SBA Releases Nine New FAQs and Interim Final Rule for PPP

On March 3, 2021, the Small Business Administration (SBA) released a Paycheck Protection Program (PPP) Interim Final Rule (IFR) regarding revisions to the loan amount calculation and eligibility. The IFR speaks primarily to PPP borrowers who are sole proprietors or independent contractors who file a Schedule C on their IRS Form 1040.

The goal of the new IFR is to allow access to the PPP for many sole proprietors or independent contractors who were previously excluded because they showed little or negative net profit on their tax return. Payroll costs for sole proprietors and independent contractors were previously limited to wages, commissions, income, net earnings from self-employment or similar compensation if not more than $100,000, as prorated. The updated guidance updates the definition of payroll costs to include gross income and allows the borrower to base the owner compensation share of its payroll costs on either net profit or gross income minus certain expenses (at the election of the borrower). The updated IFR provides several examples and additional guidance on how to apply the new IFR to both the calculation of the maximum loan amount and forgiveness of the loan for Schedule C filers.

The new IFR also provides additional guidance as it relates to sole proprietors and independent contractors on the previously issued FAQ 46, which provided a limited safe harbor that PPP loans under $2 million were considered to have automatically met the certification in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” If a Schedule C filer or sole proprietor uses the gross income method and reports more than $150,000 in gross income on the Schedule C that was used to calculate the loan amount, the borrower will not automatically be deemed to have made the “need” certification in good faith, and the SBA may review that certification and determine the borrower was ineligible for the loan. The SBA also released new first and second-draw loan application forms for Schedule C borrowers using gross income (Form 2483-C and Form 2483-SD-C).

The SBA also updated its list of Frequently Asked Questions (FAQs) by adding FAQs 57-65 to the existing list. A summary of the topics discussed in the new FAQs is as follows:

  • The definition of lobbying activities are defined in Section 3 of the Lobbying Disclosures Act of 1995.
  • Neither first-draw or second-draw PPP loan proceeds may be used for lobbying activities.
  • First-draw PPP borrowers that file for bankruptcy protection after disbursement of the first-draw loan are eligible for loan forgiveness on the first-draw loan assuming the loan proceeds were spent on eligible costs.
  • First-draw PPP borrowers that file for bankruptcy protection after disbursement of the first-draw loan are not eligible for a second-draw PPP loan.
  • Applicants for a second-draw PPP loan must certify that they have used or will use all of the first-draw funds on eligible expenses prior to disbursement of the second-draw loan including  the requirement that 60 percent of the first draw loan proceeds are used for payroll costs.
  • A borrower who received partial forgiveness on a first-draw PPP loan may still be eligible for a second-draw PPP loan as long as the borrower used the full amount of the first-draw PPP loan for eligible expenses.
  • PPP applicants may not use the SBA’s established size standards, either the revenue or employee-based size standards, nor the SBA’s alternative size standards to qualify for a second-draw PPP loan. FAQ 63 states that the size eligibility requirements for the second-draw PPP loan are narrower than the first-draw PPP loan, and a second-draw PPP loan applicant is eligible only if, together with its affiliates, it employs no more than 300 employees. The only exceptions to this are if an applicant has an NAICS code beginning with 72 and employs no more than 300 employees per location, or the applicant is a news organization meeting certain ownership and NAICS code requirements and has no more than 300 employees per physical location. The exceptions mentioned in FAQ 63 do not mention the franchise code exception for applicants that have a listed franchise code in the SBA’s franchise code listing.
  • A PPP loan applicant may use an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number on the PPP loan application form and to apply for loan forgiveness.
  • A borrower that received a first-draw or second-draw PPP loan is also eligible for the Employee Retention Credit (ERC), but qualified wages for the ERC are not eligible for forgiveness if the borrower claims the ERC for those amounts. See the additional guidance from the IRS in Notice 2021-20.

DHG is prepared to answer your questions regarding the new IFR as well as any topics related to PPP loans and forgiveness requirements. For more information, reach out to us at


Denny Ard
Managing Partner, DHG Solutions Lab


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