Invest in You: Ready. Set. Grow.

Paycheck Protection Program aid opens for sole proprietorships and independent contractors

Key Points
  • Today is the first day independent contractors and self-employed individuals can apply for the $349 billion Paycheck Protection Program.
  • Although the program emphasizes keeping workers on payroll, it is open to the nearly 26 million solo entrepreneurs in the U.S. who pay themselves by distributions, too.
  • It gives small businesses access to forgivable loans to cover payroll or wages they pay themselves over the eight weeks following the signing date.
  • Banks and alternative lenders are administering applications for this program. The loans, which have a maximum size of $10 million, have a maturity of two years and an interest rate of 1%.
U.S. President Donald Trump signs H.R. 748, the CARES Act in the Oval Office of the White House on March 27, 2020 in Washington, DC.
Erin Schaff | Getty Images

Jesse Norris, 50, normally spends his time flying around the globe to do process auditing for aerospace industry clients at his one-man business, Norris Consulting. But since the COVID-19 crisis grounded him, the consultant from the Tampa area in Florida has grown increasingly worried. "I have clients canceling left and right," says Norris. "They are getting shut down."

Norris had to send in a paper version of his unemployment application on Wednesday, because the state's computer system was not ready to take his application. In the meantime, he was getting ready on Thursday to apply at the bank under the $349 billion Paycheck Protection Program, part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. "I had some money set aside, but I have pretty much gone through it," says Norris.

Today is the first day independent contractors and self-employed individuals can apply for the Paycheck Protection Program.

It gives small businesses access to forgivable loans to cover payroll or wages they pay themselves over the eight weeks following the signing date. Banks and alternative lenders are administering applications for this program. The loans, which have a maximum size of $10 million, have a maturity of two years and an interest rate of 1%.

VIDEO1:3701:37
Small business relief trickles out as Main Street waits for promised aid payouts

Although the program emphasizes keeping workers on payroll, it is open to solo entrepreneurs who pay themselves by distributions, too. Borrowers under the program must submit proof the money is used to cover their pay, such as payroll processor records, payroll tax filings, Form 1099-MISC, income and expenses from a sole proprietorship or bank records, under Small Business Administration rules.

Rafael Espinal, executive director of the Freelancers Union, said he is encouraging freelancers to sign up for the Paycheck Protection Program today.

"It is a first-come, first-serve loan and potentially grant if it is used to pay payroll and rent for up to eight weeks," noted Espinal. "I expect there to be the same amount of confusion. Major lenders, for example, are only assisting freelancers and small businesses that already have a business checking account with them. That will leave many freelancers out who only have a personal checking account. I encourage people to search for lenders that are willing to take new customers. They exist."

Hoping for a smooth process

How well programs in the CARES Act deliver aid to one person will be critical to the economy. The total number of small businesses in the U.S. is just under 30 million, according to the U.S. Small Business Administration. The vast majority of these firms — 25.7 million — are "nonemployer" firms with no W-2 employees, mostly one-person businesses, according to U.S. Census Bureau statistics from 2017, the most recent year available. Many of these businesses don't have much in the way of cash reserves. Their average annual revenue is $47,978.

Many freelancers and self-employed workers are finding that the assistance they were counting on, such as enhanced unemployment assistance under a part of the CARES Act called Pandemic Unemployment Assistance, hasn't arrived yet, as government programs have gotten mired in bottlenecks — and these entrepreneurs are becoming increasingly desperate. The enhanced unemployment assistance offers people who qualify $600 in unemployment per week for four months, on top of whatever unemployment their state's program provides.

"The process has been a disaster," says Espinal. "Specifically with the Pandemic Unemployment Assistance, there has been very little guidance from the federal government on how states should administer the funds, and little guidance from states on how freelancers should apply for unemployment insurance. Freelancers are also struggling to get through the web portals and hotlines to apply because of the high traffic and demand."

In theory, the programs could offer them significant help. But many advocates for the self-employed fear that bureaucracy will slow the delivery of funds to vulnerable businesses to the point it will come too late.

Saying that the CARES Act left the smallest, most vulnerable businesses at the back of the line for assistance, the Opportunity Fund, a San Jose-based community development financial institution just launched the $50 million Small Business Relief Fund to raise money for small businesses affected by COVID-19, with Wells Fargo as the inaugural founder.

A guidance on how the PPP loans will work for sole proprietors and the self-employed is expected Friday. Luz Urrutia, CEO of the Opportunity Fund, said she is concerned that money for smaller businesses may run out. "Some of the money needs to be set aside for businesses with fewer than 25 employees," says Urrutia.

Meanwhile, the self-employed have had to rely on their personal resources. Gene Zaino, chairman of MBO Partners, a provider of back-office services to independent workers that studies the freelance economy, said he had not heard of anyone who had received another component of the CARES Act, a $10,000 advance under the Economy Injury Disaster Loan program.

More from Invest in You:
Debt piling up during the coronavirus outbreak? Here's how to manage it
The No. 1 personal finance lesson to take away from the coronavirus
Here's exactly what you need to do if you lose your job

"I know of a couple of people who already got their unemployment, but not the $600 — just the basic unemployment," says Zaino.

The pain is very real for solo entrepreneurs whose businesses have been shuttered because of shelter-in-place rules and can't take in any income.

Jeff Irons, 47, a captain at The Schooner Academy, a business in Honolulu where he teaches sailing, said he was on track to bring in a six-figure revenue this year. He applied for the EIDL loan advance on March 31 and so far has not received any help from the government. With a wife and two-year-old son, he said he just applied for food stamps. "There was shame associated with it, but I'm going to do whatever I have to do for my family," he said.

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.

CHECK OUT: How to get your coronavirus stimulus check ASAP, according to tax experts via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

This story will be updated as revisions are made to the Payroll Protection Program.