March 9, 2021

Caity Roach
Editor

SBA Hot Topic Tuesday— Revisions to the Loan Amount Calculation For Schedule C Borrowers

Last week, the SBA, in consultation with the White House and Treasury, issued an interim final rule which allows individuals who file an IRS Form 1040 (Schedule C) to calculate their maximum PPP loan amount using either gross income or net profits. 

Previously, the SBA only allowed Schedule C filers to calculate their maximum loan amount by adding together payroll costs and net earnings from self-employment (line 31 on IRS Form 1040). However, this was problematic because it did not take into account fixed business expenses that the small business owner would need to cover in order to stay in operation. As a result, many sole proprietors were effectively excluded from the program due to operating very little or negative net profit.

As of last Friday, borrowers that file an IRS Form 1040 may now use SBA Form 2483-C or 2483-SD-C to apply an alternate maximum loan amount calculation. Using the revised formula, the Schedule C borrower’s owner compensation would be calculated by subtracting lines 14 (Employee Benefit Programs), 19 (Pension and Profit-Sharing), and 26 (Wages – Less Employment Credits) from line 7 (Gross Income). All other calculations remain unchanged. 

The SBA has implemented this change with respect to PPP loans that are approved on or after March 5, 2021. A borrower whose loan has already been approved prior to this rule cannot increase their PPP loan amount based on the new calculation methodology. However, prior to filing a Form 1502, the lender may cancel the loan in E-Tran Servicing and the borrower may reapply using the new Form 2483-C or 2483-SD-C.  If the borrower chooses to have their loan canceled and resubmitted, the lender may have to wait up to 2 days for the Platform to recognize the prior loan’s cancellation before it will allow them to enter the new application.

Borrowers who wish to use the owner compensation calculation based on net earnings should continue to use the Standard 2483 or 2483-SD application forms. 

Questions regarding the new Schedule C filer maximum loan amount calculation and the new application forms may be directed to the Lender Relations Specialist at your local SBA Field Office. A directory for local SBA Field Offices may be found at: https://www.sba.gov/tools/local-assistance/districtoffices.

Sources:
Interim final rule
SBA PowerPoint