Cory Obenour, chef and owner of Blue Plate, covers his face with a mask while preparing a sauce for … [+]
If you were among the first businesses to receive a CARES Act Paycheck Protection Program (PPP) loan, it is near the time when you can request loan forgiveness. The funding came with stipulations regarding how quickly the money had to be spent and how much of it (75%) had to go toward paying employees.
Fortunately, Congress has passed a bill called the Paycheck Protection Flexibility Act extending the amount of time PPP loan recipients have to spend their funds from eight weeks to 24 weeks. It also lowers the portion of funds borrowers must spend on payroll costs lowers to 60% (down from 75%) in order to qualify for forgiveness of the full PPP loan amount.
One of the big problems with the original law for small business owners, particularly the restaurant industry, is that with revenues down to a fraction of their pre-COVID levels, it became impossible to spend 75% on salaries and still make money. The original version (passed on March 27) left only 25% of the funding assistance for rent, mortgage, and utilities. The formula was not working for many businesses, some of which had refused to take funding under the initial required terms of the loan. Fortunately, the government is reacting to address the most challenging issues.
Overall, the CARES Act PPP lending program has been a success. It has put needed revenue into the hands of business owners who otherwise might have had to declare bankruptcy.
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A great PPP success story is Dr. Seth Wallerstein, a sole practitioner dentist in Edison, New Jersey. Dental offices, like other non-emergency health services in the state, were closed from March 16 through June 1, when New Jersey finally allowed them to reopen. During that time, Dr. Wallerstein closed his office, furloughed his workers, and, apart from a few emergency procedures, essentially had no revenue coming in.
“Right away, I needed the loan. I have a staff of seven people and furloughed all but the two who were with me the longest,” Dr. Wallerstein said.
Initially, it was a challenge to get the funding. Dr. Wallerstein first applied with Wells Fargo, a bank with whom he had a longstanding relationship.
“I applied to Wells Fargo within an hour of the PPP program’s opening. They replied that they had information and that I was in the queue. I got an email daily,” he explained. “As it turned out, the majority of their funding went to loans of over a million dollars. Small businesses that applied for less than $1 million were left in the cold.”
During the second round of PPP funding, he worked with Biz2Credit and secured a $103,000 loan that he used to pay the rent and the wages of the furloughed workers who have now returned to his practice.
“This funding is very important for dentists. We work on a 30-day billing cycle. Although I won’t see payments until 30 days after work is done, I have to pay my employees weekly. The PPP loan helps a great deal,” he said.
Things are now looking as bright as the smiles of his patients. Dr. Wallerstein says his office is up and running, and he has a waiting list for appointments that is two and a half months long.
Recently, the National Federation of Independent Businesses (NFIB) released the results of a small business survey showing the positive impact the Payroll Protection Program (PPP) continues to have on small businesses. The survey found that more than three-quarters of eligible businesses have applied for a PPP loan, and 93% of those received a loan. It also indicated that the “vast majority of small business owners (67%) who have a PPP loan have found the loan ‘very helpful’ in financially supporting their business.” Conversely, only 2% said that the PPP loan is not at all helpful, and 7% said that it is too early to tell.
For businesses in the hardest-hit areas of the country, the PPP has been an invaluable lifeline.
“The Paycheck Protection Program was created by the CARES Act to provide forgivable loans to small businesses affected by the COVID-19 pandemic to help pay the bills and keep employees on the payroll,” said SBA Regional Administrator Steve Bulger, who oversees the agency’s operations in the Atlantic and Mid-Atlantic regions, two of the most heavily affected parts of the country. “Our data shows that 826,696 small businesses received $103,936,930,794 in the SBA’s Atlantic and Mid-Atlantic regions combined. PPP is going a long way to meet the demand of small businesses and their employees during this critical time.”
The agency worked quickly with Treasury, as well as SBA partner organizations, to assist lenders and small businesses understand the process of applying for a PPP loan and getting the money to pay their employees and creditors quickly.
“This allowed them to stay in business while we ride out this pandemic. There is still plenty of money in the PPP appropriation, and now is the time for any small business owner, who feels that this program could help them to contact a participating lender and apply,” Bulger added.
This new action from Congress could extend the impact of the program even further. Allowing borrowers to direct more funds to costs such as rent and utilities will help some of them survive long enough for full reopening to take place.
But not everyone will benefit, even with the proposed rules change. In places like New York City, rents are very high and there are landlords who are unwilling to negotiate and want to be paid every dime they are owed. Many of them insist on being paid in full and offering a “payment plan” to business owners, once they reopened, for rent that is in arrears. And who is to say that the customers they used to depend on will quickly return to their neighborhood bar, restaurant, or retail shop?
On the other hand, landlords are business owners, too, and they borrow money to pay their mortgages. They are under financial strain, as well. The dynamics in the small business economy are complex and no one program will solve everyone’s problems.
Until the COVID-19 pandemic is under control, things will not go back to normal. Having the PPP in place has sustained the life of countless businesses long enough to reach the beginning of the reopening process in hard-hit states, such as New York and New Jersey, and indeed across the country. Only time will tell if it can stave off the longer-term effects this pandemic is having on the entire small business ecosystem.