but have only received 45% of PPP funding so far, according to the SBA. They also aim to eliminate racial gaps that have been seen in credit, as previous iterations of the program left out many minority-owned companies.

“It’s a great idea to make sure we give priority to small business owners and minority owners, as we’ve seen them get banned from the process,” said Marvin Owens, chief engagement officer of Impact Shares and former senior director of economic development at the NAACP. “What you saw at the beginning of PPP was really an exposure of the differences in access to capital.”

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Supporting these companies is extremely important to the recovery of the US economy, as small businesses employ nearly half of all working Americans, according to the SBA.

“This is one of the main economic drivers of our country,” said Awesta Sarkash, manager of government affairs for Small Business Majority, a left-wing advocacy group. “Our main employers are injured and you are seeing a ripple effect.”

Here’s what small business owners need to know before the application window opens on Wednesday.

1. Companies can request either a first or a second drawing

If you are self-employed or own a business with fewer than 20 employees, lenders will prioritize your PPP loan applications starting Wednesday.

Eligible companies can apply for a PPP loan for the first or second drawing, depending on their individual circumstances. To qualify for the SBA’s second round of unsuccessful loans, companies must have issued, or plan to do, all of their first loan and demonstrate that they have seen sales declines of 25% or more for each quarter of 2020.

2. The self employed can now receive more forgivable funding

One of the biggest changes to PPP is the way it calculates loans for millions of self-employed people, including sole proprietorships and independent contractors.

For companies with employees, PPP loans are typically 2.5 times the cost of wages. However, for one-person businesses with no payroll, lenders used the net income number from IRS 1040 Schedule C, which includes deductions. Because of this, some workers saw very low loan amounts in previous rounds of the program.

To address the problem, the SBA is revising the formula to adapt it to the needs of farmers. What this basically means is they instead calculate loan amounts from gross income rather than net income, said Chris Hurn, executive director of Fountainhead Commercial Capital.

“It makes a tremendous sense,” Hurn said, adding that it will make people money faster.

What you saw at the start of PPP was really an exposure of the differences in access to capital.

Michael Owens

Chief Engagement Officer, Impact Shares

3. Apply as soon as possible

Experts aren’t sure if two weeks is enough for all of the smallest businesses in need of help applying for PPP loans. With limited funding available, companies should apply as soon as possible.

If you want to apply, it means that you should collect your tax documents including Appendix C – either from 2019 or 2020 – and have them ready for submission on Wednesday. It may also be a good idea to contact a lender in your community or a lender you already have a relationship with to submit your records.

If you’re able to apply for a first round PPP loan right away, Hurn says you may have time to allocate the money and request a second draw.

What can come next

However, these changes are late in the game for the program, which was first established by the CARES Act in response to the coronavirus pandemic and currently expires in late March. That gives just a few weeks with the changes before the end of the program.

And it’s not clear if some of the changes made will be retroactive. This would be particularly important for sole proprietorships who have received small initial loans.

“Unfortunately, if you don’t extend the program beyond March 31, you won’t be as effective as you would like,” said Hurn.

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