On March 27, 2020, the CARES ACT was passed by Congress in response to the COVID-19 crisis. Under the CARES ACT, the SBA offered loans under the Paycheck Protection Program (“PPP”). On February 22, 2021, the Administration issued a fact sheet (“Fact Sheet”) outlining reforms that will, inter alia, provide more PPP loans for the smallest of businesses that did not previously receive a PPP loan. The goal is to assist these businesses in surviving the COVID-19 crisis and help them reopen.
Amongst other things, the Fact Sheet outlined how the Administration will:
1. Help sole proprietors, independent contractors, and self-employed individuals receive more financial support.
This is in recognition of the fact that these businesses are owned by women and people of color and that they have been greatly excluded from the PPP because of how PPP loans are calculated. The Administration will revise the calculation for these applicants so that they will receive more relief. It will also set aside $1 billion for businesses in this category without employees that are located in low- and moderate-income areas.
2. Eliminate the exclusion of small business owners with prior non-fraud felony convictions from PPP eligibility.
Under the current rules, a business is ineligible for a PPP loan if it is at least 20 percent owned by an individual who has either:
A. an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or
B. any other felony within the previous year. It will also eliminate the second restriction (the one-year look-back) unless the individual is incarcerated at the time of the PPP loan application.
3. Eliminate the exclusion of small business owners who are delinquent on their federal student loans from PPP eligibility because the exclusion disproportionately impacts people of color.
4. Ensure access for non-citizen small business owners who are not lawful US residents by clarifying that they may use Individual Taxpayer Identification Numbers (“ITINs”) to apply for a PPP loan.
The current PPP rules did not provide clear guidance for ITIN holders like Green Card holders or those in the US on a visa. To address this inconsistency, the SBA will issue clear guidance whereby otherwise eligible applicants cannot be denied access to the PPP because they use ITINs to pay their taxes.
The Fact Sheet also states that the Administration will take the following steps:
1. Promote transparency and accountability by improving the PPP loan application to encourage self-reporting of demographic data and better illustrate the impact of the PPP across various population segments
2. Improve the Emergency Relief Digital Front Door by updating the SBA websites to help applicants find resources about relief options and completing applications more easily.
3. Continue to conduct extensive stakeholder outreach to learn more about challenges and opportunities with the current emergency relief programs.
4. Enhance the current lender engagement model. The SBA is launching a new initiative to deepen its relationships with lenders and give lenders more opportunity to ask questions, provide recommendations, and help resolve open questions and concerns in a more streamlined way.
The facts stated above are a sampling of the changes and are an attempt to make PPP loans more accessible to a wide range of needy businesses during this continued crisis.