When the $2 trillion federal stimulus bill was signed into law March 27, it included $349 billion for the Paycheck Protection Program administered by the U.S. Treasury Department and Small Business Administration to help businesses keep workers employed during the coronavirus pandemic.
“We remain committed to supporting our nation’s more than 30 million small businesses and their employees, so that they can continue to be the fuel for our nation’s economic engine,” Small Business Administrator Jovita Carranza said when the program was launched March 31.
But the majority of those 30 million businesses didn’t receive funds. The pot was empty after just 1.6 million individual loans had been awarded.
Treasury Department statistics show that about 45 percent of the money went to 4 percent of borrowers. Loans of more than $2 million made up 28 percent of the money that was paid out and only 17 percent of the loans were for amounts of $150,000 or less.
Maine businesses received about 15,000 loans for a total of $1.9 billion through April 16.
Adam Zuckerman of the Maine Small Businesses Coalition said that when the program ran out of funds in the first few days, 88 percent of Maine small businesses had not received assistance.
Businesses are applying again this week for loans after Congress added $310 billion to the PPP April 24, but confusion about the program remains.
Birch Shambaugh, who with his wife Fayth Preyer owns Woodford Food & Beverage, said on a call organized by MSBC that when they had to close their dining room, they laid off most of their staff – about 20 people. They got a PPP loan but have concerns about the rules for having the loan forgiven.
PPP loans, available to businesses with under 500 employees, have an interest rate of 1 percent, maturity of two years, and the first payment deferred for six months. They are guaranteed by the SBA and require no collateral.
The SBA and Treasury Department guidance states the loans can be forgiven if at least 75 percent of the proceeds are used for payroll costs, and the rest is used on such things as interest on mortgages, rent, and utilities in the eight-week period following the date the loan is issued.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining their salary levels. Forgiveness will be reduced if full-time employment declines or salaries and wages decrease.
“The eight-week period is really where the rubber meets the road and where the rub is for the vast majority of small businesses,” Shambaugh said on the April 22 call. “It’s hard to imagine that by the end of June, there is any plausible way that a business like ours could be anywhere with any sight of being able to operate at pre-pandemic levels.”
Don Stowell, operations manager of Lamey Wellehan shoes, said he received PPP funding and is worried about how he will be able to spend it with the state-ordered shutdown potentially extending until the end of May.
Andrew Volk, owner of Portland Hunt & Alpine Club, said he kept one person on staff and furloughed everyone else. He has accepted a PPP loan but hasn’t touched it, and plans to return it if he cannot get his questions answered.
“To say that we’re going to be back to 100 percent operations in eight weeks is laughable at this point,” Volk said. “I want to be bringing people back. But if we don’t know how we’re going to get forgiven and if we don’t think that this money is being used in the right way, it doesn’t make sense as a business owner to be spending the money.”
In addition, he said, the restrictions on the loan means it cannot be used to cover such things as the thousands of dollars worth of perishable products they lost when they had to close their doors.
The unemployment bind
Erin Kiley, owner of Portland Flea-for-All, said she did not apply for a PPP loan because she felt it would be almost impossible as a two-person business to meet the criteria to have it forgiven. Instead, she and her partner fired themselves and went on unemployment.
Kiley said that if employers try to offer workers their jobs back to fulfill the requirements of a PPP loan, and the employees decline, they lose their unemployment benefits.
“It’s sort of a double-edged sword where they are better served by being on unemployment, but then if they say no then they lose their access to it, which is a serious flaw in the system,” she said. “And in some psychological way, you’re also coercing your employees to potentially return back to work and they may not be comfortable doing so from a safety standpoint.”
Maine’s formula for determining a person’s unemployment benefit is to divide their average wages in the two highest quarters of the last five quarters by 22, with a maximum weekly benefit of $445.00, plus $10 per dependent. The federal stimulus bill includes an additional benefit of $600 per week.
Accountant Anne Zimmerman of Businesses for Responsible Tax Reform pointed out that for employees making $15 an hour, they are doing better now on unemployment than they would be by returning to work.
“It’s put employers in a really bad spot, and it’s a no-win for you,” she said.
