These entrepreneurs are almost running out of PPP funding. Here is the continuation

Lisa Hess and her daughter Lucy enjoy a cup of coffee in San Luis Obispo, California.

Shannon McMillen Photography

Lisa Hess, owner of Lucy’s Coffee, has started the long climb to restore her business to a post-coronavirus world. But its emergency fund is about to run dry.

The crisis probably came at the worst time for the San Luis Obispo, Calif., Store.

“We’re a college town and February through June are our busiest months,” said Hess, who has been running his cafe for three years. “The timing was terrible: we literally started to break even three weeks before the shelter-in-place order was ordered. “

She borrowed nearly $ 23,000 from the Paycheck Protection Program in early May. The federal forgivable loan program, which opened on April 3, was originally intended to cover eight weeks of salary expenses, mortgage interest, rent and utilities.

Hess used the money to pay his full-time employees, but now, as California begins to gradually reopen, he has about two weeks of funding left.

Sales are nowhere near where they were before – and Hess doesn’t know when things will get back to normal.

“There is anxiety about employee compensation going forward,” she said. “And with the colleges canceling for the rest of the year and the students not coming back, I’m very concerned about how things are going to turn out.”

The situation is familiar to owners of restaurants, bars and those located in areas heavily dependent on tourist travel. Door-to-door orders have mostly forced them to close, and even though restrictions are lifted, sales and foot traffic are still down – and the pot of PPP money is almost running out.

“The problem was, some of my restaurant clients were also ahead of the queue,” said Todd Koch, CPA and partner at John A. Knutson & Co. in Falcon Heights, Minnesota. Restrictions began to be lifted in North Star State, with bars and restaurants starting to serve customers outside only on June 1.

“I am worried about these people and this industry,” Koch said. “Income is down.

“It’s hard to start, and now you have that on top of that. “

Timing issues

Although small businesses were in desperate need of the PPP infusion of funds, the biggest stumbling block they faced was the rapidly changing rules underlying the program.

For starters, businesses were able to borrow enough to cover eight weeks of payroll, mortgage interest, rent, and utilities. For the loan to be repayable, they had to allocate at least 75% of the proceeds to paying workers and no more than 25% to other expenses.

This created a conundrum for companies in the hospitality and leisure sector: many of their employees were put on leave or made redundant and were on unemployment – which might have paid them more due to the increase. of $ 600 per week provided by the federal government.

In other cases, employees wanted to return, but stay-at-home orders prevented those establishments from fully reopening.

To meet the 75% pardon threshold, employers either paid employees a risk premium or paid them to stay home if they couldn’t reopen at all.

Jennifer George, who runs Mountain Tees in Breckenridge, Colorado, cut employee hours but paid them in full after the gift shop received a $ 140,000 PPP infusion. Colorado retail restrictions began to be lifted on May 1. Although sales are nowhere near where they would normally be, they have increased since Breckenridge opened a pedestrian plaza nearby, George said.

“I didn’t tell people to go unemployed, but we gave our good employees an end-of-season bonus and asked them for their loyalty when the doors opened,” she said.

The Paycheck Protection Program Flexibility Act, which President Donald Trump passed on June 5, relaxed spending requirements. Businesses now have 24 weeks to spend their loan proceeds, and they are eligible for a rebate if at least 60% of the money is used to pay employees.

Lisa Hess at Lucy’s Coffee in San Luis Obispo, California.

Shannon McMillen Photography

Partial forgiveness is also on the table for those who do not reach this threshold.

However, the extra time doesn’t do much for companies that have already spent a large amount of money. “The period covered by the PPP has been extended, but the amount received does not match the extension,” said Sheneya Wilson, CPA and founder of Fola Financial in New York.

Its customers include a small barbecue restaurant in town, which is only beginning to reopen.

“If a company has low margins, it might have been able to keep 10 employees, but can it keep those employees? Wilson asked. “Or will they have to let them go?” “

Not just more time, more money

Senator Jeanne Shaheen, DN.H., speaks at a U.S. Capitol press conference on seniors facing increased prescription drug prices if Obamacare is canceled.

Michael Brochstein | SOPA Pictures | LightRocket | Getty Images

Senate Democrats are trying to give cash-strapped PPP borrowers another shot at funding.

the Priority Paycheque Protection Program Act is sponsored by Sens. Ben Cardin, D-Md .; Chris Coons, D-Del .; and Jeanne Shaheen, DN.H. Under this bill, companies with 100 or fewer employees can borrow more money from the PPP, provided they have exhausted or are about to exhaust their first round of financing and have suffered a loss of income of at least 50%.

Meanwhile, accountants are on the drawing board thinking about ways to help clients shell out a few extra dollars.

Learn more about smart tax planning:
Thinking of being your own boss? What this means for taxes
Why companies aren’t rushing to claim the $ 130 billion PPP pot
Five key takeaways for small business owners, post-PPP

Local grants for entrepreneurs, as well as others small business loans through the SBA, are a possibility, said Wilson at Fola Financial.

Right now, all business owners can do is adapt and wait.

Hess, of Lucy’s Coffee, reduced her menu and cut her hours from 7 a.m. to 3 p.m. – it was operating from 6.30 a.m. to 6 p.m.

“I felt like it was warmer and people were going out a bit more, and my staff started coming back,” she said. “I just hope we can move forward until things return to a new normal.”

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