Wexton Presses SBA for Transparency on PPP Loan Distribution, Seeks Greater Flexibility for Independent Contractors
Wexton highlights the need for a public registry of PPP loans and the collection of demographic data and calls for clarification to help ensure independent contractors receive accurate PPP funding that reflects their net profits
Washington, May 27, 2020
Washington, DC -- Today, Congresswoman Jennifer Wexton (D-VA) sent two letters to Small Businesses Administration (SBA) Administrator Jovita Carranza. In her first letter, Wexton presses for greater transparency into the loans distributed through the Paycheck Protection Program (PPP) to inform congressional oversight efforts and to ensure that no small business is left behind in the response to the COVID-19 pandemic. In her second letter, Wexton requests clarification from the SBA to provide additional flexibility to independent contractors and sole proprietors to ensure that their PPP funds accurately reflect their net profits.
"I want to make sure no small business gets left behind as vital relief funds are being disbursed,” said Congresswoman Jennifer Wexton. “Every small business deserves fair and equal access to federal relief programs that will help them stay afloat and keep their employees on payroll. We’ve already seen too many mom and pop shops shut out of the process. The SBA must provide full transparency so Congress can ensure this funding gets into the hands of those who need it most, instead of corporations already well-equipped to weather this crisis."
Earlier this month, the SBA Office of Inspector General (OIG) released a Flash Report that found no evidence that SBA has been registering businesses receiving PPP loans by their Taxpayer Identification Number (TIN), as required by law in the CARES Act.
Congresswoman Wexton’s letter presses the Administrator for details on whether and when the SBA will comply with the law to register PPP loans by the borrower’s TIN, and if and when that registry will be made available to Congress and to the public. The letter also asks what steps the SBA has taken to comply with CARES Act requirements to prioritize loans for businesses in underserved and rural areas and minority- or women-owned small businesses, given that the OIG Flash Report found the SBA did not require collection of demographic data.
Since the PPP loan program began in April, it has been reported that bigger businesses were more quickly able to receive loans and that some banks even gave preferential treatment to certain businesses. Surveys that have been conducted since the program launched suggest that a vast majority of minority- and women-owned small businesses may be shut out of PPP loans and only a fraction of minority-owned businesses who applied received the full funding they requested.
In a second letter to SBA Administrator Carranza, Congresswoman Wexton requested clarification that independent contractors and sole proprietors be allowed to use data from the previous 12 months or from calendar year 2019 in reporting their net profit in the calculation of their maximum PPP loan amount. Under the recent Interim Final Rule issued by SBA, these businesses must use their 2019 Form 1040 Schedule C when reporting net profit, which may omit payment received in 2020 for work that was completed at the end of 2019. Wexton’s letter would ensure that these businesses are eligible for the full PPP loan amount to which they are entitled by providing the necessary flexibility in how they report their net profit.
Wexton’s full letter regarding the SBA’s PPP loan registration can be found below and here.
May 27, 2020
The Honorable Jovita Carranza
Dear Administrator Carranza,
I write to you today concerning the Paycheck Protection Program (PPP). While this program has provided a vital lifeline to many small businesses across the country, some small businesses, especially those owned by minorities, have been left behind. Very few minority-owned businesses that applied for a PPP loan have received the full loan amount requested, and other small businesses that bank with certain large banks have been frustrated by the perception that larger businesses are receiving preferential treatment. As the Small Business Administration (SBA) continues its important work to support our nation’s small businesses, increased oversight will be necessary to ensure that all small businesses have equal access to the PPP. Additional transparency will also be key as small businesses begin to apply for and receive loan forgiveness at the end of their covered loan periods to ensure that this essential part of the PPP is working as intended.
Furthermore, Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, 2020 requires the Small Business Administration to register all PPP loans using the Taxpayer Identification Number (TIN) of the borrower within 15 days of the date the loan is made. However, the May 8, 2020 Flash Report issued by the Small Business Administration Office of Inspector General finds “no evidence that SBA registered the loans as required by the Act,” even though the SBA is collecting the necessary information to do so. This lack of compliance with the law concerns me.
The SBA can and should do more to allow Congress and the public to conduct necessary oversight of this more than $650 billion program. I request that you provide written answers to the following questions:
Your response to these questions would be greatly appreciated as Congress continues working to ensure that no small businesses are left behind in the response to the COVID-19 pandemic.
Wexton’s full letter regarding independent contractors can be found below and here.
May 27, 2020
The Honorable Jovita Carranza
Dear Administrator Carranza,
I write today concerning the Paycheck Protection Program (PPP) as it relates to independent contractors and sole proprietors. These small businesses have been faced with significant challenges since the COVID-19 pandemic began, including being forced to wait an additional week to begin applying for PPP loans while the Small Business Administration finalized its guidance.
It has recently come to my attention that provisions in the SBA’s Interim Final Rule effective April 20, 2020 may further hinder independent contractors and sole proprietors from receiving PPP loans in accordance with their profits. The Interim Final Rule requires these businesses to use their 2019 Form 1040 Schedule C to determine their net profit amount when calculating their maximum PPP loan amount. However, many of these small businesses are paid on a 30-to-90-day billing cycle, and therefore work completed in the 4th quarter of calendar year 2019 may not have been paid until 2020 and thus would not appear on the 2019 Schedule C Form. Furthermore, any business expenses incurred for this work in calendar year 2019 would still be reflected on the Schedule C Form, resulting in a decreased net profit amount and a lower maximum PPP loan amount.
In our combined efforts to support small businesses through this unprecedented economic crisis, both Congress and the SBA have emphasized the importance of flexibility for the PPP. In the Coronavirus Aid, Relief, and Economic Security (CARES) Act that created the PPP, for example, Congress defines the maximum loan amount to be based on the “average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made” and provides additional flexibility for seasonal businesses whose payroll expenses fluctuate throughout the year. Furthermore, in the SBA’s PPP Loans Frequently Asked Questions document issued May 19, 2020, the answer to question 14 allows borrowers to calculate their payroll costs “using data either from the previous 12 months or from calendar year 2019,” and also provides additional flexibility for seasonal businesses.
While independent contractors are not by nature seasonal businesses, they often have revenue streams that fluctuate throughout the year and must adapt to their clients’ billing cycles. I do not believe that these aspects of their work should prohibit them from receiving PPP loans that reflect the totality of their work in the previous year, and these small businesses should have the flexibility they need when making these calculations. Please provide clarification that the SBA’s rulemaking allows independent contractors to use data from the previous 12 months or from calendar year 2019 so that lenders may proceed accordingly. I have attached one such potential solution to this letter for your review. I welcome any feedback you are willing to provide and look forward to working together to address this issue.
Proposed Solution for the Calculation of Maximum PPP Loan Amounts for Independent Contractors and Sole Proprietors
To provide independent contractors and sole proprietors with necessary flexibility in determining their maximum PPP loan amount, these small businesses may calculate their net profits by: