SBA Issues Change to PPP Payroll Calculation for Form 1040, Schedule C Filers

The Small Business Administration issued an interim final rule implementing recent changes to the Paycheck Protection Program on March 3, 2021.  The IFR allows individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income.  SBA has issued updated forms reflecting these changes and step-by-step loan amount calculations.

This calculation change will only apply to loans approved after March 3, 2021.  Borrowers that have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula.

Additionally, businesses electing to use this gross income calculation for a First Draw PPP Loan will only have a safe harbor presumption of making the necessary certification of economic necessity if they reported $150,000 or less in gross income on their Schedule C being used to apply for the loan.  Borrowers with reported gross income greater than $150,000 will be subject to additional SBA review.

Links to the IFR and applications for 1040, Schedule C borrowers are below.  All other borrowers will use the applications and forms provided under the heading “Applications and Instructions” further down the page.

SBA Interim Final Rule for Schedule C borrowers  – CLICK HERE

New First Draw Loan Application for Schedule C borrowers (Form 2483-C) – CLICK HERE

New Second Draw Loan Application for Schedule C borrowers (Form 2483-SD-C) – CLICK HERE

SBA Terms for New Round of Paycheck Protection Program Funding

The Small Business Administration released Interim Final Rules outlining the terms for the new round of funding for the Paycheck Protection Program (PPP).  The application window for PPP loans is NOW open and will remain open until March 31, 2021 May 31, 2021, or when funding is exhausted.  This round of funding includes new borrowers (First Draw PPP) that did not receive a PPP loan in 2020 and provides an opportunity for existing borrowers to reapply (Second Draw PPP).  

Eligibility Requirements

First Draw PPP eligibility requirements are similar to those used to determine eligibility for prior rounds of PPP funding.  Please note that some industries that were ineligible to receive earlier round PPP loans are now eligible.  If you applied for and received a PPP loan in 2020, you are not able to apply for the First Draw PPP loan but may be able to apply for a Second Draw PPP. 

A borrower is generally eligible for a Second Draw PPP loan if the borrower meets the following criteria:

  • Previously received a First Draw PPP and has used or will use the full amount of the loan prior to receipt of funding from a Second Draw PPP; and
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

SBA may provide additional guidance on eligibility in the coming weeks.  Below are the most current links to the SBA documents explaining terms of the new round of funding:

Top-Line Overview of First Draw PPP Loans – CLICK HERE

  • Full Interim Final Rule for First Draw PPP Loans – CLICK HERE

Top-Line Overview of Second Draw PPP Loans – CLICK HERE

  • Full Interim Final Rule for Second Draw PPP Loans – CLICK HERE

Calculating Your Loan

Instructions for calculating your loan amount are provided in the terms linked above as well as the PPP applications.  Generally speaking, the calculations are similar for First Draw and Second Draw PPP.

  • 2.5 times your average monthly payroll
  • Maximum loan amount of $2,000,000
  • Average monthly payroll is calculated by using 2019 or 2020 total payroll expenses divided by 12
  • When calculating payroll costs, any amount in excess of $100,000 paid to any employee must be deducted from total payroll expenses
  • If the borrower has a NAICS code beginning with 72 (hospitality, restaurants, etc.), the calculation is 3.5 times the average monthly payroll cost
  • Schedule F borrowers will use gross income (Line 9) limited to $100,000 divided by 12 and multiplied by 2.5

Applications and Instructions

Please use the following links to the most current applications for First Draw PPP or Second Draw PPP loans and instructions for submitting applications and supporting documentation to Availa Bank. 

  • Availa Bank submission instructions – CLICK HERE
  • First Draw PPP Application Form 2483 – CLICK HERE
  • Second Draw PPP Application Form 2483-SD – CLICK HERE

Forgiveness

Loan forgiveness will be similar to the first round with 60% or more of your loan amount needing to be spent on payroll expenses.  SBA has been directed to provide a simplified process for applying for forgiveness. 

For Borrowers At or Under $150,000

For PPP loans of $150,000 or less, you may use 3508S.

*However, if you and your affiliates have together received PPP loans totaling $2,000,000 or more, you must use the 3508EZ or the 3508 Application.

****Certain business entities (which could include farmers, partnerships, and seasonal employers) may increase their 2020 PPP Loan. If you plan on applying to increase your 2020 PPP Loan - DO NOT complete this forgiveness form. Once your 2020 PPP Loan is forgiven, the SBA does not allow that loan to be increased.

Click here for the 3508S form

For Potential Borrowers Over $150,000

For PPP loans over $150,000, you may use 3508EZ, IF you meet ONE of the following conditions:

  • Are self-employed and have 0 employees; OR
  • Did not reduce the salaries or wages of your employees by more than 25%, and you did not reduce the number or hours of your employees; OR
  • You have experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of your employees by more than 25%.

If you do not meet ONE of the above standards for 3508EZ, you must use the 3508 “Revised” Application. The regular form 3508 is a more complex document and therefore, we suggest you seek professional assistance when filling out this form. 

****Certain business entities (which could include farmers, partnerships, and seasonal employers) may increase their 2020 PPP Loan. If you plan on applying to increase your 2020 PPP Loan - DO NOT complete this forgiveness form. Once your 2020 PPP Loan is forgiven, the SBA does not allow that loan to be increased.

Click here for the 3508EZ form

Click here for the 3508 form

Paycheck Protection Resources

Paycheck Protection Program Frequently Asked Questions (FAQs)

Paycheck Protection Program

Availa Bank is proud to help small businesses across Iowa during the coronavirus crisis. In the 1st round of PPP, we issued 871 loans to help businesses keep workers on the payroll through the Paycheck Protection Program. More than 30% of these loans have been for less than $10,000 and are critical to the small businesses in our communities.

Thank you to our branch employees who made this possible.