Recent Changes to SBA’s Paycheck Protection Program

On February 22, 2021 the Biden-Harris administration announced several changes to the SBA’s Paycheck Protection Program. Unless otherwise specified, the changes listed below are in effect as of the first week of March and will continue until the program expires on March 31, 2021.

1.      Exclusive Application Period for Businesses with Fewer than 20 Employees

Beginning on Wednesday, February 24, 2021, and continuing until March 9, 2021, applications for relief through the Paycheck Protection Program shall be limited to businesses with fewer than 20 employees. This 14-day window will provide lenders with time in which they can prioritize the smallest businesses which might otherwise struggle to execute the necessary paperwork to secure relief.

2.      Aid for Sole Proprietors, Independent Contractors, and Self-Employed Individuals

Prior to the most recent changes, a formula based on net-profits was used to calculate loan amounts. As a result, sole proprietors, independent contractors, and self-employed individuals were largely excluded from the Paycheck Protection Program. In light of this structural exclusion, the revised formula shall focus instead on gross-profits. Therefore, sole proprietors, independent contractors, and self-employed individuals who did not show net-profits on their federal tax returns will now be able to receive Paycheck Protection Program relief. The SBA will also set aside $1 Billion for businesses of this nature without employees located in low-to-moderate income areas.

3.      Eliminating Restrictions for Individuals with Non-Fraud Felony Convictions

Currently, a business is ineligible for Paycheck Protection Program relief if it is at least 20% owned by an individual who has either: (1) an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or (2) any other felony within the previous year. New changes to the Paycheck Protection Program eliminate this second restriction. As a result, the Pay Check Protection Program is expanded to businesses owned by individuals with felony arrests unrelated to financial fraud.

4.      Exclusions Related to Student Loan Delinquency

Currently, Paycheck Protection Program relief is not available to businesses that are at least 20% owned by an individual who is delinquent or has defaulted on a federal debt in the last 7-years. This includes student loans. New changes to the Paycheck Protection Program eliminate student loans from the category of federal debts that might result in exclusion.

5.      Clarifications for Non-Citizen Small Business Owners who are Lawful U.S. Residents

Relief through the Paycheck Protection Program is currently available to all lawful U.S. residents. However, lack of guidance from the SBA has led to inconsistency in access for U.S. residents with Individual Taxpayer Identification Numbers (ITIFs) such as green card holders, or individuals in the U.S. on a visa. Clear guidance on this matter can be expected from the SBA in the coming days.

Along with the 5 changes listed above, the Biden-Harris administration has taken steps to address waste, fraud, and abuse in the Paycheck Protection Program by making loan guaranty approval contingent on passing SBA fraud checks, Treasury’s Do Not Pay database, and public records. Additionally, the SBA will now conduct manual loan reviews for the largest loans in the Paycheck Protection Program portfolio and a random sampling of other loans.

If you or someone you know has further questions or needs legal advice, please feel free to contact me for a free initial consultation at 312-736-1260 or nstarr@lavellelaw.com.

Additional information related to the Paycheck Protection program can be found on the SBA’s website:
https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources