As the economy stalled as a result of COVID-19 and State of Emergency restrictions, U.S. Congress passed the Paycheck Protection Program (PPP), authorizing up to $349 billion in forgivable loans through the U.S. Small Business Administration (SBA). The loans were aimed at helping small businesses pay their employees, rent and utilities during the COVID-19 crisis, focusing on businesses with less than 500 employees. National media outlets have pressed SBA to be transparent with the distribution of federal monies to private businesses and through their own research have found that several large businesses are benefiting from a program meant for helping small businesses survive these uncertain times.
Recently, The Wall Street Journal published an article disclosing that the high-end restaurant chain Ruth’s Chris Steak House, that has more than 5,000 workers, received a $20 million loan from the federally-backed loan program. While many Delaware small businesses waited to hear from their banks that are participating in the PPP program, the SBA announced that the they are “currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding.”
Miguel Batiz, co-owner of The Counting House Restaurant & Pub in Georgetown, DE, says that their business has struggled since the State of Emergency measures forced restaurants to limit their business model to delivery and pick-up services only. While the company initially attempted to adapt to the crisis through online ordering, the lack of sustainability brought on the difficult decision to close. The company decided to apply for the PPP and were met with “complete silence” and were“discouraged from calling the bank.” Weeks later, Batiz received an email confirming that The Counting House has been pre-approved for the PPP loan, but with no further direction.
“I am not sure whether that means we will receive the money since we have heard that the program is out of funding or if we will need to wait to see if another round of funding is approved from the federal level,” said Batiz.“I have been doing a lot of research and I am surprised that more details surrounding how businesses have to use the money is not available.”
In order for the loan to be forgiven by the SBA, small businesses must spend at least 75% of the loan on payroll over the eight weak period immediately following the loan being deposited into the company’s account. Batiz is concerned that if businesses receive the loan before the State of Delaware is ready to open restaurants at 100% capacity, businesses may not be able to bring back employees at a rate needed to fulfill the loan requirements. Without financial experts available to answers questions like these, he believes small business are at a disadvantage to understand whether they can handle the loan in a way that allows it to become forgivable and not another liability on an already overburdened business.
Baitz is also concerned that if the PPP supports larger entities in The First State, residents could see a loss of many locally-owned businesses. “We could see some really great independently owned restaurants in Delaware go out of business while bigger companies will have the ability to buy up the market,” he said. “For businesses like us, we are just trying to get to that 3-year benchmark, where we can show that we are viable.”
In addition to small businesses with traditional W-9 employees, sole proprietors are struggling as the local economy is stagnant. The recently enacted federal Coronavirus Aid, Relief, and Economic Security (CARES) Act provides for unemployment assistance to independent contractors and other self-employed individuals.
Nickole Renea Visan owns her own private practice Visan Massage & Bodywork in Sussex County and treats clients at Coastal Chiropractic and Flex World Fitness. Under the Delaware COVID-19 State of Emergency restrictions, her business and those that she serves are considered non-essential and were forced to close. She applied for the PPP three separate times and has heard nothing from any of those financial institutions or the SBA.
“I understand we need to be patient but I will not be able to pay my studio rent this month. Having to choose between housing rent, business rent and food. How do you choose,” said Visan. “Having already gone four weeks without income and now the Department of Labor says three to six more weeks ’til we can reapply [for unemployment as a sole proprietor].”
On April 16, the Delaware Department of Labor stated it could take up to six weeks before independent contractors and self-employed workers impacted by the COVID-19 outbreak can apply for unemployment benefits. These workers are usually not eligible for unemployment benefits, so state officials have to create a new system to disperse the assistance. Labor officials state that they are working with a vendor to design a system that will integrate the agency’s existing benefits claims operation.
“This technology will allow the Division of Unemployment Insurance (DUI) to verify earnings reported to the IRS and determine the eligibility of independent contractors and the self-employed to apply for benefits under the (CARES) Act,” the Department stated. “We anticipate that these workers will be able to apply through this new system within 3-6 weeks. We will provide more details regarding implementation and how to apply on our website next week.”
As small businesses across Delaware close their doors and adapt where they can, Federal and State governments have started the discussion on how to reopen the economy. In a press briefing on April 17, Governor John Carney stated that in compliance with CDC guidelines the State will need to see 14 days of declining symptoms and presumed cases, 14 days of declining hospitalizations and an extensive testing program for health care workers before restarting our economy.
“The new normal will be different than the normal we have come to be used to,” said Gov. Carney. During the restart phase the Governor states that the public will need to continue to follow social distancing measures including wearing face coverings in public, limiting gathering and sheltering in place for vulnerable populations.