By: Fern Sidman
The Coronavirus has not only permeated our lives, caused sudden deaths and has proven to substantially increase our anxiety levels, but now has devastated the economic climate in America. Only months ago, the economy was roaring; the best it has ever been. People were employed in record numbers and the stock market was performing so well that experts on Wall Street were stunned. Until, however, the invisible enemy emerged from China and began to wreak global havoc.
As the old saying goes” What a difference a day makes.” That is for sure. Today, close to 30 million Americans are out of a job – either laid off or fired. Before this country entirely collapsed from a financial perspective, President Trump thought on his feet and began cobbling together a mammoth relief package.
As the Washington Post reported in March, the Senate passed the $2.2 trillion economic relief package which was aimed at limiting the financial trauma that the pandemic is inflicting on the United States. Lawmakers acted with unusual speed to produce the largest economic rescue package in the nation’s history.
Moreover, the bill was passed unanimously after the perfunctory partisanship between the two sides drew to a conclusion. The sprawling legislation, which passed 96-0, had promised to send economic stimulus checks to more than 150 million American households, set up enormous loan programs for businesses large and small, pump money into unemployment insurance programs, greatly boost spending on hospitals, and much more, according to the Washington Post report.
Because of the dire state of financial affairs, both Democrats and Republicans voted for the bill that would significantly relieve the burden that all Americans were feeling.
The first loan program being heralded by the SBA was the Paycheck Protection Program which provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities. Highlights of the Paycheck Protection Program (PPP), authorized by the CARES Act, include:
- Loans of up to $10 million with an interest rate of 0.5%.
- Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors—are eligible. Businesses with more than 500 employees are eligible in certain industries.
- Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
- PPP loans, unlike EIDL loans, are processed through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
- The program will be available retroactive from Feb. 15, 2020, so employers can rehire their recently laid-off employees through June 30, 2020.
The Paycheck Protection Program’s initial $349 billion allotment was exhausted after just 14 days and another $310 billion was added last week.
The new round of funding would also add $60 billion to a separate emergency loan program for small businesses, the Economic Injury Disaster Loan (EIDL) program, which is administered by the SBA.
Small business owners all across the USA were able to apply for an EID loan advance of up to $10,000. This advance is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. SBA will begin accepting new Economic Injury Disaster Loan (EIDL) and EIDL Advance applications on a limited basis only to provide relief to U.S. agricultural businesses.
The new eligibility is made possible as a result of the latest round of funds appropriated by Congress in response to the COVID-19 pandemic.
o Agricultural businesses includes those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
o SBA is encouraging all eligible agricultural businesses with 500 or fewer employees wishing to apply to begin preparing their business financial information needed for their application.
These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
The SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
On May 4th, NPR filed a reported indicating that the Paycheck Protection Program has suffered technical difficulties, and frustrated small business owners.
NPR asks: Where, exactly, is the money going?
NPR reported that the SBA gave another glimpse into this with a report on PPP activity through May 1. It showed that $175.7 billion in loans had been approved just five days into the program’s second round of funding. That’s on top of the $349 billion loaned out in just 13 days during the program’s first round.
Questions have arisen about how well the loans are reaching the businesses that need them most.
It was reported by NPR that such companies as Shake Shack, for instance, which employs nearly 8,000 people at its 189 restaurants, but only around 45 in each location.
The fast food restaurant chain applied and was awarded a $10 million loan from the SBA, which roiled many people considering the mounting evidence that many smaller restaurants who needed the money weren’t able to get loans, according to the NPR report. Shake Shack promptly returned the money.
On April 24th,Fox News reported that Ruth’s Hospitality Group, the owners of Ruth’s Chris Steak House, announced that they would be returning $20 million in small-business loans obtained from the SBA. The Treasury Department clarified that large companies with “substantial market value” would be unlikely to demonstrate, in good faith, that they would be in need of such small-business loans, according to the Fox News report.
Hundreds of thousands had also signed a Change.org petition earlier this week, urging Ruth’s to repay the loans, lest the group be “shamed forever.”
“We intended to repay this loan in adherence with government guidelines,” Ruth’s wrote in a statement. “As we learned more about the funding limitations of the program and the unintended impact, we have decided to accelerate that repayment. We remain dedicated to protecting our hardworking team. It is our hope that these funds are loaned to another company to protect their employees, just as we intended.”
NPR reported that businesses have been quickly snapping up this second round of funding. The SBA has announced nearly $176 billion in loan approvals in five days thus far — an even faster clip than the first round’s $349 billion in 13 days.
In the first round, hotels and restaurants — which were among the hardest hit by layoffs — received only around 9% of the money.
CNBC reported that minority, women-owned and rural small businesses may not have received loans under the PPP because the SBA did not instruct lenders to prioritize underserved communities as called for under the law, according to an inspector general report.
The inspector general found the SBA and Treasury Department issued requirements for loan forgiveness that do not align with the law, according to the CNBC report. The SBA requires borrowers to use at least 75% of the loan to cover payroll to qualify for forgiveness, but the CARES Act doesn’t call for this, according to the report.
“The Inspector General’s review makes clear that the Trump administration must immediately fix the Paycheck Protection Program to help the truly small businesses that have so far not received the help they need,” said Sen. Chuck Schumer, D-NY, who requested the report along with Sens. Ben Cardin (D-Md.) and Sherrod Brown (D-Ohio).
“SBA must do more to stop the special treatment for well-connected big business at the expense of legitimate small businesses struggling to stay afloat and support their workers during this pandemic,” Schumer said.
The National Federation of Independent Businesses, in a survey published Tuesday, said more small businesses are now receiving funding, with 61% of applicants receiving their loans so far, as was reported by CNBC.
Speaking to the Jewish Voice, Avichai Douek of the Douek Accounting Firm in Brooklyn explained the differences between the PPP and EIDL. He said, “These loans are on a first come, first serve basis. If small businesses need financial assistance to help make their payroll for the next two months, then the PPP is the program that would be most helpful. If funds are distributed to employees rather than having them file for unemployment insurance and increase the jobless rate, then the loan is forgivable and turns into a grant.”
He added that “The terms of an unforgiven PPP loan are still generous, with one percent interest paid back in two years, with no other borrower or prepayment fees.”
Mr. Douek also added that the EIDL is for those small business owners who need to retool their businesses, invest money in future projects that will generate income or pay overdue mortgages or other outstanding expenses.
On a local level, the Jewish Voice applied for the SBA Paycheck Protection Program loan on April 6th; submitting detailed records and paperwork that was required in the loan application instructions. According to Jewish Voice publisher David Ben Hooren, the newspaper has thus far received absolutely no response from the SBA other than a notice that its application has been received. Moreover, Mr. Ben Hooren said he did not receive his economic stimulus check of $1200 or the $500 payment for each child, even though he supplied the Internal Revenue Service with his direct deposit information.
Matthew R. Coleman, the Regional Communications Director for the U.S. Small Business Administration told the Jewish Voice that “small businesses do not apply for the Payroll Protection Program through the U.S. Small Business Administration. Instead, applicants, like those of The Jewish Voice, apply through a bank or other PPP-participating lender. These financial institutions have delegated authority, issued by Congress in the CARES Act, to make the loans on behalf of the SBA. SBA does not directly loan to individuals, except in disaster cases through the EIDL program.”
He added that, “Payroll Protection Program applications are submitted by the bank electronically via the E-Tran computer system. Immediately upon submission and processing, the lender receives an E-Tran number for each submission, indicating it is backed with federal funding. Once a lender receives the E-Tran number, by law (in the CARES Act), they have 10 calendar days in which to disperse the loan funds to the applicant.”
