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For some small businesses, paycheck protection loans aren’t the answer

Justin Ho Apr 29, 2020
Some eateries decided they couldn't hire back all of their employees. Spencer Platt/Getty Images

For some small businesses, paycheck protection loans aren’t the answer

Justin Ho Apr 29, 2020
Some eateries decided they couldn't hire back all of their employees. Spencer Platt/Getty Images

Emergency loans are lifelines to small businesses and their workers, with unemployment skyrocketing during the COVID-19 pandemic. Still, the emergency loans from the federal Paycheck Protection Program come with a lot of strings attached. Some businesses have started to question whether the loans are worth it.

Back in mid-March — before the PPP program started — Heather Whaling ran the numbers for the PR company she runs, called Geben Communication. She had already made cuts to her business and realized her outlook was pretty good.

 When the PPP launched on April 3, she didn’t apply.

“It just felt like there were other people who needed the money more than we did,” Whaling said.

 Plus, forgiveness of a PPP loan is based on the requirements that businesses maintain or quickly rehire employees and maintain salary levels. Whaling said she didn’t want to be held to those kinds of requirements.

“That could potentially make me make decisions that maybe weren’t in the best interest of the company long term, but I was making them because of some requirement of a loan that I had to fulfill,” she said.

Part of the issue is that for many people who have lost their jobs, unemployment insurance — which includes $600 a week in emergency pandemic benefits — pays more than what they’d be making if their old employers hired them back.

Matt Hetrick runs an accounting company called Harmony Group in Maryland. It works with small businesses, including a lot of restaurants.

“You can’t really say to a line cook, ‘I want you to come back and work 50 or 60 hours a week to make less money and put yourself at risk,’ ” Hetrick said.

Some restaurants have been looking at that math and realizing the Paycheck Protection Program isn’t really worth it.

“The details just didn’t really seem to fit,” said Genevieve Villamora, co-owner of a restaurant in Washington, D.C., called Bad Saint, which shut down operations on March 15.

Villamora didn’t apply for a PPP loan. Even if Bad Saint reopened, she doesn’t think she’d have the business necessary to hire back all of her workers or the space for people to work safely.

“Restaurants are packed, usually, in the dining room and in the back of the house — in many of the parts where you can’t see where staff are working,” she said. “It’s a lot of people. It takes a lot of people to run a restaurant.”

The loans charge 1% if they aren’t forgiven. But Villamora said for businesses like hers, that could still mean having to shell out big monthly payments.

“We’re a really small restaurant. We have 17 employees,” Villamora said. “Any amount of debt we are taking on is a big deal to us.”

In the meantime, she’s been applying for private grants.

COVID-19 Economy FAQs

What does the unemployment picture look like?

It depends on where you live. The national unemployment rate has fallen from nearly 15% in April down to 8.4% percent last month. That number, however, masks some big differences in how states are recovering from the huge job losses resulting from the pandemic. Nevada, Hawaii, California and New York have unemployment rates ranging from 11% to more than 13%. Unemployment rates in Idaho, Nebraska, South Dakota and Vermont have now fallen below 5%.

Will it work to fine people who refuse to wear a mask?

Travelers in the New York City transit system are subject to $50 fines for not wearing masks. It’s one of many jurisdictions imposing financial penalties: It’s $220 in Singapore, $130 in the United Kingdom and a whopping $400 in Glendale, California. And losses loom larger than gains, behavioral scientists say. So that principle suggests that for policymakers trying to nudge people’s public behavior, it may be better to take away than to give.

How are restaurants recovering?

Nearly 100,000 restaurants are closed either permanently or for the long term — nearly 1 in 6, according to a new survey by the National Restaurant Association. Almost 4.5 million jobs still haven’t come back. Some restaurants have been able to get by on innovation, focusing on delivery, selling meal or cocktail kits, dining outside — though that option that will disappear in northern states as temperatures fall. But however you slice it, one analyst said, the United States will end the year with fewer restaurants than it began with. And it’s the larger chains that are more likely to survive.

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