Sole traders who file Schedule C can use gross income rather than net profit to calculate a new U.S. Paycheck Protection Program loan under a Small Business Administration rule published March 8, 2021. The change took effect March 4 and applies to loans approved after that date; it does not let borrowers increase loans already approved by then. It changes loan sizing without removing the separate revenue-loss requirement for a Second Draw loan. [S1][S2]
For a First Draw applicant with no employees, the calculation starts with either line 31 net profit or line 7 gross income on the 2019 or 2020 Schedule C. The selected annual amount is capped at $100,000, divided by 12 and multiplied by 2.5, with a $20,833 ceiling before any permitted Economic Injury Disaster Loan refinancing. As an illustration, an otherwise eligible owner-only business reporting $48,000 in gross income and $12,000 in net profit for its chosen year would calculate $10,000 using gross income, versus $2,500 using net profit, assuming no refinancing. Those are formula results, not promised approvals or forgiveness. [S1]
The choice also reaches Second Draw loans. For Schedule C filers without employees, the normal multiplier is 2.5 months and the maximum is $20,833. Qualifying accommodation and food-service businesses reporting an industry code beginning with 72 on their latest tax return use 3.5 months, up to $29,167. A Second Draw borrower must also have received a First Draw loan and used, or plan to use, its full amount for eligible expenses by the expected second disbursement. [S1][S2]
The revenue test uses gross receipts, which are not simply Schedule C gross income. The Second Draw rule generally defines receipts for a sole proprietor as gross income plus cost of goods sold, subject to its exclusions and affiliation rules; forgiven First Draw amounts are excluded. For a business operating throughout 2019, one route is a decline of at least 25% between a 2020 quarter and the same quarter of 2019. Another is a decline of at least 25% in annual receipts, supported by annual tax forms. Younger businesses have separate comparison periods. A fall in profit alone does not establish the required receipts decline. [S2]
Using gross income can also change the scrutiny of a First Draw application. A Schedule C filer choosing that method and reporting more than $150,000 in gross income loses the automatic safe harbor for its good-faith certification that the loan is necessary. SBA may review that certification. The threshold concerns gross income on the Schedule C, not the size of the loan; exceeding it is not, by itself, an automatic rejection. [S1]
The gross-income route has its own application forms: SBA Form 2483-C for First Draw and 2483-SD-C for Second Draw. A self-employed applicant without employees must support the calculation with the relevant Schedule C and records establishing self-employment and operation on or around February 15, 2020. A separate $150,000 threshold governs when Second Draw applicants provide revenue-loss evidence: for loans at or below that principal amount, the documents can follow at forgiveness, or at SBA’s request if forgiveness is not sought. Above it, the evidence is due with the application. Deferring the paperwork does not waive the revenue-loss test. [S1][S2]
Source documents
- Business Loan Program Temporary Changes; Paycheck Protection Program-Revisions to Loan Amount Calculation and Eligibilityhttps://www.govinfo.gov/content/pkg/FR-2021-03-08/pdf/2021-04795.pdf
- Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loanshttps://www.govinfo.gov/content/pkg/FR-2021-01-14/pdf/2021-00452.pdf