By Lorraine Mirabella The Baltimore Sun
WWR Article Summary (tl;dr) For some small business owners, the Paycheck Protection Program is too little too late. On top of that, many say the rules on how and when owners can spend the money are overly restrictive.
The silence feels oppressive when Lee Hirschmann stops by his Catonsville instrument sales and repair shop to pick up the mail. Workshop shelves, normally packed with guitars, saxophones, flutes and clarinets awaiting service, are empty.
Shuttered for more than two months as the coronavirus spread, The Band Shoppe has been turning customers away. A Baltimore County order allowing retailers to offer curbside service starting last Friday may have come too late.
“No music in a music store is an eerie feeling,” said the owner of the small shop along Frederick Road’s retail strip.
For weeks, Hirschmann pinned his hopes on securing a forgivable loan through the federal Paycheck Protection Program. But finally getting a $15,000 loan hasn’t helped. Meant as a lifeline for small businesses that lost some or all their income, the program has doled out hundreds of billions of dollars, including $6.5 billion in Maryland during a first round of funding. But some businesses find the program too restrictive and are falling through the cracks.
“The intent of the program was good at its core, to keep people employed and ideally off unemployment,” said Jeff Rosen, co-managing partner of RS&F, a Towson-based consulting and accounting firm. “But the program did not align with the types of challenges being addressed by different industries. It was set up as one size fits all."
Congress designed the loans as a way for companies to pay workers but also cover other expenses such as rent and utilities. After businesses gobbled up the first round, more money was made available and funds remain now; some businesses, however, find the loans impractical. For loans to be forgiven, companies must use 75% of the funds for up to eight weeks of payroll by the end of June, before many have reopened or have their regular flow of customers back.
“It’s more beneficial to a business still substantially in business, and in many cases deemed essential, and less favorable for businesses completely shut down such as restaurants or retailers,” Rosen said.
Guidance from the Treasury Department and the Small Business Administration keeps changing, leaving businesses and their advisers confused, he said. Some of Rosen’s clients worry they can’t meet all the requirements for the loan to become a grant.
“The potential net result is companies giving back the loan and not retaining employees,” he said.
Steve Bulger, the SBA’s acting regional administrator for the Mid-Atlantic region, said the program is working when he announced that SBA lenders approved loans worth $181 billion for more than 2.4 million businesses in a second round of funding from April 27 through May 5.
For Hirschmann, though, drawbacks emerged after he was approved for $15,000. As a loan recipient, he no longer qualifies for unemployment insurance or other state or county help for his business. If he pays his own salary with the loan and uses more than a quarter of it for expenses, he will have to pay it back with interest.
He could use 25% percent for expenses such as utilities, but then he can’t write off those expenses on his tax return. On the other hand, he can pay his three employees. He’d taken out a personal loan to pay them before landing the PPP loan.
He feels that “they’re forcing your hand to be paying money back,” Hirschmann said. “I’m not looking for handouts. I could pay all my bills and not even worry about all this, but not if you’re going to prevent me from working and having any type of income."
He’s worried about the future of his business and his family. His wife is expecting the couple’s first child in September and her job as a middle school orchestra teacher is uncertain as well. He’s reluctantly thought about selling the shop.
April Richardson, a longtime entrepreneur and business attorney, missed out on the first round of PPP funding but was approved last week in the second round for a loan for Baked in Baltimore on Reisterstown Road. The bakery’s retail shop has been shut down since March 17 while the commercial side lost 30 percent of its business to supermarkets, restaurants and stores.
Richardson, like Hirschmann, found out she can’t use the loan for her own salary, which is paid as an owner’s draw. And she’s forced to spend the payroll money within eight weeks but doesn’t know when the retail bakery can reopen or when the commercial side can return to full capacity or will have adequate personal protective equipment to bring people back safely.
“It is not safe enough to come back to work,” Richardson said. “The program is forcing us to make people come back to work in unsafe conditions" at a time when Baltimore City remains under lockdown.
“PPP wants you to pay people for nothing,” she said. “We are really going to need to use that money when business resumes as normal.”
Yasmine Young, owner of Diaspora Salon on North Charles Street in Baltimore, is weighing the pros and cons of whether to keep a PPP loan she received last week, especially since she learned Thursday that Baltimore City salons must remain closed.
“The business has had zero income in two months,” Young said. “We were able to receive the PPP loan, but the issue is we are making more on unemployment than if we were to come off unemployment.”
She needs to pay rent and utilities and “the reserves are going pretty fast," but worries about needing to repay a $22,000 loan that could end up being not forgivable.
Despite four bipartisan legislative packages, large segments of the workforce and business sectors have not benefited from federal economic relief programs, Sen. Chris Van Hollen said last week as he and two other Democratic senators proposed additional small business assistance.
“It’s been helpful to some but not to many,” Van Hollen said. “Really a lot of these businesses that got hit hard early need a much more flexible program. Because of the design issues within the PPP and because of regulations the Department of Treasury imposed, it’s become less practical for some small businesses to use effectively."
The HEROES Act, passed Friday by the House, addresses some of the PPP concerns, such as raising the current 25 percent cap on fixed costs and extending to the end of the year the period of time to put employees back on the payroll. But the bill could be changed in the Senate.
Van Hollen and the other two senators are proposing additional relief in the form of grants and payroll support.
Most business owners, though, are just hoping for the soonest opening possible.
Mike Whitman figured his timing for starting a new business couldn’t have been worse. He opened Iron Bunker, a small membership-based fitness center specializing in personal training, in Timonium on Feb. 1.
Less than a month later, he had to shut down. He applied for an economic injury disaster loan and state assistance, but was told his business had opened a day too late for a Jan. 31 deadline to qualify. His PPP loan application was held up because the bank requested payroll documentation from last year, before he had opened.
“It took weeks for me to get in contact with someone to waive that off,” said Whitman, who has been using reserves to pay his two employees while waiting for the loan. “We haven’t fired anyone. We’ve just been holding water. It’s very frustrating.”