PPP Loan Changes Came Too Late for Smallest Businesses

Ms. Lyman, 45, runs her business as a sole proprietorship and moved quickly to get a second loan through the Paycheck Protection Program when the initiative reopened in January. That was before the Biden administration announced changes to how the program calculates funding amounts for sole proprietors and other very small businesses.

She estimates the changes could have resulted in a $20,833 loan, versus the nearly $7,800 she received. But current guidelines don’t allow borrowers to seek additional funding if their loans were finalized before the first week of March, when the changes took effect.

Ms. Lyman, who is Black, said she was particularly disappointed because the Biden administration has said the changes were meant to help minority-owned small businesses, which tend to have few or no employees. “It feels like a kick in the gut,” she said.

The new rules allow sole proprietors, independent contractors and the self-employed to use gross income rather than net profit when determining the size of their forgivable loan. The tweak followed complaints that the program had disproportionately benefited larger businesses, leaving behind sole proprietors and many minority-owned businesses.

Bharat Ramamurti,

deputy director at the National Economic Council, said he was sympathetic to borrowers unable to benefit from the changes. The Biden administration wanted to move quickly on its loan calculation modification and “retroactivity is a separate legal question,” he said.

“It didn’t make sense to hold off on allowing all these other businesses to take advantage of [the new rules] if we could at least make the change prospectively for tens of thousands of them,” he said, adding that the best solution would be for Congress to make the changes retroactive.

Roughly 164,000 loans have been submitted using the new formula, the Small Business Administration said. Another 136,000 small-business owners who might have benefited from the change received PPP loans this year based on the older, less generous formula, according to figures provided by the SBA.

“There are so many borrowers who feel like, once again, this program has not served them,” said

Ashley Harrington,

director of federal advocacy for the Center for Responsible Lending, which supports making the new formula retroactive.

SBA spokesman

Matthew Coleman

said applicants may be able to use the new formula if their loans aren’t yet finalized, meaning disbursed with lender documentation submitted to the SBA. An applicant, for example, can ask their lender to cancel a loan waiting for disbursement and then reapply.

Questions about retroactivity are the latest challenge for the PPP, which was subject to multiple on-the-fly rule changes and glitches when it…