SBA Provides Much-Sought Guidance on PPP Loans for Self-Employed, Independent Contractors

With independent contractors and the self-employed now applying for Paycheck Protection Program loans, the Small Business Administration today issued an interim final rule clarifying eligibility and application processes for these individuals.

The rule clarifies that self-employed individuals who filed Schedule C with their federal income taxes and were operating on Feb. 15, 2020, are eligible for PPP loans, except for partners in a partnership. (The partnership is the eligible entity, and the rule provides guidance for calculating the self-employment income of general active partners as payroll cost.)

The rule also provides processes for self-employed applicants to calculate their maximum loan amount, depending on whether they have employees or not. Self-employed PPP loan recipients may use the proceeds for “owner compensation replacement,” calculated based on monthly net profits.

The SBA also clarified that many bank directors and shareholders are eligible for PPP loans from their banks. Pre-existing SBA limits on these applicants’ eligibility shall not apply to otherwise eligible businesses owned in whole or part by outside bank directors or those holding a less-than-30% equity interest in the PPP lender, provided that the eligible business follows the same process as any similarly situated customer or account holder and does not receive favoritism. However, officers and key employees of the bank may not obtain a PPP loan from their own bank but may apply at a different lender.

Gambling businesses are eligible for PPP loans, SBA added, provided their legal gaming revenue did not exceed both $1 million and 50% of total business revenue in 2019. SBA also clarified that agency requirements for loans pledged for borrowings at a Federal Reserve Bank or advances from a Federal Home Loan Bank do not apply to PPP loans.

Meanwhile, SBA and the Treasury Department issued three new FAQs this afternoon. One of the newly added FAQs clarifies that lenders must have collected borrower certifications and reviewed borrowers’ payroll cost calculations and documentation before submitting the loan in SBA’s E-Tran system. Lenders who did not complete steps in this order do not need to withdraw applications submitted before April 14 but must fulfill their duties on those applications “as soon as practicable and no later than loan closing.”

Two other FAQs relate to approvals by the SBA’s Standards of Conduct Committee, which approves loan applications by businesses owned or run by current SBA employees, members of Congress, appointed officials, legislative or judicial branch employees, other SBA-affiliated individuals and their household members. Approval by the SCC, and statements of “no objection” from other government departments and agencies, are not required for PPP loans.

View all ABA Banking Journal coverage of the SBA Paycheck Protection Program.