PPP: workers with student loan debt delinquency MAY NOW APPLY (March 2021 update)

In this 3-minute read:

  • Important updates to PPP rules now allow otherwise eligible borrowers with delinquencies in student loan debt to apply
  • SBA is removing hold/error codes from all previously denied applicants
  • Rule changes for Schedule C (form 1040) applicants
  • NAICS category 72 businesses can get 40% more funding for second draw loans

On February 22, 2021, the White House announced a slew of important new PPP rules changes for 2021, one of which can have a huge impact on students who have 1099 income, gig workers, independent contractors, Uber drivers (or Doordash, Postmates, Lyft, etc.), and self-employed people who have been unable to apply for PPP stimulus relief due to delinquency on their student loan debt.

In addition to other PPP rules updates (including allowing PPP applicants who file Schedule C (form 1040) to elect to use their gross, rather than their net income to calculate their maximum loan amounts), the restriction on potential borrowers with student loan debt delinquencies has been removed, and they may now apply (as long as they are otherwise eligible for PPP loans). 

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PPP applicants with student loan debt delinquency will no longer be excluded from applying

Formerly, businesses with 20% more owners who were delinquent on student loan debt were prohibited from getting PPP loans. The SBA has partnered with the Treasury and Education departments and will remove the hold code/compliance check error code from the SBA database.

Before March 2021, when a potential borrower with outstanding delinquency on student loan debt submitted a PPP application, the SBA lender would receive a “hold code” or “compliance check error code” that prevented the application from moving forward and being approved.

This was intended to help prevent default on PPP loans. However, since the intent of the PPP program was to encourage America’s independent contractors, small businesses, sole proprietors, and self-employed individuals to stay in business and maintain payroll, the program was set up from the start to allow PPP loans to be forgiven completely, as long as the borrower spent the funding on eligible expenses.

For self-employed, sole props, and independent contractors without employees, it’s exceptionally easy to meet the PPP loan forgiveness qualifications (since they can basically pay themselves the full amount of their loans) and apply for PPP forgiveness, and these types of businesses have been underserved by the previous iterations of the PPP, so the SBA and the Biden administration have determined that the proper course of action is to remove the PPP application restriction for potential borrowers who have outstanding delinquencies on their student loans.

What the PPP student loan delinquency restriction removal means for contractors, app-based drivers, and gig workers

In short, it means that ALL eligible PPP borrowers should apply as soon as possible. Many previously restricted potential PPP applicants with outstanding student loan debt are self-employed, gig workers, app-based drivers, or otherwise 1099 workers, all of whom can see big benefits from a completely forgivable stimulus loan. 

Schedule C applicants can now use GROSS income, rather than net, to calculate PPP max loan amounts

One of the most important rules changes to the PPP as of March 2021 is that all PPP applicants who file Schedule C (form 1040) can elect to use their gross, rather than their net income to calculate their maximum loan amounts. 

This means many small businesses, sole props, gig workers, contractors, drivers, etc. who were previously unable to qualify for PPP loans due to their net income being too low may now qualify.

Applicants in the food services or accommodations industries have even more reason to apply (3.5X loan calculation for NAICS category 72 for second-draw PPP loans)

If you are a contractor, small business owner, sole proprietor, or self-employed individual and you fall under NAICS code 72 (accommodations and food services) you should know that for 2021 you have the potential to receive a second-draw loan based on 3.5X your average monthly payroll expenses, rather than the typical 2.5X for all other PPP borrowers.

Your maximum loan amount is correspondingly higher than individual borrowers in other NAICS categories, as well. Read more about how you can get 40% more PPP money.

Learn how you can apply for your first and second draw PPP loans back-to-back.

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