[The following is an editorial opinion piece written by Paul Stevens, the owner of popular Clinton neighborhood restaurant/bar Night Light Lounge (home of the also very popular Portland Drag Queen Brunch). Due to the COVID-19 crisis, his business closed, and his employees were laid off. Here he talks about the Paycheck Protection Program, and how, in its current form, could be doing small businesses more harm than good.—eds.]
I own a bar in SE Portland that was forced to close on March 16. Like so many other small businesses around the city and country, this indefinite closure was a devastating hit that we are unlikely to come back from. Fortunately, I was able to pay all of the staff and the bulk of my vendors before the money ran out. My bills continue to pile up and my reserves are running low. We explored the option of offering take-out food, but we were more likely to lose money than to break even, much less make a profit. Our only ray of hope is the tremendous noise our communities and governments are making about helping small businesses survive.
In the last three weeks, I filed a claim with my insurance company that was denied because of the “virus exemption.” I applied for disaster assistance from the US Small Business Administration (SBA), as well as a Prosper Portland grant. They are surely overwhelmed, and I haven’t heard anything back from either. I’m working every day to find a way for us to reopen. I am now waiting for my bank to open its online application for the Paycheck Protection Program (PPP). I’ve been following the details of this program, and the more time I spend researching it, the more I think that even if I am approved for the loan, I won’t take it.
If you aren’t familiar with this particular part of the “CARES” act, the PPP provides low interest loans to small businesses to retain or rehire their staff. The amount of the loan directly correlates with the size of your monthly payroll. “2.5x” is a number I saw on the SBA sample application. If you use at least 75 percent of the loan on payroll, rent and utilities, and rehire your entire staff by June 30, you are eligible to have a large portion of the loan forgiven. The loan has a two-year term, with no payments for six months. The usual requirements for collateral, underwriting, credit checks, etc., are being thrown out the window. They are trying to get the money out as quickly as possible. This is my current understanding, but new details are coming out even as I write this. The entire rollout has been mired in delays and confusion. There is still no information on how forgiveness will be calculated, which is a real concern.
When I first heard about this program, I felt a wave of relief. I want nothing more than to get the whole team back together and serve our wonderful customers. I put together a rough plan, including deep cleaning projects and a revamped menu for take-out orders. I was excited to get back to business.
After this initial elation, I started to think about the terms of the loan critically. Between the vague conditions, and unrealistic requirements, I was left with a lot of questions.
How does this help the crew?
It is illegal for us to fully reopen. At best, take-out orders will keep 25 percent of the team busy. What should I do with the other 75 percent? Do I pay the bartenders to stay home? Is that fair to expect some employees to work for their money, while others are being paid without working? Am I opening myself up to legal action over this?
As far as I know, my employees have already applied for unemployment benefits. In the case of the bartenders and servers, both wages and declared tips are factored into their unemployment benefits. Tips make up a big portion of their income. If I bring them back, and they are unable to earn tips, they will be making dramatically less money. And I can’t afford to make up the difference.
As a quick reminder, we are also in the middle of a global pandemic. We have all been ordered to stay at home unless it is essential that we leave. Re-opening the restaurant might increase exposure to both employees and customers. Is opening another take-out restaurant “essential” work? Am I only making the problem worse?
As this process continues, it’s becoming clearer that we will be dealing with these issues for awhile. The US Treasury stipulates that the loan funds need to be used within eight of the loan origination. What happens after those eight weeks? Do we close back down? Do I lay the crew off again? Are they better off coming back to work on such a limited basis?
Does this loan help my business?
The only option for us to stay open right now is to switch to a take-out model. Our business has always been more about bringing people together than taking food to go. We have a very talented kitchen crew, and I have no doubt we can build that side of our business, but it is a fundamentally different concept. It will take time to understand what sells, what are peak times, what are ideal staffing levels, etc. It is like starting a new business. And in this climate, does it really make sense to start a new business?
We are all asking, “When will we get back to normal?” Even if—and it’s a big if—we are winding down the social distancing restrictions by June 30, it is doubtful that we will immediately go back to our normal routines. So much of what our business does is the opposite of social distancing. We are a social place. Our goal has been to bring people together. I’ve heard many plans for how we transition out of our current quarantine, but all include long periods of limited social gathering. How will I be able to maintain our full payroll burden, if we aren’t allowed to operate at full capacity?
The rules on forgiveness of this loan are vague at best. The current information from the US Treasury says “it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.” “It is anticipated”… as in, they don’t even know what the terms of this loan will be. The banks and the Treasury Department will be figuring it out as they go. If we aren’t back to normal by June 30, then I won’t be able to afford to pay all of my employees. If I can’t afford to pay my employees, then I can “anticipate” being liable for the majority of the money I borrowed. How can I borrow money with confidence if the lender doesn’t even know the terms?
