For Small Businesses, Paycheck Protection Program Means Tough Choices
When Joseph Levey logged into Chase Bank’s loan portal early Tuesday, he was hopeful that he would finally be able to submit his law firm’s request for a federal stimulus loan. He had been trying since the previous Friday.
“One of the CPAs I work with was coming home at 6 am,” said Mr. Levey, founding partner of Manhattan-based Helbraun Levey. “Chase’s app portal didn’t open until Monday night and it kept crashing. “
Like Mr. Levey, small business owners across the country are racing to secure their share of the Paycheque Protection Program, a $ 349 billion relief program that Congress authorized to help them survive the pandemic and keep their employees on the payroll.
Since loans are made on a first come, first served basis, many business owners are in a panic that the money will run out before their applications are approved. They are also trying to figure out exactly what the program does, and if the terms make sense or if they should fire their workers despite already soaring unemployment claims.
Mr. Levey successfully submitted his candidacy. But he still had hundreds of other claims to file – with Chase alone – on behalf of his clients, many of whom are in the hospitality and cannabis industries.
Treasury Secretary Steven Mnuchin said on Tuesday that he had asked the legislators for an additional $ 250 billion for the payroll program, but it was up to Congress to allocate any additional funding.
The loans, part of the $ 2 trillion relief package passed by Congress last month, could be a lifeline for Tran Wills and the 43 employees of Base Coat, his chain of Colorado nail salons and in California.
The program aims to help businesses with fewer than 500 employees by loaning them up to two months of salary costs, with each loan capped at $ 10 million. Self-employed and contract workers are also eligible, but their loan process has not start until friday.
These relief loans are issued by lenders approved by the Small Business Administration and, unlike loans from previous crises, do not require any personal collateral or collateral from the borrowers. The money is primarily intended to cover the payroll, but the funds can be used for other legal expenses as long as the loan is repaid at an interest rate of 1% over two years.
However, the federal government will cancel the loans if a company uses at least 75% of the funds to maintain its payroll at pre-pandemic levels for eight weeks after the loan is disbursed (based on a 40 time). The remaining money can only be used to pay for certain expenses, such as a mortgage, rent, and utilities.
In most cases, the SBA uses wages as of February 15 as the definition of pre-pandemic levels.
The fact that the loan is essentially a grant is one of the main reasons Ms. Wills worked so hard to align. She tried applying to Chase and US Bank before successfully submitting her application to Sunflower Bank, a small community lender based in Denver.
Ms Wills decided not to lay off her staff even though the salon is closed because she had heard that the grant would require her to maintain a full staff without interruption. Her staff work from home on reduced hours and wages, helping her teach classes and fulfill online orders for Base Coat’s line of nail polish. Some employees have also applied for unemployment benefits to make up the difference.
Had Ms Wills fired her team, she would still be eligible for the grant once she brought the team back – but that fact was not clear initially. The Treasury Department recently clarified that companies must rehire staff (or employ new workers) and bring their payrolls back to February levels by June 30, when the loan program is due to expire.
She thinks keeping her employees was the right move because so many of them have been with her since it opened in 2013 and because she believes there will be high demand once it reopens.
“We’re going to cry at the end of the day because we’ll be so busy,” Ms. Wills said.
However, if the loan is not granted or if the businesses cannot reopen in May, the story changes. Ms Wills said she wouldn’t have the money to keep paying anyone, even after she canceled her utilities and negotiated rent deals.
“I’m fine until mid-May,” Ms. Wills said. “But after that, no one will have the money to buy things online to keep us alive.”
“This grant will become a loan.
Some economists warn that the stimulus package loans, known as the CARES Act, may not be suitable for all businesses, even if they can get them.
“A lot of companies know their income will not return to February levels by early May, so it would be better to use other provisions of the CARES Act, such as extended unemployment benefits,” Betsey Stevenson said. , professor of economics. and public policy at the University of Michigan and former chief economist at the Department of Labor.
