Do Paycheck Protection Program Loans Work? Business leaders divided on the answer

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The federal paycheck protection program has been a lifeline for some small business owners as the coronavirus ravages the US economy. But other business owners are harsh in their assessment, calling emergency loans too restrictive and prone to operation by larger companies.

John Lettieri, co-founder of the Economic Innovation Group, an advocacy organization for entrepreneurs, highlighted some of the program’s shortcomings. Two-year forgivable loans that charge only 1% interest focus on subsidizing the payroll rather than covering rent, supplies and other costs important to doing business, he said. -he explains.

“By strictly tying relief to payroll expenses, PPP is by design of limited utility to businesses struggling to cope with a wider range of fixed costs,” Lettieri said. “Even assuming a business can meet its other expenses, limiting the total loan amount to around 10 weeks of average monthly payroll, it offers a short trail before a cliff of impending layoffs and permanent shutdowns.”

With millions of small businesses at risk as the The US economy is collapsing, the jury is still out on the $ 660 billion rescue effort. A coalition of business groups, including the American Hotel & Lodging Association, the National Restaurant Association and the National Small Business Association, is imploring Congress to improve the Paycheck Protection Program, dubbed the PPP and administered by the US Small Business Administration.

Not just on payroll

A complaint heard by many small business owners is about the P3 requirement that borrowers use 75% of the loan to cover salary expenses if they wish to have the loan canceled. It might help keep workers on the job, but it doesn’t leave much for realities like inventory, insurance, and other business expenses that aren’t favored under loan terms.

“While payroll is really important, our business has other critical expenses to manage to keep us viable,” Justin Moore, store manager at Uncle Bobbie’s Coffee and Books in Philadelphia, told CBS MoneyWatch.

“While the payroll is really big, our business has other critical expenses,” said Justin Moore, manager of Uncle Bobbie’s Coffee and Books in Philadelphia, which is on an $ 80,000 loan under the paycheck protection program.

Justin moore


Although Uncle Bobbie landed a federal loan of around $ 80,000, Moore said, “P3 has to adapt to these new realities. It’s not about getting people to work at this point where there is no work to be done “.

The reality he sees is a long way to economic recovery: “It’s a bit redundant to use PPP now when [Uncle Bobbie’s workers] could and should collect unemployment, versus four to five months from now, when we reopen and don’t have sales to support the payroll, ”More explained. “We probably won’t be open during normal hours – we will probably have reduced hours, and that’s when these funds would really help us.”

Meanwhile, time is running out for Moore’s 17 workers. While all have filed for unemployment, the money has been slow to materialize. He plans to use some of the P3 money to keep employees on the payroll, which would allow at least part of the loan to be forgiven. The rest could be used to cover his insurance premium, maintain the café’s security system and other costs.

“A perfect fit”

PPP works best for small businesses that need to get their employees back to work immediately. Jared Ingold, owner of Vardagen, a Los Angeles-based clothing company that prints original hand-drawn designs on clothes, said his sales plummeted when the store closed and customers stopped ordering .

“Retail is our biggest source of income, as well as our printing plant in Indianapolis where we do custom printing. So the two largest parts of the business were immediately shut down,” he said.

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Jared Ingold, owner of Vardagen, a Los Angeles-based clothing company, received an $ 80,000 loan under the PPP. He’s selling a collection of coronavirus-inspired clothing on his business website to keep people working, paying rent and generating income while other parts of his business are forced to stay away from the pandemic .

Jared ingold


To keep his 10 employees in paid employment, Ingold worked quickly to increase internet sales by designing a coronavirus-themed collection and investing in online advertisements. He has applied for a loan of $ 80,000 under the program, which he plans to use on salaries and rent for employees.

“It would put us back on track and we would be able to get out of it. For what we’re doing, that would be really valuable,” he said.

Dan Barber, chef and owner of Blue Hill Restaurant in Manhattan’s West Village and Blue Hill in Stone Barns, New York, said the P3 would save him time as he rethinks his approach to the business, which employed more than 170 people before the closures. . To that end, he puts some of his staff to work packing produce from his upstate New York farm into boxes for in-home preparation.

“For us it’s a good choice, but for others it just encourages them to bring people together. Anyway, I’m grateful for that, if it can happen, that’s exactly what everything is deductible if you employ people – that’s the ticket – and my employees are my biggest cost, ”Barber said.


DC restaurant is fighting to stay open

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Public relations professional Warren H. Cohn, founder of New York-based Herald PR and Emerald Digital, a New Orleans-based marketing firm, narrowly avoided having to lay off employees after receiving PPP loans from $ 157,000 (for Herald) and $ 55,000 (for Emerald).

Although business is down about 20%, Cohn said, a few customers are relying on his advice to navigate the pandemic. “We represent an ambulance company, an event medical services company and some law firms that pivot to coronavirus angles and talk about custody battles, quarantine visits, increasing divorces and bankruptcies commercial real estate, ”he said.

Still, there are some things PPP cannot protect itself against. Public health experts warn that the coronavirus, which now spreads more slowly in most parts of the United States, could erupt again towards the end of the year.

“Certainly, if the pandemic returns in the fall and winter, we’ll be in deep doo-doo with or without the loan,” Cohn said.


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