Under the PPP terms for forgiveness, employers should be bringing employees back and keeping them on the payroll even if they are not working, she said. But if they do that they will have nothing left after the eight weeks when they will likely be able to open back up.
Zimmerman said polls and her organization’s surveys have shown that most true small businesses have only enough in reserves to cover two weeks.
Arlin Smith, owner and general manager of Big Tree Hospitality, which runs several Portland restaurants including Hugo’s and Eventide Oyster Co., said these questions have weighed heavily on his team.
He said after gathering all the information they were willing to take the risk and applied for a PPP loan. They were approved, and to follow the rules for forgiveness, they rehired everyone.
“Most of our staff, I would say, pretty much all of them, are very pleased with our decision,” Smith said, while some did have questions about going off unemployment.
Because the PPP rules stipulate wages offered should be calculated from the first quarter of the year, which is usually a slow time for restaurants, it was challenging to make the wages competitive with current unemployment benefits. So Smith said they omitted vacations and the downtime of the first weeks of the shutdown from their calculations.
They are paying back wages, and for staff who were enrolled in health insurance benefits through the company, they are paying full premiums.
“That’s the leap that we’re hoping everyone’s going to take with us,” he said. “It is really scary. I think our biggest concern is after that eight weeks, are we kicking everyone out in the street again, and no one wants to do that.”
Shambaugh also expressed concern about employees’ access to benefits after the loan period.
“I can’t imagine that the intent is purely for us to remove our employees from the safety of the existing unemployment net, put them on our books for eight weeks and then fling them back there without any guarantee that they’re going to again be entitled to those protections and safety,” he said. “That just seems irresponsible.”
Smith said he’s encouraging staff to keep filing their weekly unemployment claims, and reporting their wages, to keep them in the system. The Department of Labor also recommends that employees hired back on PPP loans continue filing each week.
Self-employed feel left out
Kirstan Watson owns a cleaning business, ‘Port Cleaners, with her husband. She applied for a PPP loan, but does not think her business qualifies – she has only received a generic “application received” notice.
The stimulus bill extends unemployment eligibility to self-employed workers, but the state has asked those people to wait to file unemployment claims. The Department of Labor announced Tuesday that it would begin accepting unemployment claims from self-employed workers on May 1.
Watson said April 26 that they have not received a stimulus check either. In the meantime large bills are due: estimated quarterly taxes, property taxes, and business insurance.
“We’re having to get really super creative just to survive because all of the things that were supposed to be available to help the little guy just haven’t come to fruition,” Watson said. “It feels like we were the demographic that got overlooked. … There were like 10 things that were supposed to help and none of them are available, or they’re not happening fast enough to make a difference.”
Even when the stay-at-home order is lifted, Watson said their work will not fully be restored. Most of their clients are over 60 and do not want to have workers in their homes because of the risk of contracting COVID-19.
Watson said she has been getting advice to apply for some zero-interest credit cards, but she said those interest rates climb steeply after six months, so it is not a viable option.
It was also recommended that she look into the Economic Injury Disaster Recovery Loans that the stimulus bill extended to independent contractors, freelancers, and gig workers affected by the coronavirus. These offer $1,000 grants per individual that do not have to be paid back. Watson said she attempted to apply Monday but the website was not working.
Zuckerman, of the Maine Small Business Coalition, said small businesses play a crucial economic role in Maine, making up 99 percent of all businesses, and employing 57 percent of the private workforce, significantly above the national average.
The coalition is advocating for direct grants rather than loans. With projections that the coronavirus could be affecting businesses for 18 months, he said, it will be hard for businesses that do not meet the forgiveness requirements to repay the loan within two years.
Zimmerman said she would have liked to see more prioritization based on need, and for the number of employees for a business to be eligible reduced to 100-200 for the stimulus program to benefit truly small businesses.
“After the last recession, in ‘08, we small business owners … created two-thirds of the new jobs that helped bring us out of that recession,” she said. “I have real concern that if we don’t protect small businesses, and allow them to be that growth engine for us when we’re ready to come out of this, that it’s going to be much more extended than anyone thinks to recover this economy.”
Editor’s Note: This article was edited May 1 to correct the description of what Big Tree Hospitality is offering its re-hired employees because an owner misspoke on the Maine Small Businesses Coalition call.