That’s the decision Ivy Mix and her business partners made for their staff at Brooklyn Bar Leyenda. Instead of taking a payroll program loan, they closed in mid-March and laid off 24 people until they knew more.
The owners made their decision after realizing that the funds would likely have to be spent before they could reopen. If they received the money at the end of April, they would pay employees to stay home rather than having the money when they knew they could be open.
“We don’t know what’s going to happen, and we almost certainly won’t be operating at 100% of our capacity when we do, whether it’s due to legal restrictions or fear of people,” Ms. Mix said. “So this grant will become a loan. “
And a loan scares Ms. Mix. In almost five years, the bar has been running without going into debt and she doesn’t want to hire any more now.
“We prefer to tell our employees to apply for unemployment benefits,” she said. “We have a better chance of staying in business if we reopen and hire them then.”
It’s a common refrain among Mr. Levey’s clients. Businesses, he said, don’t want to take a payday loan and hire workers and then have to lay them off again in eight weeks because restaurants aren’t open.
“The program makes a lot of sense for law firms, accounting firms and all professional firms where people can still work from home,” said Mr. Levey. “P3 loans for people who are not doing business right now only work if the applicant feels they are trying not to lose their key people. “
The workers do the math.
Some workers prefer to be laid off rather than being kept by their employer under the program. The stimulus package has significantly expanded unemployment benefits, allowing people who have to stay at home to take care of sick relatives or children. He also added a grant of $ 600 to each weekly check for up to four months.
In a state like Michigan, where the maximum weekly unemployment benefit is normally $ 362, some workers can now receive up to $ 962 per week. Once they have applied and their eligibility and state reward amount is determined, the $ 600 is added to their checks. Workers have yet to see this money, but it will be retroactive to people who started filing on March 29.
Even with delays and the possibility that they will be looking for a job in a few months, the extra money is attractive to some employees.
“I have had a lot of clients over the past week who have told me that there is no way for me to get these people back to work,” said Levey.
And that puts business owners in a conundrum. Do they take wage protection knowing that their employees might be better off unemployed? What do essential businesses do if a worker doesn’t want to come in?
That’s the challenge facing Liz Blondy, owner of Canine to Five, a doggy day care center in Detroit.
When the Michigan stay-at-home order was announced, Ms Blondy laid off 70 of her 90 workers and saw her business drop 95%. She kept six salaried managers and three hourly employees to help take care of essential workers’ pets. She did not yet know that the program would be an option or what the conditions were. Now she is trying to apply and is considering bringing her team back.
But some of the workers said they would rather stay unemployed or be made redundant.
“If you don’t feel comfortable leaving your house in a pandemic, I’m not going to push you. It’s not fair, ”Ms. Blondy said. “But I may not have a job for you in the future.”
She said she wanted the unemployment system to be clearer on how to deal with such situations. Can employees refuse to work? Should she challenge their jobless claim – something she doesn’t want to do? Can it be considered fraud if she doesn’t?
A spokesperson for the Labor Department said on Wednesday that states can interpret their own laws and that employers are not responsible for contesting unemployment claims. But in general, “people who quit without just cause or refuse suitable job offers are not eligible for benefits.”
Ms Blondy still intends to apply when her lender, Comerica Bank, finally opens her portal. As of Thursday evening, Comerica still had not given commercial customers access to the applications.
“I’m going to be paralyzed with indecision for the next week as I understand this,” Ms. Blondy said. “But it’s relatively cheap money, and it will help me get through this time even if it’s not forgivable in the end.”
How business owners can cope
To file Paycheque Protection Program Applications off-peak hours, when sites are less likely to be flooded.
Keep in mind that the program may be better suited to businesses whose workers earn higher wages or to those that can work from home.
The program may not be well suited for businesses, such as bars and restaurants, that are unaware that they will be able to resume operations.