New guidelines released Friday that were designed to clarify how businesses could qualify for loan forgiveness in the Payroll Protection Program have created even more confusion, especially in Spokane, where most businesses can’t yet open, a local banker said.
The U.S. Small Business Administration issued a few workarounds Friday after businesses across the country raised concerns about the requirement that all government money be used over eight weeks.
The funding, made available through the $659 billion Payroll Protection Program under the CARES Act, was designed to allow businesses to pay their employees to keep them off unemployment rolls. The rules require businesses to spend 75% of their PPP money on payroll during the coronavirus pandemic.
But the requirement that the money must be spent in eight weeks to be treated as a grant caused concerns, especially since businesses face the prospect of having the PPP money turn into a loan, which burdens them with more debt if they fail to meet the program’s benchmarks.
As a result, five Spokane-area businesses that represented 15% of PPP funding secured by State Bank Northwest have either rejected the money or given it back, President and CEO Greg Deckard said.
“That confusion caused people not only to give money back, but it is hindering others from applying” for PPP money, Deckard said. “It’s been complicated by other rules, and we still face the uncertainty in Washington state about how long (the stay-at-home order) is going to last.”
None of the business owners who gave back the PPP money were willing to discuss the situation for this story.
But among those who received funds, restaurant owners face some of the toughest questions, Deckard said. To reopen, some owners must spend significant funds to replace food and drink supplies. However, they only can use 25% of their PPP money on those types of expenditures.
“Even if you did reopen, there is no way to predict what customer traffic is going to be,” Deckard said. “I don’t know of any restaurant looking to open early that’s going to be profitable. So, you can be overstaffed with labor.”
As a result, the restaurant industry has asked the federal government to extend the eight-week payout to 32 weeks to give employers more flexibility.
The $3 trillion HEROES Act, which passed the U.S. House of Representatives last week but has not yet cleared the Senate, would also extend the PPP payout to 32 weeks.
Rather than extend the eight-week period, federal officials clarified how businesses could incorporate the PPP funding into different payroll systems under the eight-week rule, Deckard said.
He sat through three different webinars on Monday with accounting firms and lawyers as they tried to make sense of the new SBA guidelines, he said.
“This is typical of this entire program. There is a snippet of good information and other things that raised more questions than you had before,” Deckard said. “The spirit of the program was great. The implementation has been lacking.”
For instance, the new guidelines spell out how businesses can qualify for loan forgiveness.
Those applications for loan forgiveness are 11 pages long and call for even more documentation, Deckard said.
“It should have been a simple one-page application and a simple one-page request for forgiveness and be done,” he said. “As a result of all of this, small businesses are going to need to turn to their accountants, attorneys and bankers for assistance on how to complete a application package to receive forgiveness.
“I can’t estimate how many man-hours it is going to take to do the government’s work.”
Because of the fear of incurring more debt during an economic downturn, several business owners are returning the money or not applying even though they would have benefited from the program, Deckard said.
He noted that several Spokane area businesses, which obtained money from the first round of the program, are already halfway through the original eight weeks in which they must spend the federal relief money.
“If they moved it from eight weeks to 24 weeks, there would be a whole other tranche of businesses that would apply,” he said. “The simpler things get, the more complicated they become.”
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.