While government aid initiatives like the Paycheck Protection Program have helped small businesses, frustrations are mounting on Main Street due to a lack of guidance from the Small Business Administration on loan forgiveness and how to use the funds appropriately to avoid being on the hook for repayment, a new survey shows.
As the Covid-19 pandemic continues to rattle the economy, nearly all small businesses are being negatively impacted from mandated closures to layoffs and lost sales. The National Federation of Independent Business reports that 80% of small business owners surveyed applied for a PPP loan, and of those who applied 90% received funding.
Most are moving ahead with using the funds, as there is an eight-week window to spend the money from the time of disbursement, with 75% allocated to payroll and 25% to other expenses like rent and utilities in order to be forgiven, according to the survey, which collected data on May 18 from 685 business owners.
More than half of business owners expect all expenses to be forgiven, and 27% say they expect three-quarters of the loan to be forgiven under current guidelines, as understood. Few want this to turn into a low-interest loan.
Borrowers report requirements are challenging to either comply with or to meet in order to qualify for maximum loan forgiveness. Nearly half they say using the loan within the eight-week window is somewhat or very difficult, and the same percentage finds it very or somewhat difficult to get employee headcount back to precrisis levels.
The SBA and Department of Treasury released a forgiveness application last week for borrowers, and promised more guidance for borrowers and lenders was forthcoming on forgiveness.
The funds available in phase two of the PPP have lasted much longer than in phase one, with more than $100 billion in funds still left unallocated so far of the $310 billion funding cap, several weeks into the program. Funding ran out in just two weeks during round one, as the average loan size was much higher at around $200,000, compared with just about $70,000 in round two.
An employee wearing a protective mask prepares cut flowers at a wholesale flower market in San Francisco, California, on Monday, May 18, 2020.
David Paul Morris | Bloomberg via Getty Images
"Owners have questions about how to spend the funds and what they can spend the loan on as many of the terms and conditions are broad and unclear when applied to specific business operations. Nearly three-fourths of small business borrowers find the terms and conditions of the PPP loan difficult to understand with 22% finding them very difficult," the report said.
President Donald Trump and Treasury Secretary Steven Mnuchin have signaled openness to potential changes to the program to ease some of Main Street's concerns.
Leaders from the restaurant industry including Jose Cil, CEO of Burger King parent company Restaurant Brands International, Panera CEO Niren Chaudhary, entrepreneur Tilman Fertitta and Marvin Irby, interim CEO of the National Restaurant Association, met with Trump at the White House on Monday, pushing for changes to the program, including the eight-week window to use the funds.
The International Franchise Association has also pushed for changes to the program in a recently published Franchise Reopening Blueprint, which suggests increasing the maximum PPP loan to eight months of covered costs, altering the 75/25 ratio of payroll to other expenses to a 50/50 split and extending the covered period for loan forgiveness to Dec. 31, not eight weeks from disbursement.
"The current date of June 30 is not realistic based on shelter-in-place orders, anticipated return of demand and business operations," the group said.
Main Street advocates are eager to see lawmakers move ahead with proposed changes when the House votes on the Paycheck Protection Flexibility Act next week, which makes tweaks to the PPP, including extending the covered-period window of eight weeks and the split on what the funds can be used on. The proposed changes have bipartisan support and could encourage more business owners to apply for aid.
"No doubt, these key changes will make the program work more effectively for small businesses and their employees. These changes also align with conditions on the ground," said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council.
"PPP needs to be structured more flexibly at this point given the very different stay-at-home and shutdown orders in the states, and the very different plans and phases for reopenings, which will drive demand," she said. "A one-size-fits-all PPP program does not work — things have changed tremendously since the design of the program in early to mid-March."