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Small Business Owners: What You Need To Know About The New PPP Rules

Are you a small business owner, working on your own or with less than 20 employees? Do you have student debt, a felony record, or are you a Green Card holder? The Biden administration announced five major changes in the Payroll Protection Program this week, which could make a big difference in making sure your application reaches the front of the line this time around.

These changes are critical for small business nationally, considering only an estimated 5% of small businesses have received support thus far. According to USA Today, we’ve said goodbye to 400,000 small businesses since the start of the pandemic. This next round of PPP is critical in making sure that number doesn’t double by this time next year. It should also have a particular impact in addressing both gaps in the PPP reaching communities of color, and the racial wealth gap at large that’s been widened by the ongoing Covid-19 pandemic. 

It’s important to name the irony that these five changes feel especially relevant to business owners of color, precisely because of the racialized, economic harm imposed by past policies over decades. Redlining — the historic practice of barring communities of color from loans — makes it statistically that much harder for people of color to build wealth and larger businesses. These new update to the PPP should help preserve more small businesses, and ideally cause us to do a more thorough audit of other instances where people of color writ large, immigrants, formerly incarcerated people, and self-employed people have been categorically excluded from both government aid programs and finance. 

Without further ado, here’s the updates:

1. Less restrictions on formerly incarcerated small business owners

In the original PPP legislation, small business owners with prior felony convictions were barred from obtaining relief. In June 2020, the Small Business Administration was sued by civil rights organizations, and this discrimination against those with felony convictions was deemed unlawful. According to the ACLU,In response to the lawsuit, the SBA issued a new rule on June 24 expanding eligibility for federal PPP loans to include a broader number of small business owners with criminal records, including small business owners with pending misdemeanor charges and those on probation or parole for older crimes were made eligible to apply.” But that rule change still left some people out: “Business owners with pending felony charges or those currently on probation or parole for a felony offense committed in the last year, and five years for those with financial crimes, were still barred from eligibility.”

Now, small businesses owners with prior felony convictions are fully eligible to apply, as long as their prior felony conviction wasn’t related to fraud. According to The Sentencing Project, the label of “ex-felon” disproportionately lands on Black men. As unjust setencing laws put too many people of color away, and discrimination against hiring those who have criminal records perists in our country,  many formerly convicted felons have turned to entrepreneurship, forging their own roads to redemption in spite of systemic hurdles. They too deserve access to COVID relief.

2. More access for immigrant business owners 

According to the official press release, it’s been clarified that non-citizen small business owners who are lawful U.S. residents can apply for relief using their Individual Taxpayer Identification Numbers (ITINs) in lieu of a Social Security Number. This opens up the opportunity to get relief if you’re a business owner currently living in the United States with a Green Card

This policy is critical from a social equity perspective, especially since immigrants start businesses at higher rates than those who are born in the US.  These businesses range from high-flying tech companies to your local corner store. As explained in NASDAQ
NDAQ
, “the types of business that [many] immigrants own — gas stations, dry cleaners, nail salons, hotels & motels, and specialty food stores — have been particularly hard hit by the shutdown.” This guidance for using ITINs could be critical in expanding whose businesses survive the ongoing economic downturn. 

Its important to note this still leaves out a large number of immigrant tax-payers who are major employers within the US. Sean Salas, co-founder and CEO of Camino Financial, a fintech platform focused on affordable credit for underbanked Latinx businesses, noted, “While expanding PPP to green card holders is a step in the right direction by the Biden Administration, there are roughly 800,000 tax paying businesses owned by undocumented immigrants not eligible for the program.  Federal relief for this cohort of immigrant-owned businesses is still needed.”

3. No more penalizing business owners with student loans

While the country still waits to hear whether or not the Biden Administration will cancel student debt, many small business owners with outstanding student loans are breathing a sigh of relief today. The restriction preventing small business owners who are delinquent on their student loans from applying for PPP has been removed. The implications for businesses led by people of color here are clear: our relative lack of free higher education, compared to other nations, slaps more students of color with huge student debt. 

