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To help tiny companies, the Biden administration adjusts the rules for pandemic loans.

To help tiny companies, the Biden administration adjusts the rules for pandemic loans.

Stephanie Davis

Aiming to steer more federal aid to the smallest and most vulnerable businesses, the Biden administration is altering the Paycheck Protection Program’s rules, increasing the amount sole proprietors are eligible to receive and imposing a 14-day freeze on loans to companies with 20 or more employees.

The freeze will take effect on Wednesday, the Small Business Administration planned to announce on Monday. Also, President Biden is expected to speak shortly after noon on Monday to make an announcement about small businesses.

In December’s economic relief package, Congress allocated $284 billion to restart the aid program. Banks and other financiers, which make the government-backed loans, have disbursed $134 billion to 1.8 million businesses since lending resumed last month. The money is intended to be forgiven if recipients comply with the program’s rules.

Companies with up to 500 workers are generally eligible for the loans, although second-draw loans — available to those whose sales dropped 25 percent or more in at least one quarter since the coronavirus pandemic began — are limited to companies with 300 or fewer employees. The 14-day moratorium is intended to focus lenders’ attention on the tiniest businesses, according to administration officials, who spoke to reporters at a news briefing on Sunday on the condition that they not be named.

Most small businesses are solo ventures, employing just the owner. For such companies, including sole proprietorships and independent contractors, one major impediment to getting relief money was a program rule that based their loan size on the annual profit they reported on their taxes. That made unprofitable businesses ineligible for aid, and left thousands of applicants with tiny loans — some as small as $1.

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The new formula, which Small Business Administration officials said would be released soon, will focus instead on gross income. That calculation, which is done before many expenses are deducted, will let unprofitable businesses qualify for loans.

The agency is also changing several other program rules to expand eligibility. Those with recent felony convictions not tied to fraud will now be able to apply, as will those who are delinquent or in default on federal student loan debt. The agency also updated its guidance to clarify that business owners who are not United States citizens but lawful residents are eligible for loans.

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