With the aim of providing more federal aid to the smallest and most vulnerable businesses, the Biden government is changing the rules of the paycheck protection program and increasing the amount that sole proprietorships are entitled to.
But this change – along with a 14-day loan freeze to companies with 20 or more employees – is yet another overhaul that poses logistical hurdles for lenders.
The change includes a program rule that could make a PPP loan far more attractive to sole proprietorships such as sole proprietorships and independent contractors. Previously, the utility based the size of the loan on the annual profit these types of businesses reported on their taxes. This made unprofitable companies ineligible for aid and left thousands of other applicants for tiny loans – some as low as $ 1.
The new formula, which Small Business Administration officials said will be released soon, will instead focus on gross income. This calculation, performed before subtracting many expenses, will challenge many more companies for credit and increase the size of the credits that are available to others.
In brief remarks on Monday afternoon, President Biden described the program postponements as an ointment for hard-hit entrepreneurs who have so far struggled to benefit from the government’s relief efforts.
“Getting our economy back means bringing back our small businesses,” said Biden. He also called on Congress to pass its American bailout plan, which is on track this week to pass the house and includes $ 50 billion for small businesses hit hard – but no extra money for PPP
Mr Biden said the program would expire at the end of March, even with the two-week hiatus for applications for all but the smallest companies that will go into effect on Wednesday.
Mr Biden said the freeze would allow more government resources to be devoted to helping small businesses that don’t have staff dedicated to managing the lending process.
The current edition of the PPP program was approved under the December Economic Aid Package, in which Congress allocated $ 284 billion to restart the aid program. Banks and other financiers who provide the government-sponsored loans have paid out $ 134 billion to 1.8 million companies since lending resumed last month. The money is said to be awarded if the recipients adhere to the program rules.
Companies with up to 500 employees are generally eligible for the loans, although second-draw loans – available to those whose sales have dropped 25 percent or more in at least one quarter since the coronavirus pandemic began – to companies with 300 or more fewer employees are restricted.
The agency is also changing a few other program rules to increase eligibility. Individuals with recent convictions of non-fraudulent offenses can now file a petition, as can individuals who are in default or are in default if they have a federal student loan debt. The agency also updated its guidelines to clarify that business owners who are not U.S. citizens but legal residents are eligible for loans.
The changes, said Mr Biden, “will bring much-needed, long-overdue help to small businesses that really need help to stay open, keep jobs and make ends meet, and this is a starting point, not the endpoint.”