Paycheck Protection Program: Revisions to Loan Amount Calculation and Eligibility
Summary
These slides come from an SBA webinar on revisions to Paycheck Protection Program loan amount calculation and eligibility for first and second draw loans. They set out an exclusivity period from Wed., Feb. 24th through Tues., March 9th, during which SBA accepted applications only from borrowers with fewer than 20 employees. For Schedule C filers, the slides say the revisions are not retroactive and that SBA would begin accepting new applications on Friday, March 5, 2021. A section for lenders explains how to withdraw or cancel an application or loan, depending on whether it has been approved, disbursed or reported on Form 1502, so the applicant can reapply on the new form.
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Paycheck Protection Program
Revisions to Loan Amount Calculation and Eligibility
First and Second Draw PPP Loans
Paycheck Protection Program (PPP)
Before We Get Started…
Recording: The webinar is not being recorded
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inform future FAQs
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https://www.support.microsoft.com
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Paycheck Protection Program (PPP)
Reporting Number of Employees
Each of the new Borrower Applications provide instructions on counting number of
employees:
• Average employment over the time period used to calculate aggregate payroll costs
• Average number of employees per pay period in the 12 completed calendar months prior to
the date of loan application
• “Per location” added to the applications for clarification on NAICS 72 and news organizations
First Draw Application Second Draw Application
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Paycheck Protection Program (PPP)
Exclusivity Period for Applications
• Wed., Feb. 24th 9:00 am through Tues., March 9th
• SBA is only accepting applications from borrowers with fewer than 20 employees
• All applications already submitted by lenders to SBA before the start of the
exclusivity period will still be processed
• During the exclusivity period, SBA is rejecting any new applications for employers
that have 20 or more employees
• Counting employees: Each employee counts as one, regardless if full-time, part-
time, or seasonal
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Schedule C Filers
Revisions to Loan Amount Calculation
First and Second Draw PPP Loans
• These revisions are not retroactive
• IFR and new application forms posted on Treasury and SBA’s website (links on slide 19)
• SBA will begin accepting new applications for Schedule C filers on Friday, March 5, 2021
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Paycheck Protection Program (PPP)
Schedule C Filers – Next Steps for Lenders and Borrowers
Lenders:
If you submitted an application to the platform and it has not yet been approved, you may withdraw
the application from the Paycheck Protection Platform
If the application has been approved but the loan has not yet been disbursed, you may cancel the loan
in E-Tran Servicing and the applicant may apply for a new loan using the new application form
If you have disbursed the loan but you have not yet filed the related Form 1502, you may cancel the
loan in E-Tran Servicing and the applicant may repay and apply for a new loan using the new
application form
If you have disbursed the loan and filed the related Form 1502, the loan cannot be canceled
Revisions to loan amounts must be made by using the new loan application forms (no loan increases)
Note: The cancellation process does not occur on the Platform – loans must be canceled in E-Tran
Servicing; Data in Platform may take up to 2 days to update actions in E-Tran Servicing (can’t enter
new loan application until the Platform recognizes the prior loan’s cancellation)
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Paycheck Protection Program (PPP)
Schedule C Filers – Partnerships & LLCs
Question: Are partnerships and LLCs included in the revisions for Schedule C filers?
Answer:
Partners and partnerships are not included in the revisions
Single-member LLCs that file Schedule C are included*
Qualified joint ventures as defined by IRS are included*:
• The only members are a married couple who file a joint return
• Both spouses materially participate in the business
• Both spouses elect not to be treated as a partnership
• Other limitations apply – see IRS definition for full details
*Forms 2483-C and 2483-SD-C provide instructions for #employees & income
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Paycheck Protection Program (PPP)
More flexibility for Schedule C Filers
• For borrowers that file IRS Form 1040 Schedule C:
• “Income” now encompasses borrower’s net income and gross income to
account for fixed and other business expenses
• The revised definition of income allows revisions to the loan amount
calculation
• Application Forms:
• SBA Form 2483-C or 2483-SD-C: Only for Schedule C filers using gross income
• SBA Form 2483 or 2483-SD: If using net income to calculate loan amount or if using
Schedule F (either gross or net)
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Paycheck Protection Program (PPP)
Owner Compensation
Why is “Owner Compensation” important? The new definition of owner compensation allows applicants to
use either net profit or gross income in its calculation of total payroll costs.
Schedule C filer - no employees: Owner compensation is either gross income (line 7) or net
profit (line 31)
Schedule C filer – with employees:
Owner compensation:
• Net profit (line 31); or
• Gross income (line 7) minus:
• Line 14 (Employee benefit programs)
• Line 19 (Pension and profit-sharing); and
• Line 26 (Wages less employment credits)
Owner compensation does not include employee payroll costs (this is why lines 14, 19, & 26 are
subtracted from gross income to determine owner calculation)
Owner compensation + employee payroll costs (from Form 941) = total payroll costs
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Paycheck Protection Program (PPP)
Revised Formula – Schedule C Filer No Employees
First Draw PPP Loan - For Schedule C filer with no employees:
Step 1: From 2019 or 2020 IRS Form 1040, Schedule C, line 31 net profit or line 7 gross income
• If this amount is over $100,000, reduce it to $100,000.
