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Bank Notes

UPDATED - SBA Expands Loan Calculation Options and Eligibility

March 4, 2021

By: Mark A. Mangano

On March 3, 2021, the Small Business Administration (SBA) issued an interim final rule titled, “Business Loan Program Temporary Changes; Paycheck Protection Program-Revisions to Loan Amount Calculation and Eligibility” (IFR)1  and updated application forms related to the Paycheck Protection Program (PPP). The new rule will allow individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income and expanding eligibility for all borrowers by removing limitations related to business owners who are delinquent or have defaulted on Federal student loan debt or have convictions for non-financial fraud felonies. The rule became effective immediately.

Schedule C filers

The IFR creates alternative loan calculation formulas for sole proprietors, independent contractors, and self-employed individuals who file a Form 1040, Schedule C. The alternatives permit the use of gross income instead of net income. It is believed that the alternative methods will increase the amount available to many Schedule C filers. There are separate gross income formulas for borrowers with employees and borrowers without employees.

The alternative formulas are available for businesses applying for either a first draw or a second draw PPP loan. The alternative calculation formulas only apply to loans made after the effective date of the IFR. The amount of an existing PPP loan that has been disbursed may not be increased. Borrowers, who have outstanding applications and would benefit from the gross income calculations may wish to consider withdrawing their existing application and reapplying.

Applicants who elect the gross income calculation for a first draw PPP loan and reported more than $150,000 in gross income will not be granted the Safe Harbor provided to other PPP borrowers with loans under $2,000,000. The Safe Harbor deems that the borrower made the required certification concerning the necessity of the loan request in good faith. The SBA will sample loans with reported gross income greater than $150,000 for review. The exclusion from the Safe Harbor does not apply to second draw loans because qualification for a second draw loan requires demonstration that the borrower’s gross receipts declined by 25% or more.


The IFR removes the restriction that has prevented businesses with owners who have non-financial fraud felony convictions within the last year from obtaining a PPP loan. This eligibility expansion applies to loans made after the effective date.

The IFR also removes the restriction that prevented businesses with owners who were delinquent or defaulted on Federal student loans from being eligible. The removal of this restriction applies to all PPP loans including those made before the effective date.

The IFR contains substantial benefits for certain borrowers. However, the current round of PPP ends on March 31, 2021. Those businesses that may benefit from these program changes should submit applications as soon as possible to ensure processing before the program expires. 

1  https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Amount-Calculation-and-Eligibility.pdf


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