Samantha Wranosky thought she was all set. As the owner of Samantha B Design in Fort Collins, the graphic designer applied, was approved for and received her first Paycheck Protection Program loan on Feb. 9.
She skipped the opportunity last year because she didn’t think she’d qualify for the federal relief loans, which were very popular because they offered full forgiveness if the money was used to pay employees. Her small business was just her, a sole proprietor.
But after a 44% drop in revenues when people stopped attending baby showers, the baby-book designer realized the small business loan could help.
Then, on Feb. 22, the Biden administration changed the program so owners like Wranosky could qualify for a much larger loan, based on gross income instead of net profits. This means her loan could have been 28% larger.
“Just two weeks after receiving my loan, the qualifications were adjusted by President Biden,” said Wranosky, whose loan was less than $10,000. “I am grateful for the assistance of the PPP loan for my business during this troubling time, but I am certainly not the only small business that barely missed an opportunity to receive a greater benefit.”
She isn’t. While many sole proprietors — those who file Schedule C tax forms — have already received their PPP loans, another group has been in limbo for nearly two weeks as lenders waited on federal guidance on how to proceed. The interim rules were released Wednesday, and the U.S. Small Business Administration plans to reopen its portal to accept sole proprietor applications as early as Friday. But some lenders say it’ll take more time to sort it out.
“We have about 100 schedule Cs on hold that we’re just waiting to get clarity guidance before we guide them with which way to move forward,” said Nim Patel, chief strategy officer with the Colorado Enterprise Fund, a community lender that specializes in loans for underserved populations.
Patel said he’s still going over the guidance, then CEF must implement the changes, publish new forms and update the workflow before accepting sole-proprietor applications again. He thinks that could restart by Monday
CEF has continued to work with customers who could wait — and those who couldn’t.
“We just in fact heard from two Schedule C filers today who said, ‘Thank you, but I can’t wait even if I’m potentially going to get more money,” Patel said in an interview Tuesday. “We’re trying to be flexible with folks. We understand that a lot of them needed the money weeks or months ago.”
Revamped PPP aims smaller and smaller
Similar delays happened last year after the Paycheck program launched spectacularly on April 3 only to face sharp criticism. Small businesses with 500 or fewer employees applied, received up to $10 million and had the government scrambling to curb how large a small business could actually be. Changes, often to address loan forgiveness confusion, were announced, with new rules coming weeks after.
This year, businesses applying for a second PPP loan could employ no more than 300 people, had to show a 25% revenue loss for one quarter between 2019 and 2020 and were limited to borrowing no more than $2 million.
And while large banks — and large applicants — made up the largest segment of lenders and applicants last year, SBA let community lenders get a headstart this time around. That included First Southwest Bank, a community development financial institution in Durango.
“That was another benefit for the second round,” said Kristy Esquibel, the bank’s senior vice president. “Because they opened up the PPP just to CDFI banks. We had a good week and a half where we were able to get in quite a bit of our borrowers and get their approvals (completed) before funding even opened to other institutions.”
Biden also set aside two weeks where only businesses with fewer than 20 employees could apply for a PPP loan. That ends March 9. The current round of PPP ends March 31, but another one could be on its way if Congress passes the pending $1.9 trillion American Rescue Plan coronavirus recovery bill.
So far this year, 40,799 small businesses in Colorado have been approved for $3.2 billion in PPP loans, as of Feb. 28.
Focus shifts to underserved businesses
The latest rule updates means that sole proprietors who made little income — or even lost money — are now eligible for PPP loans. In the past, those with losses weren’t eligible. And it wasn’t unheard of for a sole proprietor to get a mere $1 for a PPP loan.
The focus on sole proprietors also expands loans to a more diverse business owner. According to the SBA Office of Advocacy of Census data, 70% of firms with no employees are owned by women and minorities, compared to 40% of business owners with employees.
“This change would affect many sole proprietors who have effectively been excluded from the PPP, especially those with very little or negative net income, many of which are located in underserved communities,” Esquibel said. “I think we might see an influx of people that didn’t qualify before. We had a lot of people that their expenses exceeded their income and so they didn’t qualify. Those applications were either withdrawn because they didn’t qualify, or we put them on a standby waiting for this guidance to roll out.”
Under the new interim rules, people like Wranosky who already were approved for PPP loans cannot get them increased retroactively.
“I’m sure there’s more people out there like me,” Wranosky said. “We were the responsible ones that got in there and applied right away when it was time to apply and then, you know, that would have made a difference in the long run if we just held back.”
Wranosky did a pivot last year when the pandemic began. She applied for unemployment after the federal CARES Act allowed benefits to be paid to self-employed workers. She was able to continue operating and that helped her shift focus to turning popular ABC books for babies and toddlers into virtual editions.
“A lot of people will use my ABC books now for virtual baby showers because they’re not comfortable throwing big parties any more,” Wranosky said. “I’m grateful that my business is still operating and my costs are low since I work out of my house.”
Need to know: Paycheck Protection Loans
- Eligibility: Small businesses in operation on Feb. 15, 2020, that have not permanently closed and experienced uncertainty due to economic conditions.
- Loan amount: Up to 2.5 times one’s average monthly payroll
- Forgiveness: Loan can be used on certain expenses and 60% must be on payroll.
- Apply: You must apply through a bank or lender. Application for sole proprietors: LINK Application for first-timers: LINK And for second-draw loans: LINK
- Deadline is March 31. More from the SBA: LINK
→ Need a bank? I’ve mentioned community development financial institutions before. These local lenders work with very small businesses and in underserved communities. And they’re taking applications: