By Joyce Gannon Pittsburgh Post-Gazette
WWR Article Summary (tl;dr) More funding is on the way to replenish the federal government's emergency fund but is it too late for some small business owners? Joyce Gannon takes a closer look at was this means for those struggling to survive.
When the federal government's $349 billion emergency fund to help small businesses survive the COVID-19 crisis dried up last week, Lillian Rafson was waiting to learn whether her application had been received, much less approved.
Ms. Rafson, who owns a Downtown travel agency, Pack Up & Go, is now among millions of business owners nationwide hoping for a share of much-needed relief from a new round of federal funding.
On Tuesday, the U.S. Senate approved $310 billion in additional funds for the Paycheck Protection Program and another $60 billion for a separate disaster loan program, both administered by the U.S. Small Business Administration.
The House is expected to vote on the measure Thursday.
After the first round of funds was depleted in less than two weeks, many observers are warning the new infusion still won't be enough to keep millions of small businesses from closing for good or filing for bankruptcy as a result of the pandemic sending the global economy into free fall.
"For small business owners facing increasingly dire circumstances, additional funding ... is necessary but not nearly sufficient," said Amanda Ballantyne, executive director of the Main Street Alliance, a national network of small business coalitions based in Washington, D.C.
"The economic horizon remains far too uncertain," she said.
Some banks also expect the new funds may not last long.
On its website, PNC Financial Services Corp. posted this: "Unfortunately, with the significant volume of applications already submitted to PNC and other lenders, it is likely that not every qualified applicant will receive loan proceeds under the PPP even if Congress authorizes additional funding. In addition, any changes made to the PPP by Congress, the Department of Treasury or SBA may affect our ability to further process or approve PPP applications previously submitted."
Ms. Rafson applied for the Paycheck Protection Program on April 3, the first day that applications were available.
"I haven't heard either way," she said earlier this week. "I heard it was under review but there was no final confirmation."
Last month she laid off three of her 13 employees -- a decision that left her feeling "defeated," she said, because those people lost their jobs and their health care coverage.
Ms. Rafson last week received an Economic Injury Disaster Loan through the SBA. She had applied for that in March and waited weeks to learn if it had been approved. She declined to specify the amount but said it was "higher than I anticipated" and she will use it "judiciously to cover working capital."
Crushing demand When Congress approved the first round of funding for small businesses as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, demand was so overwhelming that the application process became chaotic and millions of businesses were shut out.
Some banks had trouble accessing the site and providing guidelines; SBA websites crashed repeatedly; and some rules and requirements for the program were changed midstream.
As of April 16, the SBA said it had approved more than 1.66 million loans for more than $342.2 billion.
An estimated 30 million small businesses operate in the U.S. Small businesses with fewer than 500 workers comprise 99.9% of all businesses in the country, according to the SBA.
Criticism of the Paycheck Protection Program intensified after reports that some multi-million dollar loans went to large restaurant and hospitality chains including Potbelly and Ruth's Chris Steakhouses. One national chain, Shake Shack said Sunday it would return its $10 million loan.
In Pennsylvania, the SBA said banks processed almost 70,000 PPP loans during the first round that will channel more than $15.6 billion into small businesses.
A major advantage for businesses that get one is that the SBA will forgive the loan if employees are kept on the payroll for eight weeks and if firms use the funds for payroll, rent, mortgage payments or utilities.
Applicants could seek up to $10 million but the SBA said 70% of loans approved were for amounts under $150,000.
Not so simple Rich Longo, interim director of the Small Business Development Center at Duquesne University, said at least three of the center's clients received loans that ranged from $275,000 to $425,000 apiece.
In recent weeks, he said, the SBDC fielded about 30 calls and 20 emails per day from existing clients and entrepreneurs who didn't previously have a relationship with the center.
While the Paycheck Protection Program application appeared simple at first glance, Mr. Longo said, some banks that were processing the paperwork sought more information from businesses, including credit reports and pre-applications.
He suggested applicants who have yet to hear whether they got money in the first round of funding should check with their banks to determine the status of their application and whether they will need to reapply or automatically be considered in the second round.
Duquesne's SBDC is already working with businesses on how to restructure for when the economy reopens.
Small enterprises that rely on consistent, "robust cash flow" such as restaurants, barbershops and beauty salons, said Mr. Longo, may be the most likely to fail.
"For most small businesses, it's about how long can this embargo go on. The longer it goes on, there's just going to be a stronger and stronger propensity for some of these businesses not to survive."
Say a restaurant reopens for on-site dining but has to place empty tables in between tables where customers are served to meet social distancing requirements.
"Imagine what that's going to do to their business," said Mr. Longo. "It could reduce it by half."
'Buckle up' Ms. Rafson's travel agency, which arranges trips to surprise destinations nationwide, began adjusting its business strategy in mid-March as she observed a number of coronavirus cases being reported near Seattle, which became the focus of the first major outbreak in the U.S.
"My advisors all told me the same ominous thing: buckle up because this is bad and only going to get worse," she recalled.
As cancellations mounted, the 4-year-old firm quickly assembled "staycation" packages that would allow customers to book hotels and attractions in their own cities.
But as the virus spread, those too were canceled or postponed. During daily calls and virtual meetings with her staff, Ms. Rafson said, "I let myself cry as I told them the bleak reality: I was doing everything I could but it wasn't going to be enough."
Besides the federal loan programs, Pack & Go applied for and received loans totaling $15,000 from the city's Urban Redevelopment Authority and Hebrew Free Loan Association.
It's using the downtime to reach out to small business partners in destination cities where it sends travelers to come up with partnerships for the future.
After record sales in 2019, the agency had planned to launch new technology this spring that would streamline its bookings. "Now I'm trying to forgive myself for taking the financial risk of investing in new technology," said Ms. Rafson.
"But no one could predict the travel industry would come to a screeching halt. " __ Distributed by Tribune Content Agency, LLC.