PPP Loans - How Small Business Owners Lost Thousands

PPP Loans - How Small Business Owners Lost Thousands

When news of the new PPP loans surfaced, small businesses applied for the forgivable loans not knowing if they had waited a few days or even a few weeks, they would have received thousands of more dollars, but they had no clue.

In February of 2021, The Biden Administration announced changes to the PPP loan program after it reopened in January with $284 billion in funding. The changes would be an adjusted loan formula, expanded eligibility for small business owners with certain criminal backgrounds, behind on student debt, or were non-citizens. Also, businesses with fewer than 20 employees, women-owned businesses, and minority-owned businesses were given a priority application window from February 24th to March 9th.

What went wrong was the priority window wasn’t aligned with the other changes and didn’t go into effect until the first week of March. Sole proprietors were forced to wait longer for the new loan formula. The SBA didn’t release the financial guidance until March 3rd, which was a couple of days before the priority window ended. This caused lenders to rush and update their systems in the middle of the process that resulted in  longer delays.

Thousands of Dollars Lost

The change drastically affected the self-employed. In the new calculation, the SBA uses gross income (line 7 of the IRS Form 1040 Schedule C/) to replace payroll costs for sole proprietors. In most cases, sole proprietors have no employees. The loan formula that was previously used net profit (line 31 on Schedule 30/). This caused businesses to get small loans, become ineligible, thus amounting to thousands of dollars lost.


Till March 7th, the PPP has funded more than 2.4 million loans equalling almost $165 billion which is 60% of the allocated money. Lenders state that it has taken longer for loans to get approved due to the strict SBA security measures. Some business owners are hoping that the slow process will give them time to apply back under the new loan formula. The SBA has let lenders know that applications that have already been submitted but not approved can withdraw their application and reapply. If the application was approved then the lender can cancel it and the borrower can re-apply. If a loan has been disbursed then the lender can cancel the loan, the borrower can repay, and then reapply if the lender has not yet submitted Form 1502.

The SBA has said that if the form has been filed, then there is nothing that can be done. Loan amounts can’t be increased for sole proprietors in the situation.

What can Change

There is a chance that the PPP will be extended. The recent American Rescue Plan signed into law by President Biden adds $7.25 billion for PPP and expands the eligibility. Also, new bills were introduced in the House and the Senate that can extend the deadline two months to May 31st and give the SBA 30 additional days to process loans. If the bills pass, it can change things to help sole proprietors.

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