Special Alert: SBA Releases Additional Guidance via New Interim Final Rule, Update to Frequently Asked Questions on Paycheck Protection Program Loans 

On April 14 and April 15, 2020, the Small Business Administration ("SBA") provided additional guidance on the Paycheck Protection Program (“PPP”) through the issuance of a new Interim Final Rule (the “New Rule”). This rule supplements the first PPP interim final rule published on April 2, 2020, as well as issuing updates to the Frequently Asked Questions document (“FAQs”) originally published on April 2, 2020. The PPP is a small business loan program established pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed by President Trump on March 27, 2020.


The New Rule includes the following significant information:


  1. Eligibility for Self-Employed Individuals.

a. General Eligibility. Individuals with income from self-employment who file a 2019 Form 1040, Schedule C (“Self-Employed Individuals”) are eligible for a PPP loan if:


i. The Self-Employed Individual was in operation on February 15, 2020;


ii. The Self-Employed Individual has self-employment income;


iii. The Self-Employed Individual’s principal place of residence is in the United States; and


iv. The Self-Employed Individual filed or will file a Form 1040 Schedule C for 2019.


b. Partners in Partnerships. Self-Employed Individuals who are partners in a partnership may not submit a separate PPP loan application for themselves as a Self-Employed Individual. Instead, partners may report their self-employment income (up to $100,000 annualized) as a payroll cost on a loan application filed by or on behalf of the partnership. This rule applies to both partnerships and limited liability companies filing taxes as a partnership. Applicants should note that participation in the PPP may affect a Self-Employed Individual’s eligibility for stateadministered unemployment compensation or unemployment assistance programs.


c. Maximum Loan Amount.


i. Self-Employed Individuals Without Employees. Self-Employed Individuals without employees may determine their maximum loan amount by (a) taking their 2019 IRS Form 1040 Schedule C line 31 net profit amount (if over $100,000, reduce it to $100,000; if this amount is $0 or less, the applicant is not eligible); (b) calculating the average monthly net profit amount by dividing the previous amount by 12; (c) multiplying the average monthly net profit amount by 2.5; and (d) adding the outstanding amount of any SBA Economic Injury Disaster Loan (“EIDL”) made between January 31, 2020, and April 3, 2020, that the individual seeks to refinance, less the amount of any advance under a COVID-19 EIDL. All Self-Employed Individuals without employees must provide the following with their PPP loan application: (x) a 2019 Form 1040 Schedule C; (y) a 2019 IRS Form 1099- MISC detailing nonemployee compensation received; and (z) an invoice, bank statement or book of record establishing that the individual was in operation on or around February 15, 2020.


 


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