The Paycheck Protection Program Could Have Been Great—It Wasn’t

With the first round of Paycheck Protection Program recipients about to submit for loan forgiveness, I thought it might be interesting to look back on the process my small business went through, first getting rejected, then getting accepted but considering returning the loan, and ultimately deciding to use the loan to retool our business for the road ahead:

I first hear about the Paycheck Protection Program on a podcast discussing the possible provisions of the CARES act. The program is described as “a loan that becomes a grant for small business.” It sounds too good to be true.

The Paycheck Protection Program is announced as part of the CARES Act. $359 billion has been set aside to help small businesses keep their employees during the pandemic. The program is announced at the same time as a forgivable emergency disaster payment and pandemic unemployment assistance boost of $600 per week for four months. My first thought is that the programs seem to overlap somewhat, but I’m pretty sure that government professionals will be able to work out the details.

For the first time ever, I go on the Small Business Administration site to get more information about the programs. I apply for a Disaster Assistance Loan, which turns out to be ridiculously easy. Since we had to lay off our employees and shutter our business due to shelter-in-place orders, I’m thankful for the consideration and efficiency promised by these programs. I expect to find a quick and easy list of PPP lenders but can’t seem to find it. I spend the next few days attending webinars and scouring Twitter for information about how I can find a PPP lender. I’m not too worried, though. I have been banking with Merrill Lynch since 1989. Since Merrill was bought by Bank of America during the last financial crisis, I’m confident that BofA will take care of me.

Alas, I learn that Bank of America will not take care of me. After realizing that the link between Merrill and BofA is more promotional advertising copy than reality, I am told that unless I had a business account with Bank of America by February 15, 2020, I won’t be eligible to apply for a PPP loan. When I ask why, I’m told that BofA has decided to serve its existing customers first. This seems strange, since the PPP program is ostensibly for small businesses, and lots of small businesses run their operations by managing cashflow, not borrowing money. Senator Marco Rubio chimes in with his disappointment in the big banks for deciding to serve big customers instead of smaller guys who need the help. I’m pretty confident the problem will be fixed.

The problem isn’t fixed. I scramble to find a lender, even opening a $5000 business bank account at a local bank at the recommendation of a friend who works there. I submit paperwork to six banks. Four never get back to me at all. The other two contact me daily about paperwork that I should upload to their portals. They ask for w2s, w3s, health insurance records, 401K records, Profit and Loss statements for 2019 and 2020, a balance sheet for 2019, Quickbooks payroll summary for 2019, driver’s license, 2018/19 K1s, the PPP application, the PPP loan calculation. I submit everything promptly. 

The first round runs out of money April 16 without funding our loan.

There are rumors that there will be a second round of PPP funding to replenish the program in the next congressional bill, though Congress is on recess for a month. The new bill passes April 27, and the program coffers are replenished with $310 billion.

Meanwhile, my laid-off employees have successfully applied for Pandemic Unemployment Assistance. All of the entry-level staff are receiving more money from PUA than they would from their normal salary. I attend more webinars, and ask:

1. Why would employees return when they can make more on unemployment?
2. What happens if they refuse to return?
3. Why can’t we start using the PPP loan after the PUA ends?

On most webinars, I receive no answers at all, though on a webinar with the State of Washington Employment Insurance Division I learn that if we receive the loan and invite employees back to work, they will be considered terminated if they don’t accept, and they will lose all unemployment benefits.

So, to sum up the situation as of Monday, April 27, when applications for Round 2 of the PPP could be submitted: my employees were laid off due to a lack of business. They have successfully begun to receive unemployment plus a Pandemic Unemployment Assistance stipend that will last through the end of July. We were unsuccessful in obtaining a forgivable loan through the Paycheck Protection Program. Now, with the program refunded and our applications submitted to six banks, there’s a chance we can receive the loan, but it will require my employees to take a salary reduction to work from home in an industry that requires on-location work or be forced to lose unemployment benefits.

Thousands of other American businesses are going through the same or similar saga.

My PPP coverage: