Eight months after they got a $56,000 forgivable loan from the federal government, Lauren and Ben Reese lie awake nights talking about whether they’d do it again.

Don’t get them wrong. Like most small-business owners who took part in the $523 billion Paycheck Protection Program, the Reeses are grateful. In March, business dropped 30% overnight at their two cafes in Beaverton, Oregon. The taxpayer-funded relief helped them keep the doors open and retain most of their dozen employees.

But there were glitches galore. The program’s rules changed midstream and were sometimes difficult to follow. Borrowers had little control over how they could spend the money. Publicly traded companies tapped the program for millions, drawing criticism. Gaps in the government’s data make it difficult to gauge the program’s effectiveness and its level of fraud.

As Congress inches closer to resolving a months-long impasse and including as much as $300 billion for more PPP loans in a year-end virus-relief package, lawmakers have sought to address some of the program’s more obvious failings. Plans call for revising the program to focus more on minority-owned and smaller enterprises that have lost money, make it easier to have loans forgiven and change tax rules to favor business owners.

“We’re really anxious to see if the next round will have ‘lessons learned,’” said Lauren Reese, who runs Lionheart Coffee Co. with her husband. “That said, we’d take any help we can get, even if that help is confusing, complicated and uncertain.”

But with desperation mounting over a resurging coronavirus and wide vaccine distribution still months away, one basic weakness can’t be fixed: Congress designed the initial program to help businesses for two months. Those two months ended six months ago.

A new round of aid may not arrive in time, said Patrice Frey, chief executive officer of Main Street America Inc., a small-business advocacy group. One in four small companies said they’ll go belly up if economic conditions don’t improve over the next six months, according to a National Federation of Independent Businesses member survey conducted earlier this month. “We’re staring down a dark tunnel,” Frey said.
 

Many of the program’s initial flaws can be traced to the speed of its creation and the urgency of its rollout.  Since April, the U.S. Small Business Administration has made more loans than it had in its 67-year history, throwing pandemic lifelines to 5.2 million companies, or about 80% of the nonfarm employers that qualified, according to the best available data. The average loan was about $101,000.

Little about the program has been straightforward. Its definition of small business was expansive enough to include companies with far more than 500 employees. Its loan amounts were based on the number or workers—and because almost half of Black-owned businesses have no employees, according to a survey by Guidant Financial, advocates and lawmakers say Black entrepreneurs got short shrift.

The program’s rules were a moving target. If recipients wanted their loan to be forgiven, they had to use 75% of the money for payroll. Then 60%. And they needed to do it in eight weeks. Then 24. The Internal Revenue Service told PPP recipients that they couldn’t deduct normal business expenses if they used forgiven loans to cover them. Members of Congress, including top-ranking Democrats and Republicans on both the House and Senate tax committees, said that’s the opposite of what they intended.

And while the program saved countless jobs, nobody can say just how many. Neither lenders nor the SBA ensured that borrowers faithfully reported the number of workers they were supporting with the loans, which makes the Trump administration’s estimate of 51 million jobs preserved by the PPP untenable.

Instead, the agency collected a mountain of invalid—and often absurd—data. One example: The SBA’s database of PPP borrowers shows that 20 nail salons across the U.S. each said they had 500 employees, or 10,000 nail techs in all. But the 20 salons borrowed a total of only $220,000 through the PPP—or about $22 for each of those employees.

The SBA said it expects better job numbers to come with loan-forgiveness applications. As of Nov. 22, lenders had submitted more than 595,000 of those, representing about 11% of participants.
 

Congress is considering a plan for a new round of PPP funding that would target the aid to businesses with no more than 300 workers— and only those that lost at least 30% of their revenue in any quarter of 2020. The legislation would set aside funds for minority-owned businesses and smaller borrowers. In the first round, 13% of minority-owned businesses said they couldn’t get a loan, compared with 8% of all businesses, according to the U.S. Chamber of Commerce.

But lawmakers have dithered over the aid package since May. Now it’s unclear whether a compromise package will arrive in time.

Successful, longstanding businesses may be part of the toll. After 40 years, Cuisine Unlimited Catering & Events in Salt Lake City, which has provided meals for seven Olympic Games among many other events, is making plans to shutter temporarily next month. Winter is slow for catering in Utah, and with the Sundance Film Festival going virtual, there’s no business. The company got a $435,000 PPP loan in April to help sustain 50 employees and pay certain fixed costs. That only lasted so long.

“We’ve been through economic downturns and recessions and survived those really well,” said owner Maxine Turner. “This pandemic has been something entirely different.”

