MINNETONKA, Calif.–As a new round of Paycheck Protection Program loans gets under way, numerous sole entrepreneurs are stepping forward and sharing their odd experiences from the initial rounds, including having been approved for loans as small as less than $100.
Amy Jeanchaiyaphum, a photographer in Minnetonka, Minn., for instance, told the New York Times her lender, Wells Fargo, treated the $458 profit her firm showed in 2019, rather than the salary she took, as her income, and approved her for a loan of $95. An SBA representative told her the loan could not be increased.
When she saw that number, Jeanchaiyaphum assumed she must have made a mistake on her paperwork. She tried without success to speak with someone at Wells Fargo. She also reached out to the local SBA office, where she said an official told her the loan couldn’t be increased. Frustrated and defeated, Jeanchaiyaphum accepted the tiny loan.
“What’s payroll for a solo entrepreneur?” asked Sean Mullaney, a California-based financial planner, in an interview with the Times. “This was created in almost in a fog of war, and there’s lots of scattershot things in it.”
Unprofitable and Out of Luck
Sole proprietorships are the most common business structure in America, accounting for around 26 million businesses, according to IRS data cited by the Times. Because of the S.B.A. edict that sole proprietors had to be profitable to get a PPP loan, many didn’t qualify. Nicole Davis, an accountant in Georgia who specializes in small businesses, told the Times she estimates about 60 of her sole-proprietor clients were locked out of the relief program because their companies are not profitable.
“The rule barring unprofitable sole proprietorships is a significant obstacle for lenders that work in vulnerable communities,” the Times noted.
“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,” José Martinez, the president of Prestamos CDFI, told the Times, referring to the tax form sole proprietors use to report their earnings.
New Deal for Lenders
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, the Times reported.
But the Times noted under the new 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.