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A new rule is about to make PPP loans more generous for businesses without employees

The US Small Business Administration (SBA) is expected to issue a rule as soon as Monday that will make loans from the Paycheck Protection Program (PPP) more generous for business owners without employees.

Companies and nonprofits without employees have always been eligible for PPP loans. But while loans to businesses with employees are based on payroll, companies without employees currently receive loans based on net income. The new rule expected from the SBA will instead base loan amounts off of sole proprietors’ gross income, significantly expanding the amount of money for which they are eligible.

Sole proprietors that already received loans are not expected to retroactively receive larger ones, according to a report by the New York Times, nor are they likely to be allowed to return the earlier loans and instead reapply. It’s not yet clear whether the new rule will include constraints on how the loans can be spent in order to be eligible for forgiveness. (Employers are required to spend at least 60% of the loan on payroll in order for it to be forgiven.)

Focusing PPP on small business

The expected new rule is part of a number of changes to PPP eligibility announced by the Biden administration last week, centered around expanding access for small businesses.

Since Feb. 24, only businesses with fewer than 20 employees (including those with zero employees) have been able to apply for loans; that will continue until March 9, after which all companies eligible under the program’s rules will once again be able to apply. “The 14-day exclusive application period will allow lenders to focus on serving these smallest businesses,” the White House said in a statement last week.

But companies without employees have been waiting on the SBA to issue its new eligibility rule before applying; even if that rule comes out on Monday, the two-week window focused on small businesses will be nearly half over. The final deadline for any business to apply for a PPP loan is March 31.

PPP loans to sole proprietors

As the name suggests, the Paycheck Protection Program was intended to save jobs by offering employers forgivable loans that would help them cover their payroll costs amid the pandemic. (Disclosure: Last month, Quartz received a PPP loan.) But like many other aspects of the program, PPP loans to sole proprietors have been doled out inequitably.

“For non-employer businesses, the loan delay between majority-Black and majority-white neighborhoods grew to nearly three weeks,” reported analysts at the Brookings Institution, a think tank in Washington DC, in September of last year. Nearly a third of businesses without employees are majority-owned by people of color, according to the SBA, compared to 18% of businesses with employees.

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