Small Businesses Have ‘A Million Questions’ About Payday Relief Loan

Jourdain Degarmo, CEO of Mr. Muggles’ Dogs

Joe drypolcher

Jourdain Degarmo had to lay off all seven employees at his dog daycare in San Francisco last month after California’s shelter-in-place ordinance forced non-essential workers to stay at home. Degarmo has continued to pay his wages with his cash, but needs the help of the government to keep these checks in circulation.

On Friday, Degarmo and millions of small business owners like him will start asking for government-guaranteed loans that will allow them to pay people not to work in the hope that once the economy reopens, companies can pick up where they left off. With unemployment claims for the past week hitting a record 6.6 million, the Trump administration desperately wants the money to keep flowing so families can pay the rent and put food on the table.

“I want to keep my staff and the people who have worked for me for years,” said Degarmo, 30, who owns Mr. Muggles Dogs with her husband.

But confusion about Small Business Administration loans is rife among banks and among potential borrowers. The banks responsible for accepting requests and distributing money are not all aware and, inundated with requests, send different messages to their customers. CNBC reported Thursday that JPMorgan Chase, America’s largest bank, had informed clients via email that it likely wouldn’t be ready to start accepting applications on Friday. Bank of America’s lending portal went live on Friday morning, making it the first major bank to go live.

Business owners, meanwhile, are unclear on the details of the program and unsure whether they will have to reimburse anything as the claim form continues to be revised. Degarmo said he contacted his credit union on Wednesday and was told to come back in a day or two for more information. He relies on his accounting firm to help him throughout the process.

“They’re really the ones who sail for us because I don’t understand a thing,” Degarmo said.

PPP: a loan that you may not have to repay

The loan in question is the Paycheck Protection Program (PPP), and it represents $ 349 billion of the $ 2 trillion coronavirus rescue program, or CARES law, passed by Congress and enacted last week. . Businesses with fewer than 500 employees are eligible, including independent contractors. Employers can claim to receive up to 2.5 times their average monthly payroll, including health care benefits, for annual salaries of up to $ 100,000. Loans are up to $ 10 million.

The main point of confusion for some companies is that P3 is not really a loan in the traditional sense, as they may never need to pay it back.

Employers who retain staff or hire workers on leave while reducing wages by up to 25% are eligible for a full rebate if all the money is spent on payroll, rent and utility costs on a one-off basis. eight week period. The amount of the discount decreases for companies that do not meet all the requirements.

“It’s actually an injection of equity without any property,” said Scott Orn, chief operating officer of San Francisco-based Kruze Consulting, which advises start-ups and small businesses on accounting, fiscal and financial matters. “The government is buying jobs.

Orn, who previously worked in the subprime debt industry, praises the Treasury Department for quickly putting together a big package and releasing a short (two-page), accessible app. But after spending hours reviewing eligibility requirements and chatting with bankers, some issues are still unclear, he said.

On the one hand, there is no consensus on whether contractors are included in wage costs, Orn said. In addition, the government has not given banks sufficient advice on how to handle the application process. The banks will review the applications and distribute the money, but they don’t know when the government will pay them back or whether they will be financially responsible if the loans are not processed properly.

“I had two bankers who told me they were worried about ending up with the bag,” Orn said. “The banks are concerned about their liability and how quickly the SBA will reimburse them the money.”

Three other types of loans available

The first challenge that many business owners face is determining which loan is the right one.

The SBA has set up a website – Coronavirus (COVID-19): Small Business Guidance & Loan Resources – with four options for accessing capital.

In addition to the PPP, companies can request:

Meredith Erin, co-owner of online clothing company Boredwalk in Los Angeles, said she applied for an emergency loan on March 16, then heard of another coronavirus-related relief loan accepting applications this week. It’s a lot for her and her husband, who runs the business with her, to understand as they try to take care of their five employees and keep the site running.

Erin is part of a network of ecommerce executives who share information with each other, but everyone is confused, she said. They don’t know how much money they can get or at what interest rate.

“I still have a million questions that I don’t have answers to,” Erin said. “We try to talk to people about the SBA and talk to colleagues who are going through the exact same thing as us to try to understand.”

In Columbus, Ohio, Taj Schaffnit, CEO of e-commerce company eRetailing Associates, had to lay off more than two-thirds of his 95 employees last month. With revenues halving and the virus spreading rapidly, Schaffnit said he felt a “moral obligation” to protect people because he was not running a vital business.

Employees at eRetailing Associates

Online sales associates

Like the owners of Boredwalk, Schaffnit has considered several capital options, but he wants to avoid taking out a traditional SBA loan because he is unsure whether the business will back down enough to justify going into debt. Payroll protection money makes more sense because it allows him to pay employees during this time of extreme uncertainty, but he is not sure he will be able to keep employees when loans run out.

“You should always do what is prudent and financially correct.sresponsible for the viability of the business, “said Schaffnit, whose company specializes in custom clothing.” You can bring them back for eight weeks, but if you don’t have the volume after that, what do you do? “

Tech start-ups face an extra wrinkle

Many of Orn’s clients are venture capital-backed technology companies, which face an additional layer of complexity under SBA guidelines.

Venture capital firms are typically assigned a level of control by the SBA that renders their portfolio companies ineligible for small business loans. Yet, according to the National Venture Capital Association, 97% of companies that have raised VC funds since 2015 have fewer than 500 people and still experience the volatility associated with small businesses.

In a March 27 letter to Treasury Secretary Steven Mnuchin and SBA Director Jovita Carranza, the NVCA requested that the program be made available to tech start-ups, which are suffering along with the rest of the economy. A number have already announced massive layoffs due to the collapse in travel, tourism and consumer spending.

“Failure to make it clear that small businesses with equity investors are eligible for the loan facility will cost jobs not only for startups, but also for many small independent service-oriented businesses in communities across the country. ‘America,’ wrote Bobby Franklin, CEO of NVCA. “These start-up workers, who include engineers, customer service representatives and human resources professionals, are the very customers that small, service-oriented businesses, such as restaurants and cafes, rely on for their sales,” which makes economic recovery after the crisis even more difficult. “

What about rent relief?

Schaffnit said that in trying to stay educated he had the benefit of working with Fifth Third, an Ohio-based bank that has expertise in small business lending.

In San Francisco, Shirley Ng had a very different experience with Wells Fargo.

Ng, who owns a small office furniture and equipment company called Cycon Office Systems, said she visited a local Wells Fargo branch earlier this week and was told by a banker that the company was not yet making SBA loans. Ng said she was told to come back on Friday, when the bank hopefully has a better understanding of what to do.

Ng is trying to figure out whether to sue the payroll protection money because it doesn’t meet his greatest need: rent relief. She only employs another full-time employee and a few part-time employees, but pays $ 16,000 per month in rent for offices and warehouses in San Francisco and Daly City.

In Daly City, the owner gives him a free month. But according to an amended rental agreement from his San Francisco landlord, Ng is asked to defer the April and May rent – over $ 21,000 – and pay it back over a year. If she can’t pay, the money will come out of her deposit, the agreement says.

Ng knows she is losing at least two months of income and doesn’t know how many deals there will be after that. Its owner will not budge.

“How do I make up $ 21,000 in 12 months?” Ng said, adding that his lawyer advised him not to sign the lease. “The government has to do something about the rent or the landlord.”

CNBC’s Jordan Novet contributed to this report.

Correction: Shirley Ng’s company has offices and warehouses in San Francisco and Daly City. An earlier version misspelled the name of one of the cities.

LOOK: Small Business Administration challenged to quickly grant $ 349 billion in loans

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