Small businesses struggling under the weight of the COVID-induced economic slump or government mandates limiting their operations may soon get a new lifeline.
Coronavirus relief legislation proposed by Republicans in the U.S. Senate would pump billions of dollars into the Paycheck Protection Program, which provided forgivable loans to small businesses in the early days of the coronavirus outbreak. The money from the original round PPP funding kept many businesses afloat as COVID-19 kept people indoors and led states to limit or even shut down many businesses.
Now, with the pandemic dragging on and surging across the country, many small businesses are still struggling. That is especially true for businesses that the state has ordered closed. In Arizona, Gov. Doug Ducey has ordered bars, gyms, movie theaters and water parks closed, and has limited restaurants to less than 50% of their capacity for in-person dining.
David Wimberley, owner of the George and Dragon in central Phoenix, said he lost $700 a day during Ducey’s stay-at-home order in April and early May, when his restaurant and bar could only offer to-go food.
“If it wasn’t for the PPP, we wouldn’t have been able to do to-go food because we couldn’t have paid the rent, we couldn’t have paid the bills, we couldn’t have paid all the wages,” he said.
George and Dragon reopened when the stay-at-home order expired on May 15, but has now been closed for a month due to Ducey’s late June executive order shutting bars and other businesses, and Wimberly said it’s cost him more than $15,000 to stay closed while paying his bills.
“But if I had the PPP, I’d actually make a profit,” Wimberley said.
The HEALS Act, the Senate Republicans’ trillion-dollar proposal, would pump an additional $190 billion into the PPP, which is overseen by the U.S. Small Business Administration, and would allow many of the businesses that received money under the program’s original iteration to apply for second loans.
Originally, businesses with up to 500 employees were eligible for PPP loans. Businesses don’t have to repay the loans if they spent at least 60% of the money on payroll.
There are some changes to the proposed expansion. Businesses must have no more than 300 employees, with $25 billion of the money earmarked for the smallest of businesses, those with 10 or fewer employees. To qualify for a second loan, businesses must show a gross income reduction of at least 50% compared to the first or second quarter of 2019.
Under a proposal sponsored by Arizona Democratic Sen. Kyrsten Sinema and North Dakota Republican Sen. Kevin Cramer, PPP loans of less than $150,000 would be automatically forgiven. Treasury Secretary Steven Mnuchin has proposed the same.
Businesses were permitted to use the original PPP loans for expenses incurred for 24 weeks after they received the money. But according to a recent survey of small businesses by the National Federation of Independent Business, 71% of PPP recipients have already spent their entire loans, and most of the rest aren’t far behind.
Chad Heinrich, who heads of the group’s Arizona chapter, said another round of Paycheck Protection Program funding would be welcomed by small businesses. And some, such as restaurants, need it more than others, he said.
“If there’s some retail product that I really wanted but I don’t necessarily need, something that I can wait for a week or two weeks or whatever the time period is and then I go buy it, that demand is still there. But if I don’t go out to eat today, I don’t necessarily eat out twice at the same time tomorrow,” Heinrich said.
According to data from the SBA, 5 million businesses received a total of $518 billion worth of loans through the PPP, with the average loan size being just $104,000. More than 82,000 Arizona businesses received money, and the SBA distributed $8.6 billion in PPP loans to businesses in the state.