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Matt “Kush” Kuscher stands outside his KUSH restaurant in Miami on April 29. Kusher and other restaurant owners are struggling after they were denied funds from the first Paycheck Protection Program and need help from the second program to keep their business going. Charles Traynor, Jr./Miami Herald/Tribune News Service/Getty Images
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Months after Congress created the Paycheck Protection Program (PPP) in an attempt to support small businesses during the Covid-19 pandemic, people are still baffled and even outraged by the ambitious, unprecedented experiment.
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Take, for example, what happened to Mark Fisher Fitness (MFF), an LGBTQ-focused New York boutique fitness studio. Since the company received a PPP loan in April, it was able to rehire 28 employees laid off in March when the coronavirus crisis hit and its offices closed. But in order for the loan to be forgiven, MFF had to spend two months’ worth of money, mostly on wages.
“This gave us the opportunity to retain the entire staff for eight weeks and maintain that sense of community and continue our great unicorn experiment to bring health and vigor to the masses,” said Andrew Cole, director of human resources at MFF. .
But the delay on the PPP loan did not last long. Despite moving to online classes for the foreseeable future, MFF has again had to lay off most of its staff and is closing one of its two branches for good.
However, compared to other small businesses that have applied for PPPs, he was generally lucky to get a loan. Many small business owners, especially minority-owned businesses, say they have been denied loans for even a few thousand dollars, while larger businesses like the Los Angeles Lakers and Shake Shack have received millions of dollars in loans. (Faced with public backlash, some of these large businesses ended up getting their money back.) Others say the loan amounts they received were too small to help at all. And the lack of transparency in the program feeds misconceptions about what PPP was supposed to achieve in the first place.
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The controversy surrounding the PPP program, which supports businesses with 500 or fewer employees, is largely due to a mismatch between the structure of the program and the way Americans think about business. The real purpose of the PPP was to keep American workers on the payroll, not just to keep small businesses running. And so most of the money was paid out to businesses with a large number of employees, rather than tiny businesses with a small staff. That’s why a program that many see as designed to support the most vulnerable US small businesses ended up prioritizing businesses that aren’t actually that small.
As the program draws to a close – the application deadline has been extended from June 30 to August 8 – and it’s unclear if there will be another round of loans, Recode looked at the successes and failures of PPPs, as well as the reasons for the program’s ending. be so controversial.
In May, progressive pollster Data for Progress conducted a survey on behalf of Recode to gauge public opinion about PPPs and how Americans view them. 1235 likely voters were polled online.
The survey revealed some dissonance in how Americans think about small businesses and who deserves and who doesn’t deserve help. When asked whether all businesses should receive help to keep their employees’ wages, 70 percent of respondents answered in the affirmative. But when asked whether support for businesses with 500 employees should be limited, 76% said yes. And when asked about whether the Los Angeles Lakers NBA team, which received a loan and then returned it after a public outcry, should return the money, 75 percent answered that it was right.
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When asked what the purpose of federal business assistance should be, 58 percent of respondents said it should be to keep workers paid, and 24 percent said it should be to keep businesses afloat, which, according to at least in part, explains why the program has caused controversy. Many businesses failed to achieve both of these goals at the same time, so they didn’t get what they needed to truly survive the pandemic, especially solo businesses or businesses with multiple employees. Yes, salary coverage is important. As well as paying utility bills and rent.
“The idea was to help companies finance their wages. You can take a step back and say, “God, is this the design we wanted to have?” said Michael Minnis, professor of accounting at the Booth School of Business at the University of Chicago. “It was not called the Small Business Protection Program or the Micro Business Protection Program. Companies with 100 to 500 employees have more payroll funds than companies with less than 100 employees. It’s just math.”
According to the Small Business Administration’s (SBA) June report, the average PPP loan is $107,000, and the administration claims the program has supported 51 million jobs and as much as 84 percent of all people employed in small businesses.
All this adds nuance to the debate about large companies that have received loans. If the point of PPP loans is to keep people employed, then what does the total number of employees in the company receiving the loan mean?
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Minnis noted that when criticizing larger companies for taking out loans, it’s important to acknowledge implausibility. What if, after the Lakers got their money back, they immediately fired all their concessionaires? (It didn’t actually happen.) Or take the case of auto retailer AutoNation. In early April, the company laid off 7,000 workers. The company applied for the program and received a $77 million loan, which it says it will use to rehire these workers. But amid controversy, he repaid the loan.
At the start of the program, businesses had to spend 75 percent of payroll loans within eight weeks to be forgivable. Amid feedback from the business community that they have other expenses and that the crisis has lasted more than eight weeks, Congress changed the parameters of the loans in mid-June, requiring 60 percent to be spent on wages over 24 weeks.
But for many businesses, it was too little and too late. “The problem is these businesses are in their sixth or seventh week of their loan so they have already used 80 percent of the money that was available and they were paying people who weren’t working for them,” said Daniel Rafidi, CEO. payment company PaySteady.
This is exactly what happened to the Mark Fisher Fitness Center. “I’m very happy for other small businesses that have the ability to let that money live longer, but it stung a bit,” Cole said.
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And just because a business got a loan doesn’t mean it was enough to even cover its wages. Emily Aries, founder of Denver-based education company Bossed Up, only had her salary listed on her 2019 payroll, which was used to calculate the amount of her PPP loan. She didn’t take into account the two new employees she hired this year, so she only got $9,000. “I feel like we’ve hit a loophole,” she said. “I hired my employees on January 1st and March 1st, and the whole point of this program is to protect employees, right? It didn’t do it for me.”
She ended up taking a 50 percent pay cut and used her existing line of credit at the bank to take out another loan to stay afloat. “We were able to turn around successfully,” she said, “but I still have $15,000 in debt that I wouldn’t have.”
For some businesses, even if PPP offered only a small amount of credit, it still helped keep their business going. Caleb Benoist, who runs Connect Roasters, a small coffee company in Illinois, got a PPP loan with relative ease from his small local bank. He only received $2,500, and while it didn’t greatly affect his ability to stay afloat, he sees it as a useful incentive to rebuild his business. “The truth is that we are doing well financially; we’re going to do it,” he said. “We’re still small and fairly lean, we don’t have a lot of overhead, so we’re better equipped to weather the storm.”
The PPP was designed to work within the current US economic system, which is already unbalanced and has advantages over smaller competitors and minorities. Thus, the PPP reproduced the same shortcomings.
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KB Brown operates Wolfpack Promotions, one of only two black-owned print shops in Minnesota. He estimates that since the start of the pandemic, the business has fallen by more than 90 percent, and he had to lay off all his employees, so now only he and his wife run the business in Minneapolis. The only requests they get are shirts related to George Floyd, but he feels weird about commercializing someone.
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