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Unprofitable and Out of Luck
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.
The economic relief package will issue payments of $600 and distribute a federal unemployment benefit of $300 for at least 10 weeks. Find more about the measure and what’s in it for you. For details on how to get assistance, check out our Hub for Help.
- Will I receive another stimulus payment? Individual adults with adjusted gross income on their 2019 tax returns of up to $75,000 a year will receive a $600 payment, and a couple (or someone whose spouse died in 2020) earning up to $150,000 a year will get twice that amount. There is also a $600 payment for each child for families who meet those income requirements. People who file taxes using the head of household status and make up to $112,500 also get $600, plus the additional amount for children. People with incomes just above these levels will receive a partial payment that declines by $5 for every $100 in income.
- When might my payment arrive? The Treasury Department said on Dec. 29 that it had started making direct deposit payments, and would begin to mail checks the next day. But it will be a while before all eligible people receive their money.
- Does the agreement affect unemployment insurance? Lawmakers agreed to extend the amount of time that people can collect unemployment benefits and restart an extra federal benefit that is provided on top of the usual state benefit. But instead of $600 a week, it would be $300. That will last through March 14.
- I am behind on my rent or expect to be soon. Will I receive any relief? The agreement will provide $25 billion to be distributed through state and local governments to help renters who have fallen behind. To receive assistance, households will have to meet several conditions: Household income (for 2020) cannot exceed more than 80 percent of the area median income; at least one household member must be at risk of homelessness or housing instability; and individuals must qualify for unemployment benefits or have experienced financial hardship — directly or indirectly — because of the pandemic. The agreement said assistance will be prioritized for families with lower incomes and that have been unemployed for three months or more.
“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.
Lenders Didn’t Win
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).