On March 3, 2021 the Small Business Administration (SBA) released an Interim Final Rule (IFR) which revises loan amount calculations and eligibility related to PPP loans for Schedule C tax filers. New forms to go along with these changes have also been released. Below we’ll outline the important changes as well as key points that should be considered before pursuing a Round 1 or Round 2 PPP loan if you’re a Schedule C tax filer. Note that the PPP loan application window closes on March 31, 2021, so time is extremely limited to get your application in!

First and Second Draw Schedule C filers can now choose to apply for a PPP loan using Gross Receipts from their 2019 or 2020 tax return. Originally, Net Income from Line 31 was the magic number for your loan calculation, but many folks had a Net Loss, rather than Income, and were entirely out of luck when it came to getting a PPP loan. This change is good news for folks!

You will calculate your loan amount based on whether or not your Schedule C business maintained employees (the Schedule C owner-employee does not count as an employee, properly speaking). The maximum loan stands at $20,833 for those with no employees. That is, $100,000 divided by 12 months, then multiplied by 2.5 months. It is a slightly more complicated computation as outlined in the applications when employees are in the picture. Forgiveness will eventually be determined based on the Covered Period you elect when you go to complete that application.

The new First Draw Schedule C application for Gross Income loans (aka Form 2483-C) can be found on the Treasury’s website, here. The new Second Draw Schedule C application for Gross Income loans (aka Form 2483-SD-C) can be found on the Treasury’s website, here. As before, we are able to provide guidance in filling out the application, but your banker will be the ultimate resource as they will process the loan application.

Unfortunately, there is some less-than-stellar news to be aware of. If you have already received a PPP loan, whether a First or Second Draw, you are ineligible to receive the higher loan amounts related to that already-completed application. You cannot go back and amend or increase an already-received PPP loan based on your Schedule C Gross Receipts. If you have only received the First Draw at the lower amount, by all means you can consider a Second Draw using Gross Receipts.

In an attempt to mitigate risk, the IFR states that the SBA may review Schedule C loan requests over $150,000 as “the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith”. Basically, document your need for the loan early on in this process and keep it in a safe place, in the event you are ever asked to justify why you requested the loan. 

All of this applies to Schedule C filers only. Folks who file using a Schedule F, or under a separate business structure, will continue to use the standard Form 2483 or Form 2483-SD, whether for a First Draw or a Second Draw. These applications have also been updated as of March 3, 2021.

There are two final points to consider. First, the IFR removes the eligibility restriction that prevents businesses with owners who have non-financial fraud felony convictions in the last year from obtaining PPP loans. Second, the IFR also removes the eligibility restriction that prevents businesses with owners who are delinquent or in default on their federal student loans from obtaining PPP loans. Basically, more folks should be eligible for PPP loans.

This information is current as of March 5, 2021. Please feel free to reach out as soon as possible with questions you may have because the deadline for applying for a PPP loan still stands at March 31. We will continue to monitor for changes and provide updates as they come available!