Sole Proprietors Gain Meaningful Access to PPP Loans

March 4, 2021 at 9:44 am Leave a comment

Even as the clock keeps ticking closer to a March 31 deadline the SBA released new regulations yesterday making it easier for sole proprietors, persons convicted of nonfinancial crimes and persons with delinquent student loans to qualify for assistance.  The expanded eligibility only applies to individuals who have not previously obtained a PPP or Second Draw Loan.   Let’s hope that these well- intended but significant changes can be quickly and accurately integrated into lending platforms and that loans can get out the door without an accompanying surge of scams and waste. Better yet, let’s hope that Congress extends the deadline so that everyone can take a deep breath and administer the program properly.

IRS Form 1040 schedule C is the form used by sole proprietors. Previously, PPP rules defined payroll costs for individuals who file an IRS Form 1040, Schedule-C as payroll costs (if any employees exist) plus net profits, which is net earnings from self-employment.  The problem is that many of these entities are the smallest of small businesses with few if any employees and many are struggling to generate net income.  Furthermore many of these are minority and woman owned businesses that the Biden administration is targeting for relief. Under these new rules the term “income” as used in the definition of payroll costs for sole proprietors and independent contractors is expanded to encompass either borrower’s net income or a borrower’s gross income.

Depending on the size of the loan being requested, it may take longer for borrowers to get through the process.  A borrower applying for a typical PPP loan certifies the accuracy of his application and the SBA reserves the right to scrutinize applications in the future.  To guard against potential abuse under this expanded eligibility if a sole proprietor reports $150,000 or more on gross income when making a PPP application the SBA borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification.

CFPB issues QM Patch Extension

 Yesterday the CFPB issued the regulations that have been anticipated for a while under which mortgages eligible for sale to Fannie Mae or Freddie Mac will continue to qualify as Qualified Mortgages under the CFPB’s TRID regulations.  This designation gives them added protection against borrowers contesting foreclosure actions.  The CFPB is also going ahead with new regulations permitting loans to qualify as QM loans provided their interest rates are comparable to similar mortgages.  For those of you who underwrite to secondary market standards, I have not seen any word from the GSE’s as to whether or not these new type of QM loans will be automatically eligible for purchase once I do, I will let you know.

Entry filed under: Compliance, COVID-19, Federal Legislation. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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