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PPP discriminates against self employed


DANRVAN

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Under the new guidance of the revised "Interim Final Rule', it appears sole proprietors are not on equal footing with a sole corp owner.

The new guidance basically says no SE income  + no employees = Zero PPP.

Here is an example where a sole shareholder would be better off

a.   business has  2019 $1,000 loss operating as sole proprietor, no employees and owner takes $50,000 in draws.  PPP NOT ALLOWED.

b.   Same business but sole shareholder paid $50,000 in wage plus $3,800 federal payroll taxes.  PPP= 53,800/12*2.5=$11,208.

Maybe I am over looking something here but it appears the PPP cards are stacked against the sole proprietor as long as SE earnings are less than what a reasonable wage would be.

 

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17 hours ago, Richcpaman said:

How could Business a. Have a $1,000 loss, but the owner took $50k in "Draws"? 

All sorts of possibilities: cyclical business; large repairs; income from major contract tied up in ligation and received in the next year.......

Those are just made up numbers.  The point is, if the sole proprietor had a loss or low income year, he still had to take out draws to provide for himself, whether that came from cash reserves or an operating loan.  The revised "Interim Final Rule" does not take that into consideration.

 

 

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Of course there could be flip side to this that can work to the sole proprietors advantage.

Let's say the year of loss was 2018 and $50,000 of income that was expected in 2018 came in January of 2019.

The extra income from the prior year and less expenses for 2019 yields a profit on Schedule C of $125,000.

Of that amount, $50,000 was used to payoff the 2018 operating line, $25,000 to pay off an equipment loan and $50,000 was actual draws.

In that situation PPP becomes $25,000 thanks to timing of income; and regardless of the fact that only $10,417 was attributed to his 2019 draw.

$25,000 divided by 8 weeks means $3,125 can go towards owner's pay per week.

Enjoy!

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Given the current lack of available funding, and the week delay for application, it is unlikely those who applied on the 13th have even processed yet, unless they have a special relationship with the bank they applied through.  Many who applied on the 6th, right after their bank opened their process, are still waiting.

At this point, it may be wise to at least consider something else, even if less beneficial.

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Just an FYI.  I applied for the EIDL on May 31 and the PPP on April 14.  This afternoon (Saturday, Apr 18) my credit monitoring service sent an alert that there had been an inquiry on my credit file.  Turns out the inquiry was by the SBA.

I've heard from several places that the SBA runs a credit check on owners before depositing EIDL funds.  The purpose is not to obtain credit scores, but simply to verify that the owner exists and has submitted truthful information.  So this COULD mean that although the initial funds are exhausted, there may be some residual distributions of funds which were committed but not yet disbursed. If my speculation is right, this might be an encouragement to anyone who has applied but has not yet received any funding from EIDL or PPP.

(I thought about waiting until the next couple of business days to post this after I had either received a deposit or not, but decided I might forget the time line by then) :)

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More PPP funds appear to be coming available, in addition to the 10 mill Shake Shack has decided to return... Time will tell if banks really do or did use first come, first served, as there are at least two class action suits already filed with clean appearing data showing banks processed high dollar (meaning high commission paying) applications first, then tried to stuff in a non statistically likely amount of lower dollar loans just before funds ran out.

The commission amount is absolutely great income for a bank compared to their normal activities, especially so since they have no liability for the loans.  I have no idea what the SBA rules are, or if there is any penalty for not going in order received, but this will be interesting to watch.

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On 4/18/2020 at 11:32 PM, JohnH said:

Just an FYI.  I applied for the EIDL on May 31 and the PPP on April 14.  This afternoon (Saturday, Apr 18) my credit monitoring service sent an alert that there had been an inquiry on my credit file.  Turns out the inquiry was by the SBA.

I've heard from several places that the SBA runs a credit check on owners before depositing EIDL funds.  The purpose is not to obtain credit scores, but simply to verify that the owner exists and has submitted truthful information.  So this COULD mean that although the initial funds are exhausted, there may be some residual distributions of funds which were committed but not yet disbursed. If my speculation is right, this might be an encouragement to anyone who has applied but has not yet received any funding from EIDL or PPP.

(I thought about waiting until the next couple of business days to post this after I had either received a deposit or not, but decided I might forget the time line by then) :)

Sure enough, the Advance EIDL deposit (a whopping $1,000 per employee)  showed up in my business bank account at 7:00 am today (Apr 20).  It was not there on Saturday or Sunday.    So this at least confirms that when SBA announced on Thursday they were out of funds, they really meant all the money was "encumbered" but not all was "disbursed".  Or maybe the scenarios Medlin suggested are impacting what's happening now. 

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