The self-employed's added challenges

As America’s small businesses scrambled to get a slice of the lifelines in Congress’s CARES Act, sole proprietors and the self-employed faced an even more uphill battle.

Why it matters: The vast majority of U.S. small businesses — 25.7 million in 2017, according to census data — are “nonemployer” companies that are mostly one-person shops.

• “The first thing where it all fell apart is access,” says Liz Hanley, whose San Francisco accounting firm works with many sole proprietors. Many lacked the right banking relationships to get aid.

The hurdles for sole proprietorships:

• They couldn’t apply for the Paycheck Protection Program (PPP) until April 10 — a week after everyone else, and just four business days before the first round ran out of funds.
• They were limited to $1,000 (instead of $10,000) in instant money from the Economic Injury Disaster Loan (EIDL) program in the bill.
• Many banks, including the largest, only processed applications (at least at first) from existing business banking customers. A lot of sole proprietors use a second personal bank account for their business, says Hanley, which effectively kept them out of being able to apply.
• They had to scramble to get their taxes done since they needed their Schedule C tax forms to even apply for the loans. Similarly, Ariella Steinhorn, who owns a communications consulting business, tells Axios that she struck out with multiple lenders likely because her 2019 financials weren’t as robust as she was still ramping up.

The requirements that 75% of PPP loans be spent on payroll is also tricky for sole proprietors, many of whom spend a lot of their would-be paycheck on overhead like housing (where they work).

• They also can't use the forgivable money for retirement and health care benefits.

Gig workers like ride-hailing and delivery drivers, also faced roadblocks.

• PPP: “I would have (when I first applied) been able to have the entire loan forgiven simply by paying myself the entire $20K,” driver Jay Cradeur writes in the RideshareGuy blog. “Since a driver’s Schedule C shows the net income after all our driver deductions, the amount of the loan would be barely anything.”
• EIDL: The $1,000 limit on the instant grant will also only go so far in making up for the lost income.

What’s next: Small businesses will soon begin to apply for their loan forgiveness, and Hanley warns that many sole proprietors will struggle to get approved, adding to the overall frustration about the program.