Essentially, I will be paying back a loan that is two-and-a-half times our monthly payroll, with a two-year term, to pay employees who I am putting at risk and who I don’t have work for. I will be no closer to actually reopening than I was before I applied for this loan. In fact, I will be in a much worse position. The more I think about it, the less sense it makes.
Who is this supposed to help?
I have an amazing crew. Our neighborhood is booming. Our business was growing. There is nothing that I want more than to bring everyone back and start worrying about our next cocktail special, rather than government loan applications. I am desperate to get back to work, and am trying constantly to figure out how to. I just don’t see how the PPP gets me closer to that goal.
Every business is different and your calculations will be different than mine. I urge you to talk to your banker about what this loan means for you and your business. Remember, this is government money you’re borrowing and Uncle Sam doesn’t play when it comes to getting paid back.
Small business are going to need massive help to get to the other side of this, but the PPP isn’t it. Perhaps the Oregon Legislature could convene, and try to help?
Sounds like a very wise decision, based on sound reasoning.
Your points are amazing and I honor and respect it. I had this very conservation last night by one of my prospects and asked her to send me an e-mail because while it’s a valid concern and I don’t blame you for thinking this it can also be turned into a very valid feedback to the SBA/Treasury decision makers. The guidelines are evolving fast and being defined more and more. The number 1 goal of the SBA was to put it out there because of the mass pressure of business owners like yourself has put on them. They are super overwhelmed and can’t keep up as you already know. One of the ways we can continue to build a community around this time of crisis is help us Bankers bring feedback to our in-house SBA Team so they can discuss it with SBA decision makers in the hopes of them making changes for the better. Thank you for this great article that I will now then bring back as feedback.
I am having the same internal debate. The benefits of this loan are dependant on two things, loan origination date and when I can open again. What good does it do the business to pay my employees to stay home when what I will really need is money to make payroll after we open, no one is going to work for free and it’s unlikely business picks up right where it left off, people will be broke!!! This loan worked when the plan was to reopen at the end of April, I don’t think that’s going to happen.
This article is an incorrect and harmful analysis of the situation. The SBA paycheck protection program is SPECIFICALLY DESIGNED to keep your employees whole during this pandemic. These “loans” do not have to be paid back if they can be proven to have been spent responding to the medical or economic conditions brought forth by the pandemic. They have specific forgiveness provisions (in both the PPP AND other debt forgiveness programs IN the SBA arsenal) that you need to read again.
DO NOT FIRE YOUR EMPLOYEES. YOU DO NOT HAVE TO. TAKE THE MONEY.
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
The article was well written and has many accurate points but you are looking at this incorrectly. You must spend the money on payroll and utilities/rent over the 8 weeks after the loan is originated. We don’t know when these loans will originate (when you sign the paperwork and receive the money) but I expect that we will start seeing money in accounts the week of April 13th at the earliest and April 27th at the latest. If we open things back up the 1st week of May, you’ll have 6+ weeks to pay your staff, utilities, rent, etc. and then be able to deduct those expenses from what you have to repay. All the income you receive over that time period can be used to dig out of the expense of being closed for 6-8 weeks and the likely lower sales you’ll have after things open back up. The terms of this loan are not ideal but they are very useful if you consider that it’s fully funding your payroll, rent, and utilities for 8 weeks. I imagine you could delay the origination of the loan, closer to when you feel you’ll open back up.
AnonyMBA claims Stevens’ article is incorrect then links an article that mostly backs up what he wrote (although I see that some of the specifics have been slightly improved). I don’t see the problem with the article, and probably any “inaccuracies” are due to the situation evolving since the article was written.
As a fellow small (retail) business owner, I think you nailed it. Some of the commenters above did too. In particular, flexibly in when the funds are spent, and the terms under which it can be forgiving, would be huge. As it is, the PPP loan is not designed to help small business. It’s designed to shift the burden of providing a social safety net onto the shoulders of small business owners. Corporate bailouts, on the other hand, are very nicely designed to insulate investors from the risks of their investments. In other words: shareholders of corporate giants get protection from risks, owners of little companies get offered more risk.
@6 and @8
My claim is that the author is incorrect when he says he is considering not applying for these programs and is considering letting people go right now because of that.
I’m sure he has a line of credit that he can expand right now to offset those costs. The timing is important in terms of making himself whole, but again the PPP (which small businesses can take advantage of and should because it’s literally the only source of funds available rn) is for this exact purpose.
The rest are just excuses. Small business owners signed up for the risk by starting the business. They have obligations to their employees, and should do everything they can so that everyone they are responsible for isn’t suffering unnecessarily rn.
Get a better accountant (or another one, which also counts as a pandemic expense). It’s literally all small business owners need to do. Tax deadlines have been extended, and there is time to get all this money lined up. Don’t fire your employees because your panic or your ideology precludes common sense and compassion.
My business is in a very similar situation though not a restaurant. We are designed to bring people together, it is literally the core of my business model. I have laid off all my staff and switched to an entirely new business of online retail.
Every single point you noted was spot on. Every concern. No answers here, just solidarity.