April 6, 2021

By Jeff Sullivan, President, New Valley Bank

On March 4 the Small Business Administration announced a significant change to the formula used to calculate Paycheck Protection Program (PPP) loans for sole proprietors and others who file their business taxes on Schedule C of their individual tax return.

The changes allow for the PPP loan to be calculated based on gross income, not on net profit of the proprietorship as has been the rule previously. In other words, the SBA is recognizing that sole proprietors and other Schedule C filers were being penalized as compared to entities that file a stand alone tax return, and they are intending to eliminate that penalty.

At New Valley Bank, we witnessed many applicants who had negative or zero net income on their Schedule C from 2019 and were therefore ineligible for a PPP loan. These business owners can now reexamine their 2019 or 2020 Schedule C and could be eligible for up to $20,833 PPP loan depending on their gross revenues.

Below are a few details around the rule change that may help to clarify a few important points:

  • The primary rule change allows Schedule C filers to base their PPP calculation on “gross income” (line 7) instead of “net profit” (line 31). 
  • The same calculation methodology that has been used all along for PPP loans – divide the “gross revenue” by 12 and multiply that number by 2.5 to arrive at the PPP loan amount.
  • If a Schedule C filer paid wages (line 26), employee benefits (line 14), or pension/profit share expenses (line 19), these expenses must be deducted from the “gross income” found on line 7 prior to completing the rest of the calculation above.
  • Borrowers cannot amend a First Draw or Second Draw PPP loan that were previously received under the old rules. However, borrowers can use the new rules for loans going forward. 
  • Please note that if your gross income is greater than $150,000, there may be additional certifications needed, and the SBA reserves the right to ask for more documentation in the future to prove that the loan was absolutely necessary to support ongoing operations. 
  • Borrowers will also have to provide evidence that they were in business and operating on February 15, 2020.

New Valley continues to actively accept applications and advise both existing and new clients with the PPP process. If you or anyone you know believes you have potentially been impacted by this rule change, our team is ready to assist you. Applicants can apply at New Valley Bank’s website. New Valley staff members can also assist in answering questions by calling 413-739-2265 or emailing ppp@banknewvalley.com

New Valley Bank is a full service bank based in Springfield, MA specializing in meeting the needs of small business owners and their employees.  New Valley operates from two locations at One Monarch Place and at 1930 Wilbraham Rd. in Springfield.


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