Illustration: Aïda Amer/Axios

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.

Go deeper

Updated Jul 28, 2020 - Axios Events

Watch: Small business recovery during the pandemic

On Tuesday July 28, Axios Media Trends author Sara Fischer hosted the fifth of a six-event series on small business recovery across America, focusing on how female-led small businesses have innovated and used digital tools to pivot during the pandemic, featuring Nevada Sen. Jacky Rosen, National Association of Women Business Owners CEO Jen Earle and Sameka Jenkins, owner of Carolima’s Lowcountry Cuisine.

Sen. Rosen discussed her bipartisan work on helping to secure more funds for Nevada business owners, as well as how the hospitality industry in the state has pivoted.

  • How Nevada has innovated hospitality industry: "One thing that [Nevada] knows how to do is create an experience. [Casinos] have been designing this very cool Plexiglas [screen] that might go between slot machines or be used in restaurants...I think that some of those things may be exported to hospitality across the nation."
  • On working with small business owners to help them secure loans: "We're a large state in size, but small in population with about three million. So we're able to know each other, work together, and that's what's going to make this a success...Sole proprietors need to know that they can get these funds."

Jen Earle highlighted the obstacles that women encounter in securing loans and navigating unequal distribution of labor at home.

  • On unique challenges for women business owners: "Access to capital for women is a bigger issue...They've [started businesses] by bootstrapping, by utilizing credit cards, by using personal funding...They don't obviously have relationships with bankers."
  • How small businesses are central to their communities: "They support the nonprofits that are local. They support youth school programs, the soccer programs, things like that that really keep the economy vibrant."

Sameka Jenkins discussed her experience as a small business owner and how Carolima’s Lowcountry Cuisine has utilized social media to stay connected to their community.

  • How her business has leaned on digital tools: "[We've used] social media like Facebook, Instagram. We started doing live videos at the start of the pandemic...we've actually brought people into our home virtually and we've taught them how to prepare certain dishes."
  • How social media can keep members of a community close: "I think everyone's pivoted in their own way...For us, the videos were very helpful. Social media was very helpful...I think at this time, people want to see that transparency. People want you to share. People want to be a part of your lives. And they just want to know that, you know, we're all in this together."

Thank you Facebook for sponsoring this event.

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