March 31, 2023


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‘It Was a Joke’: Some Small Businesses Got $1 Relief Loans

Sole proprietorships are the most common business structure in America, accounting for around 26 million businesses, according to the latest I.R.S. data. Many are sidelines — workers who pick up an occasional freelance project or collect royalties report it on their taxes as business income — but millions of people rely on their business income as their primary source of support.

Yet, because of the S.B.A. edict that sole proprietors had to be profitable to get a P.P.P. loan, many didn’t qualify. Nicole Davis, an accountant in Georgia who specializes in small businesses, estimates that about 60 of her sole-proprietor clients were locked out of the relief program because their companies are not profitable.

“They were surprised; they thought they were eligible, and it was hard to explain why they didn’t qualify,” Ms. Davis said.

Some sole proprietors who got little or no aid from the Paycheck Protection Program were helped by other government relief programs. Many qualified for expanded unemployment benefits under the $2 trillion CARES Act, which are not typically available to those who are self employed. And millions of business owners got loans from a second S.B.A. program, the Economic Injury Disaster Loan system, which offers low-interest loans. But those, unlike P.P.P. loans, must be repaid.

The rule barring unprofitable sole proprietorships is a significant obstacle for lenders that work in vulnerable communities.

“It’s barbers, stylists, drivers, janitorial — really small mom-and-pop businesses. If they had a negative number on their Schedule C, they just weren’t eligible for anything,” said José Martinez, the president of Prestamos CDFI, referring to the tax form sole proprietors use to report their earnings.

The tiny loans were also unprofitable for lenders. The smallest loan made by Prestamos, a division of the nonprofit social service group Chicanos Por La Causa, was for $74. For that, it was earned a $3.70 fee. (Last month’s stimulus bill increased fees for lenders on loans under $50,000; they will now be paid half of the loan’s value, to a maximum of $2,500).