Revamped emergency loan program remains a short-term fix - Press Herald

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Maine small businesses will have greater spending flexibility and a better chance at loan forgiveness under a new law that reforms a popular federal emergency loan program.

But the revised program still doesn’t offer a solution for businesses that expect their revenue to remain depressed for months into the future as a result of the coronavirus pandemic.

The Paycheck Protection Flexibility Act gives employers a longer timeline and more leeway to spend their emergency loans, allows for an extended repayment period and provides safeguards for companies that are unable to rehire all their employees.

Small employers in Maine received more than 25,700 Paycheck Protection Program – or PPP – loans worth about $2.2 billion in the past two months. The loans were designed to keep workers on the payroll and businesses on life support while they weathered the economic downturn triggered by the pandemic. If businesses followed the program’s rules, all or most of the loan amounts would be forgiven.

Some analysts suggest that the PPP, which delivered more than $500 billion to companies across the country, spurred job growth and kept the official May unemployment rate at around 13 percent. Inaccurate tracking of some workers means the real unemployment rate is likely more than 16 percent.

But some public-facing businesses in Maine, especially restaurants, have said the program’s structure prevented them from using it effectively. Many businesses laid off workers before funding was available and said an eight-week deadline to spend the money was unrealistic if they were unable to return to full operation in that time. Some feared if they used the money outside the guidelines, they would end up taking on a significant loan they would have to pay back at the same time their revenue had evaporated.

The reform law, which took effect Friday, is meant to address those concerns and give businesses confidence they can use the money without risking financial penalty.

“The whole thrust of this statute is to foster forgiveness, to make it easier for small businesses, to make this an outright subsidy program, not a low-interest loan program,” said Greg Fryer, a business attorney and partner at Verrill Dana in Portland.

Andrew Volk, co-owner of the Portland Hunt + Alpine Club restaurant and bar, says having more time to use federal aid from the Paycheck Protection Program will help, but he’s still worried about the future of his business. “These are good changes, but it leaves a lot of questions and a lot of needs only the federal government can address,” he said. Shawn Patrick Ouellette/Staff Photographer

Andrew Volk, co-owner of the Portland Hunt + Alpine Club restaurant and bar in Portland, welcomes the program reforms, but he still fears for the future of his business. Many small businesses in Maine that used the emergency loan program as instructed are likely to run out of federal assistance soon, still with little hope of returning to pre-pandemic sales figures anytime soon.

“I think it was a really terrible program and they made it an OK program,” Volk said.

Hunt + Alpine obtained a PPP loan in early April, but the business mostly sat on the money until it could start offering takeout cocktails with food.

Volk has since rehired about one-third of his staff and is glad for a longer timeline to use the money, and longer repayment terms in case some of the loan is not forgiven.

But he is worried about the state of his business when the money runs out. Revenue is unlikely to recover fully even within the PPP’s new, extended period for using the funds. Given that outdoor seating will be impractical in fall and winter, it’s uncertain how much revenue the business can generate later in the year.

“I’m personally scared what the state of our industry is going to be,” Volk said. “These are good changes, but it leaves a lot of questions and a lot of needs only the federal government can address.”

Under the PPP, passed in March as part of the federal CARES Act, businesses could receive total loan forgiveness if they met program benchmarks such as spending 75 percent of the loan on payroll and bringing staffing up to pre-pandemic levels by June 30. Twenty-five percent of the loan could be spent on utilities, rent and other essentials.

Now, businesses are allowed to spend up to 40 percent of the loan on essential costs and only have to spend 60 percent on payroll. It also extends the timeline to spend the money to 24 weeks and moves the rehiring benchmark to the end of the year.

Businesses also may qualify to have the entire loan forgiven if they can prove their inability to return to normal staffing levels and revenue, and they will be able to access payroll tax deferment. Lenders can extend loan payments, at 1 percent interest, over five years. Previously, the repayment term was two years.

“The program we have right now, it makes it much more likely that a huge percentage of businesses will qualify for 100 percent forgiveness,” said Fryer, the business attorney.

Andrew Volk fills takeout cocktails Saturday at the bar at Portland Hunt + Alpine Club in Portland. Shawn Patrick Ouellette/Staff Photographer

For businesses that received the first batch of PPP loans in early April, the program reforms came at just as they reached the original deadline to spend the money.

Eastern Maine Eye Associates in Bangor was forced to close and lay off 20 workers following a statewide business shutdown order in March.

The business received a PPP loan and put employees at the medical office and affiliated surgery center back on payroll, even though there was little actual work to do, said partner Jeff Jordan.

“It basically looked to us that the government was looking for us to be a de facto unemployment agency for the next eight weeks,” Jordan said.

But as the deadline to use the money got closer and medical offices reopened, he and two other partners started to worry. They still had money left over, but they committed not to take on a loan with tepid revenue.

“When it came time to start back up, we were two weeks from going out of business,” Jordan said. “There was a lot of PPP money left over. We were getting ready to give it back to the bank because we knew we couldn’t pay it back (if the money was spent immediately).”

Extending the time he has to spend the money makes a huge difference. Jordan thinks that as revenue recovers, it will help keep everyone employed and pay expenses. It buys time to see how everything plays out.

“Fifteen weeks from now, if there is not a second spike in virus cases and we are still up and running, this is the thing that made it happen,” Jordan said.

U.S. Sen. Angus King, I-Maine, who co-sponsored a Senate bill to reform the program that was close to the version passed by the House of Representatives, said the measure corrects unanticipated flaws in the law, crafted when no one knew the pandemic’s duration.

“I don’t blame the original bill – when it was drafted no one knew how long this would last,” King said. “This bill is a midcourse correction; it is taking account of the reality of the situation.”

To-go cocktails at the Portland Hunt + Alpine Club on Saturday. Shawn Patrick Ouellette/Staff Photographer

But King is certain more assistance will be needed to reinvigorate the country’s economy.

The CARES Act “was not a stimulus package, it was a keep-the-doors-open package,” he said.

Financial assistance to state and local governments is now at the top of the list, King said, but he also thinks expanded unemployment benefits should be extended, and he anticipates an infrastructure spending measure. He is concerned that a second wave of social and economic restrictions might be needed if coronavirus outbreaks spiral out of control again.

“It is becoming clear this crisis is not over,” King said. “We still have have a problem and it is accelerating in other states. I am very worried about a second coming of the virus. We are not out of the woods, but people are acting as if we are.”

U.S. Sen. Susan Collins, R-Maine, a co-sponsor of the original PPP, said she was wants to correct elements of the reform bill. A drafting error in the bill could mean that if businesses do not spend 60 percent on payroll, the entire loan will have to be repaid, she said. Under the original program, businesses could spend less than 75 percent on payroll and still qualify for partial loan forgiveness.

Collins also wants to allow businesses to use overhead funds to pay for masks, protective equipment, shields and renovations needed to meet public health guidelines. That measure was included in a Senate bill introduced last month.

“There are other tweaks, too, but these are two examples,” Collins said. “I know other members of the Small Business Task Force have other good ideas we should discuss.”

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