Confusion reigns for sole proprietors, gig workers seeking COVID-19 financial aid

A man takes a photo of a sign advising that the Employment Development Department is closed due to coronavirus concerns, in San Francisco on Thursday, March 26, 2020. A record-high number of people applied for unemployment benefits last week as layoffs engulfed the United States in the face of a near-total economic shutdown caused by the coronavirus. less A man takes a photo of a sign advising that the Employment Development Department is closed due to coronavirus concerns, in San Francisco on Thursday, March 26, 2020. A record-high number of people applied for ... more Photo: Jeff Chiu/AP Photo: Jeff Chiu/AP Image 1 of / 24 Caption Close Confusion reigns for sole proprietors, gig workers seeking COVID-19 financial aid 1 / 24 Back to Gallery

Due to the statewide shelter-in-place order, it's been a month since many small business owners and independent contractors in the Bay Area received a paycheck. Promises of quick financial assistance from the Federal Stimulus Bill passed last month have yet to materialize.



"We've been closed here in San Francisco for a month now. People are almost out of cash," explained Liz Hanley, owner of Liz-Is-All-Biz, an accounting company that specializes in supporting small businesses and independent contractors. "People need money now. It's a big problem, and I don't know the way forward."



The stimulus bill approved by Congress last month provided $349 billion in forgivable loans known as the Payroll Protection Program (PPP) for companies with less than 500 employees, including independent contractors and sole-proprietors. The Small Business Administration also offered economic injury disaster loans (EIDL) that would have a $10,000 grant on top of the ability to apply for a loan up to $2.5 million. However on Thursday morning, the SBA announced that the PPP program "is unable to accept new applications...based on available appropriations funding."

MORE: White House: Payroll Protection Program is out of money

Alternatively, the federal government, for the first time, allowed independent contractors and gig workers affected by the COVID-19 pandemic to apply for unemployment insurance as well. Hanley notes that independent contractors have to decide between either applying for unemployment insurance or small business loans because they can not accept both forms of assistance at the same time. "You need to pick the guidance that is most appropriate for their situation," she said.



Neither the loans or expanded "pandemic unemployment assistance" funds were easy to come by for Californians.

After weeks of no guidance for gig workers and freelancers, the California Employment Development Department, which handles the state's unemployment insurance fund, conceded last week that they are unable to accept applications from independent or self-employed contractors. They will have to build an entirely new system to handle their unemployment insurance claims. "Once this new complex program is built and staffed, it will likely rival the size of the regular UI program the EDD already administers," their statement notes.

RELATED: How to file for unemployment benefits in California

During a webinar on Tuesday, the EDD also noted that when the system is working, claims will be backdated to when you became directly impacted by COVID-19. Also, you will be able to receive up to 39 weeks of benefits, with a $600 stimulus applied between March 29 and July 31, 2020. The EDD anticipates the program will open for applications on April 28.

Hanley's frustration with the delays for her clients to apply for California unemployment insurance mounted last week when New York state's unemployment website started accepting claims from independent contractors and included easy-to-use infographics to walk through the process.

Although happy for her clients in New York, she was upset for clients in California having to wait for assistance. "When New York was done last week with infographics, I literally threw things. I was so mad," Hanley said.

Trying to enroll her clients for small business loans has been just as difficult. "It's a challenge," she said. "There is a lot of confusion about who can apply and when."

The federal government did not provide any guidance until the day before the rollout of the Payroll Protection Program, leaving banks unsure of the process and who was eligible. Small businesses with employees were able to apply on April 3, but sole proprietors had to wait until April 10.

An even more significant challenge, Hanley added, is how the banks will administer the program. They have had to create a new process to handle the applications, submit the loans to get approval from the Small Business Administration, and then fund the loans.

The PPP are forgivable loans that are supposed to allow companies to keep employees on staff or supplement the lost wages of independent contractors. Seventy-percent of small businesses have already applied for the loans. The SBA announced the loans would bring "immediate economic relief," but many who have applied have yet to see their loans approved and money dispersed.

One of the reasons is that banks may be hesitant to fund the PPP loans due to a lack of guidelines from the Small Business Administration. "They are concerned if they don't put together the applications right that they are not going to get paid back because the federal government is guaranteeing these loans," Hanley said. There are also questions from banks on when the federal government will even pay back the loans.

For those that successfully apply, she notes it will take time to be processed. First, a bank officer has to approve the loan, which could require more documentation from the loan applicant. Next, an underwriter has to approve the loan before the disbursement of any funds. "Regular commercial lending just takes a while," she said. "There is a process that has to happen."

There is also a technology bottleneck facing the applications. The SBA internal computer system, know as the E-Tran portal, is unable to handle the number of applicants. Lenders are unable to get enough logins, and it keeps crashing. "It takes loan officers forty-five minutes to get one application in," she said. "The whole thing is pretty challenging."

SFGATE reached out to SBA for comment about technical issues facing the agency but has not yet received a response.

It is also difficult for independent contractors and sole-proprietors even to find a bank to apply for a PPP loan. Hanley advises contacting the bank that they already have a business relationship with. If that doesn't work, many non-bank lenders, like PayPal, Intuit, Square, Divvy, Fundera, and Kabbage are stepping into the void to process loans as well.

For every business, there is also the fear that if you can't get the application in time, you might not be able to get part of the limited amount of funds.

Similar demands have also hampered another form of financial assistance intended to give immediate liquidity and capital to businesses, the Economic Injury Disaster Loan program. Administered by the SBA, the program has also been overwhelmed by the demand.

Initially, EIDL loan applicants would receive a $10,000 grant within three days of application and the ability to borrow up to $2 million to cover business costs. Repayment terms, with a low-interest rate, could be spread out for up to 30 years.

But because of the demand, actual amounts for EIDL loans are now capped at $25,000-$35,000, instead of a maximum $2 million.

Also, the $10,000 grant is limited by the number of employees in a business. A sole-proprietor who applied for the EIDL loan would only receive $1,000 of assistance.

"It's not even close to enough of what my clients need," Hanley lamented. Out of her company's 600 clients, she says only one has been approved for an EIDL loan so far.

ALSO: New proposed $2K per month COVID-19 payment includes college students, dependents over 16

In the end, Hanley said that small businesses and the self-employed will likely be able to get assistance. But it will require perseverance and investigating potential private grants available as well.

"If you think there is going to be an easy website where you can just do it and be done and get a check, that is not how it's going to be," Hanley concluded. "There is aid out there, but you are going to have to hustle and put in a lot of effort to get it. If you start there, you're probably in a good place."

Online Photo Editor Douglas Zimmerman oversees SFGATE's Instagram and covers the Bay Area soccer scene on SFGATE's Beautiful Blog. View his latest stories and send him news tips at dzimmerman@sfgate.com.