Independent Contractors Will Get Higher PPP Loans With New Rules

The Biden Administration announced changes to the Paycheck Protection Program (PPP), this week to help the smallest businesses access the remaining funding, including an exclusive 14-day application period for businesses with less than 20 employees and other adjustments. Among the new changes are adjustments especially for independent contractors and sole proprietors, who help them access higher loans. The new changes will go into effect soon. Here’s what you need to know.

Independent Contractors Will Be Able to Calculate Their Loan Amounts With Gross Income

For businesses with employees, PPP loan amounts are calculated based on payroll expenses, a broad category that includes wages, wage taxes, and even employee benefits. But since sole proprietorships and independent contractors don’t have employees, until now they have had to use their annual profit to calculate their PPP loan amount—the amount they earned after tax deductions for expenses. For some businesses, that meant that they qualified for little to no funding.

But the Biden Administration’s new rules will allow independent contractors to calculate their PPP loan amounts based on gross income, not profit.  This is similar to the way PPP loans are currently calculated for farmers, who lobbied for a special exclusion earlier in 2021. The new rule means that independent contractors won’t have to deduct expenses from the total, and will be able to qualify for higher loans. The Small Business Administration (SBA) hasn’t released the final ruling on this new regulation, but we expect them to do so this week.

Can PPP Loans Be Adjusted Based On This Rule if They’ve Already Been Disbursed?

Unfortunately, we don’t think that the SBA will adjust loan amounts or allow people to return their PPP loans and reapply under the new rules. “Loans submitted prior to the official rule changes are subject to the rules in effect at the time of application,” Carol Wilkerson, a spokesperson for the SBA, told CNN.

If you’ve already applied, even if your application is pending, you’ll likely be subject to the rules that existed when you applied, even if they’ve changed by the time you receive your funds.

If you’re an independent contractor or gig worker who hasn’t applied yet, it may be worth waiting until the SBA officially puts this change in place to apply for the PPP.

When Will the Changes Go Into Effect?

The changes will go into effect officially starting in the first week of March. In order to take advantage of the 14-day exclusive application window for businesses with less than 20 employees, you should apply as soon as the change is official. We will keep you updated on this post as the SBA releases more information.

If you want to apply for a PPP loan (first or second) you can apply via Funding Circle or Bluevine.

Do You Need to File 2020 Taxes to Apply?

You don’t need to file your 2020 taxes to apply and use the new rules. You can use your 2019 taxes to apply. If you haven't filed 2019 taxes yet, you’ll need to do that before you can apply for the PPP.

As we get more information from the SBA, the Biden Administration and PPP lenders, we will update this post. In the meantime, make sure you have downloaded the Skip App so you can follow PPP progress for business owners all over the U.S. with our free tracker, read our posts and more.