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Biden Administration Announces PPP Changes, Including Two-Week Exclusive Period for Smallest Businesses

  • President Joe Biden announces that Paycheck Protection Program loans will be limited to borrowers with fewer than 20 employees for two weeks, beginning Wednesday
  • Administration will also update loan calculation formula to better serve sole proprietors and other non-employee businesses
  • Restrictions eased for business owners with felony records and student loan debt, as well as legal non-citizens

Summary by Dirk Langeveld

Applications for the Paycheck Protection Program will be limited to the nation’s smallest businesses for a two-week period beginning Wednesday. This exclusive period is part of a series of changes to the program recently announced by President Joe Biden.

From 9 a.m. on Wednesday until 5 p.m. on March 9, only businesses with fewer than 20 employees will be permitted to submit PPP applications. The Biden administration says 98 percent of small businesses fall within this range, and that the smaller companies often face greater challenges in collecting the paperwork and other information necessary for an application. The two-week period aims to allow lenders to focus their attention on assisting these businesses.

The White House has also announced that it will be changing the PPP’s loan calculation formula to avoid excluding sole proprietors, independent contractors, and self-employed business owners, 70 percent of whom are women or people of color. In the initial rounds of the program, these applicants often did not qualify or received minuscule loans due to business cost deductions.

The new calculation will be announced shortly and will be based on gross income, similar to how revenue is calculated for small farms and ranches that apply for PPP loans. The administration is also setting aside $1 billion for loans to business owners with no employees in low- and moderate-income communities.

Other changes seek to broaden access to PPP loans by removing certain restrictions. While business owners who have been convicted of a felony within the past year were originally prohibited from applying for aid, this restriction has been lifted unless the applicant is currently incarcerated. A restriction barring loans to those with a felony conviction or arrest for financial crimes within the past five years remains in place.

The administration has also removed a restriction prohibiting loans to companies where at least 20 percent ownership is held by someone who has defaulted on a federal student loan or been delinquent on such a loan within the past seven years. Non-citizen small business owners who are lawful residents may also access the program by using their Individual Taxpayer Identification Number to apply.

The original PPP disbursed $525 billion in forgivable loans to 5.2 million recipients in 2020. While it was credited with providing critical support to businesses during the COVID-19 pandemic, it was also criticized for directing a large share of funding to larger companies and failing to provide adequate aid to minority business owners.

PPP was revived in the Economic Aid Act with $284.5 billion in funding, with new rules limiting first draw loans to companies with 300 or fewer employees and second draw loans to companies with 500 or fewer employees that experienced an annual revenue loss of at least 25 percent in at least one quarter of 2020. Lending was limited to community financial institutions at the outset of the program.

The Biden Administration says the new rules have been successful in better directing aid to small and unserved businesses. The share of funding going to businesses with fewer than 10 employees is up by 60 percent compared to the same point in the original PPP, while the share approved by community development financial institutions and minority depository institutions has increased by 40 percent. Lending to small businesses in rural areas has gone up 30 percent.

According to data from the U.S. Small Business Administration, 1.9 million loans totaling approximately $140.3 billion had been approved as of Friday. The program is open through March 31.

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