SBA releases new PPP IFR, FAQ and loan applications

On March 3, 2021, the Small Business Administration (SBA) released additional Paycheck Protection Program (PPP) loan guidance, including a new interim final rule (IFR), frequently asked questions (FAQ) and updated loan application forms. The guidance accounts for changes made to the PPP by the Consolidated Appropriations Act, 2021 (CAA) and incorporates directives by the Biden administration to increase the maximum loan amounts available to Form 1040 Schedule C filers and to allow applicants and entities owned by individuals who have been convicted of nonfraud-related felonies or are delinquent or have defaulted on their student loans to be eligible for PPP loans.

This tax alert is a preliminary overview of critical points covered by the guidance. Baker Tilly continues to analyze the content in greater detail and will issue additional communications as warranted.

Key takeaways

IFR on loan calculation amount and eligibility

• A Form 1040 Schedule C filer’s maximum loan amount was previously calculated based on its net profit reported on Schedule C line 31 (in essence, deemed owner compensation), plus payroll costs, if the proprietor had employees. The deemed owner compensation component, redefined as “proprietor expenses,” can now be calculated using either line 31 or gross income as reported on Schedule C line 7. Proprietors with employees must reduce the gross income figure by any expenses for employee benefit programs (line 14), pension and profit-sharing plans (line 19) and wages (line 26), to avoid double counting as these amounts constitute payroll costs that factor into the maximum loan amount.
• To mitigate the risk of increased fraud that could arise from use of the gross income methodology, borrowers of loans calculated using gross income of more than $150,000 will not automatically be deemed to have made the loan necessity certification in good faith, and such certification may be subject to SBA review.
• The SBA will review a sample of first-draw loans applied for based on Schedule C gross income, which will require the use of new application Form 2483-C (second-draw borrowers will use Form 2483-SD-C) to determine whether loans computed with gross income amounts of $150,000 or more were applied for in compliance with loan eligibility criteria, including the good-faith certification. The sample size is not specified in the IFR.