4. Two-week focus period for business owners with less than 20 employees

The vast majority of small businesses have less than 20 employees, though the term “small business” traditionally applies to any business with less than 500 employees. This meant that many of the small businesses who did receive funding in the first cycle were, well, not so small businesses—hundreds of millions even went to publicly-traded companies. This new 14-day exclusive period, that really addresses the smallest of small businesses, opens on Wednesday, February 24th. Note that this also includes people who receive 1099’s or are otherwise self-employed—you can be evaluated as your own small business if you list your income on Schedule C of a tax return. 

5. No more restrictions on business owners without a payroll

“Solopreneurs,” self-employed individuals, independent contractors, or any business without employees can expect more support this PPP cycle. According to The Journal of Accountancy, $1 billion “will be set aside for businesses in this category that don’t have employees and are located in low- and moderate-income areas,” though the specifics on this have not yet been released.  

Despite the program keeping the name “Payroll Protection,” it’s critical that the Biden administration is making clear the loan amount doesn’t only have to be based on payroll, but on overall lost revenue to the business.  As the Journal for Accountancy explains, the new requirement is that the business simply needs to show  “a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019.”

This is critical news, particularly for Black-owned businesses. According to the Association for Enterprise Opportunity, 97.5% of Black women entrepreneurs nationally don’t have a single employee — and are now eligible for the PPP. Ron Busby, president of the US Black Chambers, also noted that “Of the 2.6 million Black-owned companies in business before the pandemic, 2.1 million were non-employer firms.”

Why is the Biden administration taking action to reform the PPP process now? Thankfully, they appear to be acknowledging, and correcting for, the fact that the CARES Act’s original round of PPP loans fell short in actually reaching small businesses, particularly those led by people of color.

349B was approved on March 27th, 2020 in the form of Payroll Protection Program (PPP) loans to provide timely relief to small businesses. Much of it disappeared into the hands of large corporations instead of mom-and-pop shops. We know that at least $243.4 million of the total $349 billion went to publicly traded companies — including $10M to Shake Shack
SHAK
, who even returned the funding in response to public critique. Even modeling agency Wilhelmina International, who reported $75.5 million in revenue in 2019, was approved for nearly $2m in loans; a stretch from the average loan size of $206,000 as reported by the Small Business Administration. 

The act allowed banks to set their own criteria, leaving space for them to potentially prioritize their largest clients — which has now been claimed in multiple lawsuits against big-name banks. What’s more is that the banks made over $10m in processing fees for the loans. 

Beyond small business, it’s been clear that there were serious issues getting support out to communities of color, period. 

As I covered previously, in May, a survey from ColorofChange, UnidosUS, and Global Strategy Group, found that close to half of Black and Latinx-owned small businesses expected to have to close their doors within six months, not knowing if they will have the ability to ever open again. From April 30 through May 11, 2020, 500 Black and Latinx small business owners, 609 Black workers, and 610 Latinx workers were surveyed. 

The respondents painted a bleak picture: 

  • Among those who are still open and operating, almost half expected to close within 6 months if conditions remain the same.
  • A majority (51%) of Black and Latinx small business owners who sought assistance requested less than $20,000 in temporary funding from the federal government. Only about 1 in 10 (12%) received the assistance they requested.
  • For those who chose not to apply to federal assistance like PPP loans, respondents cited an application process that was too difficult to complete (14%); concern that they were ineligible for the programs (32%); and belief that they would not be approved (26%). 

Hopefully this next round will get critical aid into the hands of diverse business owners moving forward — and set a strong standard for governments of how to design inclusion into its processes, from COVID aid to vaccine distribution.

What To Do Next

Applicants who want to get in on this next round of PPP must do so by March 31st. As a reminder, only businesses and nonprofits with less than 20 employees can submit their applications starting February 24th at 9:00 am, and those with more than 20 will be accepted starting March 10th. If you were one of the lucky small businesses who did receive a PPP loan last year, guidance on how to apply for loan forgiveness can be found here. Good luck! 

Thanks to Jasmine Rashid for her contributions to this piece. Full disclosures related to my work available here. This post does not constitute investment, tax, or legal advice, and the author is not responsible for any actions taken based on the information provided herein. 

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