San Diego businesses applaud key fixes to government loan program
Like many small business operators, Marc Kulch delayed spending the paycheck protection program funds received on May 1 to rehire workers at his salon on the 30th in South Park.
Under county coronavirus health ordinances, lounges were not even allowed to partially reopen until the end of May. Kulch welcomed customers again from June 2, but was concerned that the terms on PPP loans would make it difficult to spend the money in a way that would meet the US Small Business Administration’s loan forgiveness thresholds.
This week, Congress loosened those strings. The US Senate on Wednesday approved the PPP Flexibility Act, which the House broadly supported earlier. President Trump is expected to sign the bill quickly.
The legislation relaxes some of the more onerous requirements of the original PPP rules designed to trigger rehiring quickly as the economy has reopened.
“It’s certainly more encouraging than it was, and I’ll use it,” said Kulch, who expects to be at 80 percent of pre-COVID employment levels by the end of it. of the month. “I’m going to ask for forgiveness, and if they forgive him, that would be an incredible benefit.”
Passage of the PPP Flexibility Act throws a lifeline for struggling restaurants, retailers and hotels hard hit by COVID-19 restrictions. For many of these companies, the original pardon criteria, which gave them eight weeks from receiving P3 funds to bring back the workers, made it impossible to use the funds.
“If they had stuck with the initial eight week period (to reach pre-COVID employment levels), we would return all the money,” said David Cohn, head of Cohn restaurant group, 25 locations. “This is the only solution that will allow us to survive as a business.”
The restaurant industry has been pushing for changes to the initial PPP requirements, which would have started hitting the first wave of companies that approved PPP loans in early April.
“For almost all of the restaurants that have received PPP money, this is a godsend,” Cohn said. “This will allow them to actually use the funds in the way the government intended they would be used to help businesses and to bring back their team members.”
Two key changes in the PPP Flexibility Act relate to pardon criteria. To qualify, businesses no longer need to return to pre-COVID employment levels eight weeks after loan funds reach their bank accounts. They have 24 weeks or until the end of the year, whichever comes first.
Additionally, PPP recipients are no longer required to spend 75 percent of the payroll loan funds to qualify for the remission. The threshold has been lowered to 60%, freeing up more funds for rent, utilities and other expenses.
“I think the PPP adjustments are much better for small businesses, especially the extension to 24 weeks from 8 to spend the funds and the 60/40 split on payroll and other expenses,” said Marquise Jackson, San Diego regional manager. and the Imperial Small Business Development Center Network.
Another change concerns some or all of the PPP loans that are not eligible for forgiveness. Originally, this money was to be repaid in just two years at an interest rate of 1%. Companies now have five years to repay the debt.
“Only the five-year repayment feature is a big difference,” said Steven Sefton, president of Endeavor Bank in San Diego. “I would say that’s one of the key things that will be helpful.”
Robert Rauch, who operates five hotels in San Diego County and Arizona, used P3 loans to bring back workers. But as leisure travel was still banned in California, he was unlikely to meet the criteria for full forgiveness of the loan.
“This will help us because we weren’t going to be able to hit the 75% threshold in some of our hotels,” he said.
The new criteria should move Rauch closer to qualifying for forgiveness in some of his properties.
“Now that there has been this change, we will be able to use it with the 60% threshold and the overtime,” he said.