Turner said the SBA forgave all but $10,000 of the PPP loan. That was because the company received a grant of that amount from the SBA’s Economic Injury Disaster Loan program. Having to pay back the $10,000 came as a surprise, and Turner said the agency should have told her upfront. “It’s very difficult to run a business when you don’t have a clear road map on how to navigate these loans and these grants,” she said.

Entrepreneurs need more flexibility from the program, said Brendon Ayanbadejo, who operates roughly 50 Orangetheory Fitness sites, most of them in California. The gyms received $4 million from the PPP, and Ayanbadejo and other investors have chipped in $10 million more, he said. Even so, gross revenue is off by as much as $180,000 a day, he said, and he’s had to furlough hundreds of workers because of state-mandated closures while he also grapples with making rent payments.

“The Achilles heel for the PPP is that it’s not going to help us bring back employees anymore,” said Ayanbadejo, a linebacker for the 2013 Super Bowl-winning Baltimore Ravens. “If we could use our money more at our discretion, that would have been better for us. It gives us a better chance to open, and if we’re open then we’re going to have employees, and of course then we’re going to pay them.”

In Portland, Maine, Andrew Volk said the unwieldy rules might prompt restaurateurs like himself to decline another serving of PPP. Volk, who owns the Portland Hunt + Alpine Club with his wife, Briana, said it didn’t make sense to bring back employees when he had nothing for them to do. “They were asking us to bring on staff when we were closed by the government, at a time when we were supposed to be socially distanced,” he said.

Other problems stemmed from the SBA’s inability to collect borrowers’ demographic information on aid applications. Congress intended to put minority business owners, women, veterans and rural Americans at the top of the list for loans. But the SBA said 75% of applicants skipped demographic questions.

Yvette Brown, who runs Studio 34 Hair Salon in Jackson, Mississippi, found the PPP application process daunting, and when she finally got her application in, she said the bank never communicated with her about it. She got no loan. “It’s been scary,” Brown said about running a hair salon during a pandemic. “I’ve been putting myself at risk all these months.”

Now, watching the first Americans being vaccinated live on TV, she’s feeling hopeful. She said she plans to apply for the next version of the PPP. “That would definitely help me over the next six months for sure,” Brown said.

Gauging the PPP’s success hasn’t been easy. Two of the panels that Congress created to oversee federal virus relief efforts, the Congressional Oversight Commission and the Special Inspector General for Pandemic Recovery, have no investigative power over the program. One agency that does, the Government Accountability Office, says it has struggled to get data from the SBA. “If we don’t know where the money goes, Congress won’t be able to evaluate the program,” said Tim Stretton, a policy analyst at the Project on Government Oversight.

The Justice Department has charged dozens of people with fraud in the program. In September, the House Select Subcommittee on the Coronavirus identified billions of dollars in PPP loans that “could be subject to fraud, waste or abuse.”

That hasn’t stopped academics from trying to figure out how well the program actually protected paychecks. But given the lack of reliable data, they’ve had to come up with workaround methodologies, and their results don’t agree.

Glenn Hubbard, a Columbia University economist who was chairman of the Council of Economic Advisers under President George W. Bush, said that “so far, available evidence suggests that the PPP has substantially increased the employment, financial health, and survival of small businesses, and its effects on business outcomes have gotten stronger over time.”

A group of researchers including Alexander Bartik of the University of Illinois found the program’s effect on employment “modest” but its impact on keeping small businesses afloat “relatively large.”

There’s also disagreement on how much the program had to invest for each job it saved. A team at Harvard University’s Opportunity Insights research center calculated the per-job cost at $370,000. But Richard Prisinzano, director of policy analysis at the Penn Wharton Budget Model, said it’s probably closer to $150,000.

By contrast, the $6 billion in aid that Congress earmarked for American Airlines Group Inc. in separate legislation cost about $54,000 per job—but only after the company shed about 25,000 workers. American later furloughed 19,000 workers after the aid expired.

Some investments create more value than others. The PPP helped the Reeses’ Lionheart coffeehouses survive, and they in turn spearheaded an effort to feed local school children. Lauren Reese estimates that the food and cash they’ve collected or donated has supplied 11,500 lunches since March.

Meanwhile, she said, her business has managed to keep current on its bills. So far. “We see the light at the end of the tunnel,” Reese said. “We’ll white-knuckle it until we get there.” — With Laura Davison, Michael Sasso, Sarah McGregor, Saijel Kishan, Mary Schlangenstein, Jason Grotto, Davide Scigliuzzo and Cecile Daurat



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