VALLEY PARK — Over the weekend, Chip Self’s company was approved for a forgivable small business loan worth several hundred thousand dollars.
But after reading the loan contract, the owner of Valley Park-based Logic Systems Sound and Lighting Inc. doesn’t plan to touch the money, at least not until the U.S. Small Business Administration clarifies how the loan forgiveness Congress promised actually works.
“There’s a bunch of business owners going out making decisions assuming it’s going to be forgiven,” Self said. “The actual agreement itself says nothing about it. And if it’s not in the agreement, it doesn’t exist.”
The emergency federal Paycheck Protection Program was designed to offer businesses forgivable loans to keep paying their employees and cover a portion of other expenses, like mortgage interest, rent and utilities. Businesses can borrow up to two months’ worth of average payroll, plus another 25%. The program promises to forgive those loans if the employers keep their workers on the payroll for eight weeks and only use up to 25% on the other expenses.
For businesses that don’t know what their cash flow will look like in a few months, it’s hard to tell whether the loans will end up helping or hurting. Though payments are waived for the first six months and the interest rates on the emergency loans are a low 1%, the two-year maturity could still saddle them with debilitating monthly payments without forgiveness.
“We need to acknowledge that as much as this feels like a gold rush and you’re gonna go out and borrow free money, there are a couple of major, major uncertainties still surrounding this thing,” said Tony Nitti, a tax partner in Clayton-based RubinBrown’s Denver office. “We do not know how we’re going to quantify forgiveness amounts and whether that’s going to be left up to the lenders.”
The loan agreement Self received made him pause because it notes the SBA is still finishing the rules, and forgiveness terms aren’t spelled out. It says they’re subject to change and he’ll hold his lender harmless for any amounts not forgiven.
“The only businesses who can use it worry-free are the ones who don’t need it,” Self said.
Self wants to bring back his dozens of employees and pay them and their health insurance for two months, even if there’s little to no work to do. But he’s pretty sure the event and concert industry he services won’t be back in eight weeks, and he can’t saddle himself with more debt without assurances about forgiveness terms.
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“I’m really worried,” he said. “How many times in your life has the final law looked exactly like what your Congress people promised you?”
Banks have been scrambling to interpret the new program and get money out of the door as small businesses, which saw revenue evaporate overnight, rushed to take advantage of the new program. Loans have just started to be disbursed. Many business owners, though, are still waiting.
“I haven’t heard a peep,” said Joe Jackson, owner and CEO of St. Louis-based Jackson Pianos.
He’s applied for the loan because he sees no other options. Even if he gets it, though, he can’t bring back the 14 employees he’s laid off until he’s sure the loan will be forgiven.
“Then I’m dragging $100,000 of debt around,” Jackson said. “Then it puts me out of business. My first thing is to get the loan and sit on it and not do squat. Am I gonna get penalized for that?”
He hopes Congress will clear up some of the program’s ambiguities. Jackson would like to see more coronavirus testing, for instance, so companies know who they can safely bring back to work.
In the meantime, he received one of the $5,000 emergency, zero-interest loans from the program run by the St. Louis Development Corp. and St. Louis Economic Development Partnership. That can help pay for emergency expenses while he waits on the Paycheck Protection money — and better guidance on how to get the loan forgiven.
“Our bankers don’t have any solid information; our CPA firm doesn’t have any solid information,” Jackson said. It doesn’t feel to him like the feds are giving “any good, solid guidance” on how to use the money.
Some businesses that have already laid off staff are wondering how they’ll convince employees to come back, especially if they’ve started receiving unemployment. To be eligible for loan forgiveness, a business has to get its head count back up to what it was and keep paying the old wages for eight weeks. And the clock on the eight-week period starts immediately.
“You have to question where the payroll costs are going to come from,” said Nitti, the RubinBrown tax analyst, “to enable them to get the loan forgiven.”
Unemployment aid and business loans are well targeted, but the bill also contains unnecessary giveaways
Matt Ricketts, who owns Shrewsbury-based Better Life Maids, laid off nearly all of his 42 employees. He’s applied for a Paycheck Protection loan to help pay for other overhead, but he’s not sure whether he will be able to convince all of his employees, many of whom made around $18 an hour, to come back. Missouri unemployment combined with the new $600 weekly federal unemployment benefit brings those payments to $23 an hour for many.
That means a lot of his employees are better off on unemployment, Ricketts said.
Ricketts wonders what happens if he tries to bring them back and they refuse because of health or financial reasons. A spokeswoman for the Missouri Department of Labor said that if workers furloughed or temporarily laid off then decline their employer’s request to come back to work, the worker is not eligible for unemployment.
“It puts me into a bad-guy position, too, as an employer,” Ricketts said. “I want to do what’s best for them long-term, but in the short-run I’m taking something away from them that’s actually good for them. There’s a lot of tough choices we’ll have to make, as employers, that don’t necessarily help our employees.”