Updates and Proposed Changes to PPP From the Biden Administration
Multiple proposed changes to the Paycheck Protection Program (PPP) were announced by the Biden Administration on February 22nd, 2021. Below you will find the highlights and important things to note about these changes. Of the $284 billion allocated for PPP, half is still available. There is still plenty of money left in the program if you are in need of a loan. The application deadline is March 31st, 2021.
The first proposed change to the program is a change in the loan formula for sole proprietors, independent contractors and self-employed individuals. The administration has proposed shifting from a net revenue calculation to a gross revenue calculation. An IFR was released 3/3/2021 regarding the revenue calculation change. $1 billion has been allocated for businesses in this category without employees in low- to moderate-income areas. At this time, there has been no indication that the change in allowable loan amounts will be retroactive. Schedule C filers will remain capped at a maximum loan amount of $20,833 based on the requirement under the Paycheck Protection Program that average payroll cannot exceed $100,000 per year. This is similar to Schedule F farmers after the Economic Aid Act. Stay tuned for additional information as we dive into the IFR and lenders update their systems.
Second, for a 14-day period beginning on February 24th, 2021 and ending on March 9th, 2021, only businesses with fewer than 20 employees can apply for PPP loans. The number of employees stems from the total headcount of both full-time and part-time employees. Applications for borrowers with more than 20 employees can still be submitted to the lender during this two-week period, however, the lender will hold on submitting the application to the SBA until after March 9th. It is important to note that applications in process with the SBA prior to February 24th will continue to progress during this two-week period. After March 9th, new applications can continue to come in. The program is set to expire on March 31st, 2021, and it has not been decided if it will be extended.
The new proposed changes also eliminate the restriction on receiving a loan if a business is 20% owned by an individual who is currently delinquent or has defaulted within the last seven years on a federal debt, including a student loan. Another restriction has been lifted for businesses that are 20% owned by an individual who has either (1) an arrest or conviction for a felony related to non-financial assistance fraud within the last five years or (2) any other felony within the previous year. The changes also allow otherwise eligible applicants to access PPP if they use ITINs, such as a Green Card or other visa holders to pay taxes.
SBA & Lender Processing Update
With multiple phases of SBA Validation, compliance checks and decision logic, three types of error codes can be reported during the loan application review process. Understanding when an error code is occurring is the first step to understanding what action can resolve it.
API Validation Error: This error occurs when an applicant is trying to get an application submitted to the SBA. It is unclear why this error occurs, but the SBA has placed a flag that stops the successful submission of a PPP loan application.
Compliance Check Error: Once an application is successfully submitted, the SBA completes compliance checks to validate if they want to move an application into the review process. A number of applications are being stopped here and further information is required from the borrower or the lender to advance the application. In some instances, the lender can clear the error code. In other situations, they cannot.
Hold Code Errors: These error codes occur on 2020 loans, either when an application is pending required additional research, or when revalidation is pending.
Currently, the SBA has not told lenders how to resolve Validation Errors and has not yet provided a timeline for when/if they plan to tell lenders how to resolve them. Resubmissions via the API are taking place automatically and in batches wherever an error is identified that may be cleared through a resubmission. However, they are still subject to SBA system processing timelines and potential further Validation Errors. There is no guarantee of success on a resubmission of an application. Lenders are urging the SBA to correct these errors and provide a simple error solution process.
Employee Retention Credit Update
Our team is still waiting for updated guidance from the Internal Revenue Service (IRS) regarding the Employee Retention Credit. Some guidance has started to be released by the IRS and we are reviewing it. During this time, we are gathering a list of clients that may qualify for the 2020 Employee Retention Credit. Each case will be reviewed once guidance is released. It is important to note that there is plenty of time to go back and claim the credit for 2020 if a case qualifies.
Baldwin CPAs is staying up-to-date as new legislation and regulations are passed. We are committed to keeping our clients informed on the latest updates regarding these changes and other important information. If you have questions or need assistance, do not hesitate to reach out to us.