John Clifton, owner of Towson Delly, isn’t thrilled about taking a Paycheck Protection Program loan. He’s owned the eatery for 22 years and “never depended on the government.”
He would have preferred to stay open, serve his loyal customers and never tap the credit, and he’s worried about the impact of all the spending on taxes and inflation. But since March, state government, in a bid to slow the spread of the COVID-19 outbreak, limited his business operations to mostly curbside pickup orders. As a result, he said, revenues are down 50 to 60%.
“I don’t like the feeling, but we’re in survival mode,” Clifton said.
While many businesses took the loans in a desperate bid to survive the crisis, a survey of National Federation of Independent Business members released Thursday, found most enterprises don’t expect to fully repay what they borrowed.
About 54% of business owners who borrowed money, according to the survey, expect the federal government to forgive those expenses. Another 27% said they believe at least 75% of the loan amount will be forgiven.
Congress approved two tranches of PPP funding, via the Coronavirus Aid, Relief and Economic Security Act, totaling roughly $659 billion since late March.
PPP funds were supposed to go primarily toward helping businesses avoid layoffs during the crisis. Those loans are eligible for forgiveness if the borrower retains its pre-pandemic workforce.
So far, according to the survey, the loans have not made it much easier for businesses to avoid letting employees go.
About 1 in 5 respondents to NFIB’s survey contended that meeting the condition that a businesses’ employee head count match pre-crisis numbers is “very difficult,” because firms already had laid off employees by the time the loans were approved.
Another 28% said they found it tough to maintain or return to their pre-crisis staff level. Roughly 66% of the respondents said they found it difficult to abide by the programs restriction that 75% of the loan go to payroll.
But the survey also found, however, that 48% of borrowers said it was at least “somewhat difficult” to spend the loan within the eight-week period required in order to qualify for loan forgiveness.
The national unemployment rate has soared to nearly 16% nationwide, a level not reached since the Great Depression roughly 90 years ago. In the last nine weeks nearly 608,000 workers filed first-time unemployment claims in Maryland alone.
“Small businesses continue to face many challenges in operating their business in these difficult times,” Holly Wade, NFIB’s director of research and policy analysis, said in a statement. “Congress and the (Trump) administration have the authority to further lighten the burden for many of their immediate concerns, especially in offering more flexibility for PPP loans.”
Survey results do suggest better management of PPP, which was initially beset by problems.
Among the major issues were bigger banks processing applications of large clients first; major retailers receiving millions in loans; and many businesses shut out altogether from the first tranche of loan funds that totaled $349 billion.
NFIB’s study found about 80% of respondents applied for the loans and that nearly 90% of those firms already have received loan funds.