PPP UPDATE: New max loan amount calculation for Schedule C borrowers

In this 3-minute read:

  • What changes to the PPP process impact “Schedule C filers”?
  • New rules allow certain applicants to use gross, rather than net revenue to calculate max loan amounts
  • Things to consider if you’ve already applied
  • Should you wait to apply for PPP loans? Or reapply if you have already submitted your application under the previous rules?
  • You may also like: Can I use Schedule E for PPP loans?

The White House announced on February 22, 2021 important updates to the PPP loan program intended to help truly small businesses, independent contractors, and sole proprietors get the stimulus funding they so desperately need. You can read our article about all the changes to the PPP program under the Biden administration, but the most important change for these smallest of applicants can have huge impacts on the amount of money they can borrow for these forgivable loans.

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What has changed in the PPP application process for Schedule C filers (independent contractors, sole proprietors, and self-employed individuals)?

As of March 3, 2021, the SBA has revised the loan calculation formula for independent contractors, sole proprietors, and self-employed individuals so that it offers more relief. 

In a “sneak peek” webinar on the subject, the White House revealed that applicants who file IRS Form 1040 Schedule C will be able to calculate their loan amount based on the gross income reported on Line 7, rather than based on their net income (Line 31). This is huge news for many borrowers, who based on the previous rules were unable to borrow enough in forgivable funds to make a real difference.

On March 3, 2021, the SBA issued a new Interim Final Rule and new PPP application form for Schedule C applicants. On February 22, 2021, the Biden-Harris administration announced these important PPP rule changes that allow PPP borrowers who file using IRS Form 1040 Schedule C to use GROSS profits, rather than NET profits, to calculate their maximum PPP loan amount. 

If I haven’t applied for my PPP loans yet and I use Schedule C, should I wait to apply? Should I reapply if I already have submitted my application?

It bears noting that we are not financial advisors, lawyers, or financial counselors, and we are providing this article for informational purposes only. However, here are some things to consider as you do your research to determine the best course of action for you and your business.

If you file Schedule C (Form 1040) then the rule changes may or may not impact you, so first you need to determine your specific situation and consider what makes the most sense for you to do.

If, as in some cases with contractors and self-employed individuals, your “net” and “gross” figures are the same: 

There is apparently no change in the rules that will impact your maximum loan amount, and you wouldn’t qualify for an increase anyway. So you may want to start your PPP application as soon as possible, since the current extended application deadline is May 31, 2021. But again, you need to make the decision that’s right for you.

If your Line 31 (net income/profit) was negative, or positive but below $4,800, but you have a positive/greater amount on your line 7 (gross income/profit) on your Schedule C (Form 1040):

You probably didn’t qualify for a PPP loan under the previous rules, but you might qualify now that the new changes have gone into effect. So use your own discretion about when it makes the most sense for you to apply.

If your Line 31 figure is above $4,800 but is lower than the figure in your line 7:

You might be eligible for a larger forgivable PPP loan under the new rules. Use your discretion on whether you should apply now.

This isn’t the first time the rules have been changed significantly and the program is continuing to evolve to better meet the needs of America’s small businesses, contractors, gig workers, and sole proprietors. We have done our best to give you accurate information, but the rules are still in flux and you need to make the decision that’s right for you and your business.

Go deeper: Learn why you must have earned at least $4,800 to qualify for a PPP loan.

If I’ve already applied for/received my PPP loans but I used my net profits to calculate my max loan amount, what can I do?

Naturally the new calculation can be a significant factor in many people applying for PPP loans, and those who have already applied and/or received their PPP funding are now wondering whether there will be some sort of “make it right” provision that might allow them to apply for the difference in what they received under the previous rules and what they would have received if they’d applied under the new rules.

There has been some speculation that if you already applied for PPP loans, and your IRS Form 1040 Schedule C gross profits amount (Line 7) is larger than your net profits amount (line 31), you might at some point be able to apply for that difference. However, we have found no official statement from the SBA on this issue, or whether it may be resolved as part of the forthcoming rules.

Furthermore, according to The New York Times,“The S.B.A. will not retroactively change loans that have been disbursed, and it will not let those who already got loans return them and reapply.”

There may be additional revisions or clarifications on this situation in the future, so be sure to check back for updates.

You may also like: Can I apply for PPP loan with W2?

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