When Christopher Houp first heard the Biden administration was tweaking the Paycheck Protection Program to make it easier for businesses with no employees to get loans, he was excited.
But that excitement quickly faded to disappointment.
That’s because the pizzeria and small Italian deli Houp co-owns with his wife in Lutz, Florida, as part of a two-member limited liability corporation, is still not eligible to get a PPP loan. It does not fall under new Small Business Administration guidelines that included gig workers and sole proprietors — but not partnerships.
Under the new rules, those types of businesses with no employees can use gross income and not net income to calculate their loans, drastically increasing a loan’s size regardless of whether or not the businesses were profitable. But the new guidelines did not extend to partnerships with no employees. And for Houp, whose partnership has not made a distribution since they have been putting their money back into the business, there is no net income either.
That means that while his business cannot get a PPP loan, the independent contractors they hired for their events before the pandemic can. And it shows that even as the PPP nears its first birthday and has undergone countless tweaks and alterations, there are still many small businesses that find themselves falling through the cracks of the massive — and unprecedented — small-business rescue program.
“It’s mind-boggling to me that they would disregard an entire structure of business,” Houp said. “There are tons and tons of small businesses structured just like ours.”
The restaurant has kept its indoor dining closed since the beginning of the pandemic and added a few outdoor tables to take advantage of outdoor dining revenue. But what originally was billed as a two-week shutdown became a yearlong affair, and the business they founded in 2016 and grew from selling food at farmers markets was losing $9,000 a month. They have also dipped into their savings and retirement accounts in order to save the business, Houp said.
“We are angry about it. We also laugh about it. It’s government inefficiency at its finest. I don’t know how something like this slips through,” Houp said. “We didn’t ask to be shut down.”
Now, every morning, Houp sits down to send letters to his representatives in Congress, including Sens. Marco Rubio and Rick Scott, both Florida Republicans, as well as through the Biden administration’s White House website.
But Houp is not alone, and some lawmakers are already aware of the issue, at least when it comes to farmers and ranchers. On Feb. 12, a bipartisan group of lawmakers that included Sens. Tammy Baldwin, D-Wis.; Joni Ernst, R-Iowa; John Hoeven, R-N.D.; and John Thune, R-S.D., sent a letter to the SBA and the Treasury Department urging the agencies to issue clarifications regarding how partnerships are treated within that industry.
The lawmakers stated in the letter they believe the SBA has the authority to apply new loan calculations to farms and ranches organized as partnerships and limited liability companies. Farmers and ranchers without payroll or positive net income were shut out of the original PPP.
“That’s definitely a flaw, a hole in the system,” said Phil Kryder, first vice president of special projects at Fisher, Indiana-based First Internet Bank, adding that it’s harder to get PPP loans for younger businesses as they might not have the history needed to show how much they should get. “There is nothing to base a number on.”
Kryder said the changes announced by the Biden administration were meant to level the playing field for sole proprietors and other underserved groups, such as gig workers, for whom even a small amount of money is important. He noted that for those workers, PPP loans are capped at $20,833, which could be a lot for a single-person entity.
Tenley Carp, a PPP expert and partner at law firm Arnall Golden Gregory LLP, said part of the issue seems to be that the SBA had done an analysis and targeted the new loan tweaks to where it thought they were most needed — and that included the types of businesses and how they were structured.
And in the interim final rule issued March 3 by the agency, the SBA points out that businesses that file a Schedule C with the IRS have higher concentrations of ownership by members of underserved groups.
“SBA has determined that changing the calculation for sole proprietors, independent contractors and self-employed individuals will reduce barriers to accessing the PPP and expand funding among the smallest businesses,” the agency wrote in the guidance.
And that means entrepreneurs like the Houps are left out because of how they chose to structure their business. If either the husband or the wife was the sole owner, they would likely be eligible under the new rules, Carp added. And that was likely an oversight by the Biden administration.
“Biden has no idea that if you read the actual rules — and the lenders are forced to read the rules — that the guy who cuts his wife out is able to get a PPP loan, but the guy who cuts his wife in is shut out,” Carp said. “So the mom-and-pop shop is not getting access to PPP in the same way that just pop would.”