Oklahoma Bankers Association We make bankers better!
Enough about the 2020 Presidential election and its aftermath. But it’s worth noting there’s a reason people are concerned about the “elections have consequences” part.
I mentioned in this column or in another opinion piece a few weeks back that the dynamics of the Paycheck Protection Program would be much different going forward. They are, unfortunately, and they are leaving a lot of sole pr
oprietorships and self-employed customers by the side of the PPP highway.
Many of you will remember some of the campaign rhetoric (on both sides) about making sure we take good care of our nation’s small businesses. But the Small Business Administration folks appear to have another idea – PPP funding benefits will not be available to a large number of these folks if they have earlier received aid through the program.
Even though the “new” rules seemed favorable when announced, they have proved to be anything but. Word from the SBA has been hard to get, and what has been disseminated so far has added more confusion to an already existing system. If I’m going to be fair about things, it seems as if the new rules have attempted to make things clearer, right up until it’s determined these single entities are just not going to be admitted to the party.
There’s a recent article in Politico that talks about this issue and points out the new, easier rules will only apply to new loan applicants. House Small Business Committee Chairman, Nydia Velazquez (D-N.Y.) is just one of many Democrats making a lot of noise about this interpretation of how new rules are supposed to work.
“Why is that?,” you may ask. Simply because these really small businesses were earlier forced to apply for loans based not just on the amount of payroll, but on net profits. The rules defined “payroll costs” for individuals who file Form 1040, Schedule C as payroll costs (if employees exist) plus net profits, which is net earnings from self-employment. This formula effectively excluded many sole proprietors from obtaining PPP loans, particularly those with very little or negative net profit.
By contrast, larger firms’ applications were approved because payroll costs were easier to calculate. If you stop and think about the “unintended consequences” coming from the size difference, especially in any program enacted to get small businesses back on their feet, this result is just wrong.
Remarkably, given the poisonous atmosphere in Washington about all things racial, a recent survey shows one in three very small white businesses did not receive the requested amount, but nearly all black self-employed businesses were similarly rejected.
The SBA tells us they don’t have retroactive rulemaking authority, so that’s why there cannot be any increase in the amount of loans already on the books. Congress provided such rules for farmers and ranchers in December, but nothing else, the SBA says.
Now, here’s the rest of the story. As this issue of the Oklahoma Banker goes to press, the SBA has issued an interim final rule implementing changes that allow these small business owners and sole proprietorships (those who file an IRS Form 1040, Schedule C) to calculate their maximum loan amount using gross income.
SBA has issued updated forms for borrowers and lenders reflecting these changes and step-by-step loan amount calculations. The IFR also stated this change in how a borrower is to do his or her calculation will apply only to loans approved after the rule’s effective date. Borrowers who have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula.
See what I mean, and why many observers believe this PPP system is uncoordinated, confusing AND discriminatory? Senate Small Business Committee Chairman, Ben Cardin (D-Mary.) will hold hearings later this month as “a matter of fairness.”
Additionally, businesses electing to use gross income to calculate their first-draw PPP Loan only get the “safe harbor presumption” that certifies the borrowers’ economic necessity if they reported $150,000 or less in gross income on their Schedule C. Borrowers that report gross income greater than $150,000 will be subject to additional SBA review.
Consistent, equal treatment of individuals is the hallmark of “good government.” But when the federal government blatantly ignores the needs of the smallest of the nation’s small businesses so they can participate in this new program, such a result makes no sense. This is particularly true when the impact of the proposed rules discriminates so blatantly against minority-owned small businesses.