Biden faces backlash over small business rescue overhaul

New Biden administration rules overhauling the way small business loans are doled out will potentially leave thousands of sole proprietorships and the self-employed on the sidelines, despite the president's pledge to give them better access to pandemic aid.

The Small Business Administration quietly decided that the benefits that President Joe Biden promised to "one-person businesses" won't be available to many of those who have already received aid from the program. The agency concedes those businesses were shortchanged under earlier rules — some received as little as $1 because of the way loans were calculated — but says it isn't able to let PPP borrowers increase existing loans. That means the more favorable new rules will only be available to new loan applicants.

The decision is drawing criticism from Democrats and business owners as well as PPP lenders responsible for doling out the loans. But the SBA is not relenting, and now top Democrats on the House and Senate Small Business committees say they want to make the benefits more widely available.

"These businesses have been neglected for nearly a year," House Small Business Chair Nydia Velázquez (D-N.Y.) told POLITICO. "I committed to working with the Biden administration to spread these benefits to as many of these sole proprietors as possible, not just those submitting new applications."

According to data from the House Small Business Committee, more than 2.6 million sole proprietors, independent contractors and self-employed individuals have already been approved for PPP loans.

The backlash is the latest in a series of controversies around the SBA's handling of the program, which since its launch last April has distributed more than $662 billion in loans that can be forgiven if businesses maintain their payroll. The SBA, a small federal agency that has run the PPP along with the Treasury Department, has faced criticism for opaque decision-making and ever-changing rules governing the unprecedented economic lifeline.

"I'm in a black hole because it seems like they're definitely going to forget about the people who already applied," said Jonathan Kolbe, a New Jersey-based freelance photographer who received two PPP loans and won't be able to increase them under the new rules. "I am disappointed in the SBA that they're not looking into it, to help people who have already played by the rules, signed the applications and gotten approved."

The concerns about the treatment of sole proprietors, independent contractors and self-employed businesses — tiny employers including cleaning and home repair services — have dogged the PPP since the program kicked off. While other businesses were able to calculate their eligibility for PPP loans based on payroll costs, the smaller firms were forced to apply for loans based on their net profits, which deducts things like rent and utilities.

A poll of members of the National Association for the Self-Employed in December and January found that 68 percent believed the federal government did not provide adequate financial support for the small business community through the PPP. A separate survey released last month by the advocacy group Small Business Majority found that more than one in three businesses that applied for loans did not receive the full amount they requested, including nearly all the Black self-employed entrepreneurs surveyed.

Last week, the Biden administration announced that it would revise the rules for sole proprietors and the self-employed after finding that those business owners were "structurally excluded" and short-changed even though they make up the majority of all businesses. Under new rules the SBA released Wednesday, the businesses will be able to calculate their loan amounts based on a broader measure — gross income, which would make it easier for them to qualify.

Though it first appeared to be a sweeping policy benefit, the SBA will limit its potential impact by not allowing businesses to modify their existing PPP loans if they have already been approved for the aid. It's a break from recent precedent. The SBA allowed farmers and ranchers to increase earlier PPP loans after Congress passed a law in December that let them qualify for more funding.

The SBA argues that it lacks retroactive rulemaking authority that would allow it to increase the earlier PPP loans. SBA spokesperson Matthew Coleman said Congress in December gave it authority to retroactively revise rules for farmers and ranchers.

Though the small businesses involved don't have an army of lobbyists, their advocates are beginning to fight back.

"Those people who are diligent shouldn't be punished," said Keith Hall, president and CEO of the National Association for the Self-Employed.

Some on Capitol Hill believe the SBA has the power to adjust the loans. Lawmakers are planning to dig deeper into the reasons behind the decision and whether legislation is needed to address it.

Senate Small Business Chair Ben Cardin (D-Md.), who is planning to hold a PPP oversight hearing this month, said "it's a matter of fairness".

"I am very interested in pursuing ways in which we can provide the same benefits for those who've already filed their applications," he said. "I need to understand a little bit more fully the administrative challenges that the SBA ran into and why they could not recommend doing this administratively."

If the SBA holds to the policy and it's up to Congress to intervene, borrowers face a tight timeline. PPP lending is set to expire on March 31. So far, neither the White House nor key Democrats are making a big push to extend it.

Dennis Ammann, the CEO of Peoples Bank in Mississippi, said "it seems as though the small businesses who needed the most help are being penalized."

"I am so frustrated at SBA if they stick to this anticipated policy," Ammann said. "I don’t understand why SBA would not allow lenders to help these smallest of the small businesses. It just makes no sense."