Following up on President Biden’s directive to increase availability of Paycheck Protection Program (PPP) funds to small businesses, the SBA has issued guidance potentially increasing the amount a taxpayer with a Schedule C will be able to borrow.
Previously the amount of the loan for Schedule C borrowers was based on the net income of the Schedule C. Many small businesses that operate as Schedule Cs were either eligible for small loans or were not eligible for a loan because the expenses during the year were greater than the income.
Under the new rules, Schedule C borrowers can compute the amount of their loan based on their gross income or net income. Subject to the applicable loan caps, the loan amount is computed as follows:
While the above changes are welcome news for Schedule C borrowers, the changes are only effective on a prospective basis. Therefore, if the borrowers that have received a PPP loan based on their net income, at this point there is not an opportunity to re-file their PPP loan application to obtain a higher amount based on the new gross income rules.