• If both your net profit and gross income are zero or less, you are not eligible for a PPP loan
Step 2: Calculate the average monthly net profit or gross income amount
(divide the amount from Step 1 by 12)
Step 3: Multiply the average monthly net profit or gross income amount from Step 2 by 2.5
This amount cannot exceed $20,833
Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between
January 31, 2020 and April 3, 2020
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Paycheck Protection Program (PPP)
Revised Formula - Schedule C Filer with Employees
First Draw PPP Loan - For Schedule C filer with employees:
Step 1: 2019 or 2020 Schedule C;
• 1. Calculate owner compensation share of payroll costs - Use either:
• Net profit (line 31); or
• Gross income (line 7) minus employee payroll costs (lines 14, 19, & 26)
• 2. If #1 is more than $100,000, reduce to $100,000; If less than zero, set to zero
• 3. Add eligible employee payroll costs (cash and non-cash (e.g. employer contributions to employee
group health insurance, retirement contributions, etc.))
Step 2: Calculate the average monthly amount (divide the sum from Step 1 by 12)
Step 3: Multiply the average monthly amount from Step 2 by 2.5
Step 4: Add the outstanding amount of any EIDL made between Jan. 31, 2020 and April 3, 2020
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Paycheck Protection Program (PPP)
Second Draw PPP Loans
• Same rules for loan amount calculation as First Draw PPP loan
calculation except:
• Loan amount may not exceed $2 million
• Borrower with NAICS code beginning with 72:
• Multiply average monthly payroll by 3.5
• For a Schedule C filer without employees - this amount cannot exceed
$29,167
Note: Second Draw PPP Loan eligibility requirements continue to apply to Schedule C
filers (e.g. 25% reduction in gross receipts, which includes affiliates)
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Paycheck Protection Program (PPP)
SBA Review of Good Faith Loan Necessity Certification
• First Draw PPP Loans:
• If using gross income and the borrower reported more than $150,000 in gross
income on the Schedule C used to calculate loan amount:
• SBA may review Borrower’s certification concerning the necessity of the loan and whether the
borrower complied with PPP eligibility criteria
• If a loan is picked for review, the review will follow the same processes that apply to all other PPP
loan reviews
• Safe harbor applies if using:
• Gross income and the Borrower reported $150,000 or less in gross income on the Schedule C used
to calculate loan amount; or
• Net income
• Second Draw PPP Loans: Safe harbor applies because Applicants are required to certify
that they had a reduction of gross receipts by at least 25%
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Eligibility Revisions
15
Paycheck Protection Program (PPP)
Elimination of Restrictions – Non-Financial Fraud Felonies
• Eliminated: Restrictions on businesses with owners who have prior non-
financial fraud felony convictions
• The elimination of the restriction is not retroactive
• Remaining in place: Restrictions on businesses with 20% or more owner
who:
• Has an arrest or conviction for a felony fraud related to financial assistance fraud
within the past 5 years
• Is currently incarcerated for a felony at the time of application
Note: Lenders must continue following the process for resolving hold codes and compliance
check error message previously announced (SBA Procedural Notice 5000-20092)
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Paycheck Protection Program (PPP)
Elimination of Restrictions – Student Loan Debt Delinquency & Defaults
• Eliminated: Restriction on businesses owned or controlled by owners who have
Federal student loan debt that is currently delinquent or has defaulted and caused a loss
to the Federal government
• Retroactive: This change applies to new PPP applicants as well as those who have
already received a PPP loan (This is the only retroactive change implemented in the IFR)
• SBA is automatically removing hold codes and compliance check error messages on
loans related to Do Not Pay Education
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Paycheck Protection Program (PPP)
Elimination of Restrictions – Non-Citizen Owners
• Not in the IFR
• All lawful US residents have access to PPP
• E-Tran and the PPP platform permit the use of ITINs as the identifier for
a business owned by a sole proprietor and for a principal
• ITIN: Individual Taxpayer Identification Number
• Issued by IRS
• Nine-digit number with format: 9XX-XX-XXXX
• Always begins with “9”
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Paycheck Protection Program (PPP)
Stay up to date…
• FAQs
• SBA's PPP Lenders page
• SBA’s PPP First Draw page
• SBA’s PPP Second Draw page
• IFR – Revisions to Loan Amount Calculation and Eligibility
• SBA Form 2483 – Borrower Application Form (First Draw)
• SBA Form 2483-SD – Borrower Application Form – Second Draw
• SBA Form 2483-C – Borrower Application Form – Schedule C Filer (using gross income) (First Draw)
• SBA Form 2483-SD-C – Borrower Application Form – Second Draw – Schedule C Filer (using gross income)
• SBA Form 2484 – Lender Application Form
• SBA Form 2484-SD – Lender Application Form – Second Draw
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Paycheck Protection Program (PPP)
Stay up to date…
• Follow SBA on Twitter
• Subscribe to SBA’s e-newsletter
• Visit www.SBA.gov
• White House Fact Sheet available at: https://whitehouse.gov
• From the menu in upper right corner
• Select “Briefing Room”
• Best source of accurate information for:
• All COVID-19 economic aid programs administered by the SBA
www.SBA.gov/coronavirusrelief
• For the PPP www.SBA.gov/ppp
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