Robert Miller, a restaurateur in the Pittsburgh area, has watched with sadness the permanent closure of some of his favorite local restaurants in recent weeks.
Union Standard, Pizza Taglio, Spoon – just a handful of businesses lost in the era of the coronavirus pandemic.
“These are all places people know by name,” Miller said.
Miller, 45, expects his restaurants to be part of the wreckage without the help received as part of federal coronavirus aid.
Its three locations – Sidelines Bar and Grill, Sidelines Beer House and The Fire Side Public House – have collectively received approximately $ 212,000 in funding through the Paycheck Protection Program and $ 775,000 from the Economic Injury Disaster Loan program.
But the PPP money has been gone for weeks, sales are down at least 50% from last year, and Pennsylvania Gov. Tom Wolf has once again put the brakes on bar and restaurant activity this week due to the increase in Covid-19 cases.
Miller fears his restaurants could last another six to eight months without additional federal assistance or a resumption of normal operations.
“It was difficult,” he said. “You could talk to a million people who have the same story as me.”
Funding issued by the Small Business Administration has been a financial lifeline for millions of small businesses during a recession that has struck faster than any in American history.
The Paycheck Protection Program, created by the CARES Act, a $ 2.2 trillion relief measure enacted in March, offered low-interest loans of up to $ 10 million to small businesses. companies.
Entrepreneurs who use the funding in a certain way, such as allocating most of it to employee salaries, do not have to repay the loan – a huge drawdown for businesses forced to shut down due to a government decision and without fault on their part.
Lisa Hess at Lucy’s Coffee in San Luis Obispo, California.
Shannon McMillen Photography
But now that business owners have exhausted their P3 funding, they face uncomfortable questions amid the possibility of further closures.
“How long is this going to last?” asked Lisa Hess, founder of Lucy’s Coffee in San Luis Obispo, California. The company took out a P3 loan of about $ 23,000 and used the money in about six weeks.
California Governor Gavin Newsom recently closed indoor bars and restaurants across the state amid a Covid-19 resurgence in the Golden State.
The store has adapted to the post-Covid-19 world by moving its service outside, setting up tables and purchasing umbrellas to make more seats available.
Hess has a second lifeline thanks to the Economic Injury Disaster Loan, a federal loan for small businesses affected by the Covid-19 crisis. She is reluctant to continue borrowing, especially given the tight cash flow.
“If this goes on for a year and I use that money to pay the rent, am I taking on crazy debt to keep the doors open?” Hess asked. “How much do you put in before it’s enough, if I keep going into debt to keep up?” “
Emergency aid hampered by delays, confusion
A man walks his dog past a sign that says “ALL SMALL BUSINESS IS ESSENTIAL” outside Atilis Gym on May 20, 2020 in Bellmawr, New Jersey.
Mark Makela | Getty Images
In addition to establishing the Paycheck Protection Program, the federal government opened up its existing disaster loan program to businesses in all states due to the crisis.
Nearly 5 million businesses have secured $ 518 billion in cumulative PPP financing, with an average loan of $ 105,000, according to the SBA.
An additional $ 135 billion was issued under the Disaster Lending Program, with an average loan of around $ 60,000.
Both programs were marred by administrative delays, changing rules and limitations that made it difficult for some companies to take advantage of them.
“I clearly think there were some mistakes,” said Chester Spatt, professor of finance at Carnegie Mellon University and former chief economist at the Securities and Exchange Commission from 2004 to 2007.
Chief among them were rigid rules about how P3 funds could be spent, Spatt said. They created an inherent tension between the employees and the pursuit of the company itself, he said.
The original framework of the program required business owners to spend the funds over eight weeks or risk losing the entire loan cancellation, which would essentially amount to losing one of the main attractions of the program. .
The federal government then extended that period to 24 weeks, but by then it was too late for many who had obtained a loan early on.
More than just salary costs
A customer wearing a protective mask receives a take-out meal from a restaurant during the coronavirus pandemic on May 20, 2020 in the Little Tokyo neighborhood of Los Angeles, California.
Michael Tullberg | Getty Images
Robert Miller, for example, had already spent seven of the eight weeks of P3 funding for his restaurants by the time this update was announced.
“Eight weeks was nothing, given that we are in month 4 [of the pandemic]Miller said.
Due to another early limitation of the program – that at least 75% of the funding be used for payroll – Miller, like many other companies, had little to spend on other costs. (Lawmakers ultimately lowered that threshold to 60%.)
Miller spent over $ 500 per week just on items related to Covid-19 (eg, gloves, masks, and cleaning supplies). Items such as umbrellas, tables, and chairs for alfresco dining also cost extra, all of which contributes to profitability.
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Fortunately, his disaster loans helped supplement other business costs as sales fell behind – although the prospect of being in debt to the federal government for 30 years, the duration of the disaster loans, is not a welcome idea, he said.
For entrepreneurs along the coasts, rent expenses have also devoured their loan proceeds. Homeowners, whose portfolios are also tight, are reluctant to give much respite.
“Payroll is the biggest expense, but rent? Hess said. “I don’t know what the solution is here.
“I told my landlord about it, and he practically said no because he couldn’t afford it either.”
Scratch more funding
According to a recent Goldman Sachs survey, about 84% of small businesses that received a paycheck protection program loan will have used up their money by the first week of August.
Under the current law, companies cannot bite an apple a second time. The Senate will begin debating the contours of another round of coronavirus relief when the chamber reconvenes on Monday, but it is unclear whether it will contain more aid for small businesses.
Even then, lawmakers hinted that future business aid would be more targeted than in the CARES Act.
In the meantime, tax professionals working with business owners have been looking for additional ways to free up cash flow.
“We are re-examining if you can defer the rent, how much do you need to keep a small team, who can fire you assuming you don’t get a second round of funding,” said Dan Herron, CPA and Director from Elemental Wealth. Consultants in San Luis Obispo, California.
Another strategy to consider is to use the disaster loan after the PPP funding is exhausted. Entrepreneurs with access to both cannot use them simultaneously for the same costs.
“Nothing prevents using one after using the other,” said Albert Campo, CPA and managing partner of AJC accounting services in Manalapan, New Jersey. “If you have vendors that you owe money to, you can use the disaster loan money for that.”
Other sources of cash may become scarce.
“Banks are a bit more conservative when they lend,” Campo said. “Restaurants have a harder time getting funding because of their failure rate.
“It’s very nuanced and specific to each client, depending on their credit and liquidity.”
However, some entrepreneurs may not need additional help.
Alyssa Nix, owner of Posh Boutique, a women’s clothing boutique in Sioux Falls, South Dakota, has received about $ 10,000 in federal funding – half of P3 and the rest of a grant program in case of disaster.
The timing of the loans was “crucial” for the business, she said. They gave her capital to stock up on produce for the spring and summer seasons – money she did not have due to the store closing.
Its sales are now up about 10% to 15% from what they were a year ago, in part due to the relatively low prevalence of coronavirus cases in the state and the crowds among large retailers pushing people to seek out less busy stores, Nix said.
“We had a little boom after things started to open up,” said Nix, who doesn’t anticipate needing further federal help.
“At the moment I’m comfortable with where I am,” she said. “Things went well.