When Manish Patel, the owner of three California beer and burger joints got approved for a Payment Protection Plan loan from the federal government, he counted himself lucky. While other business owners struggled with crashing bank sites, Patel had asked a banker to file for him. His loan arrived on April 20.

“And that’s when it started getting very complicated and frustrating,” said Patel.

Under the initial terms of the program, Patel’s loan would turn into a grant — but only if he hired back every worker he’d laid off in the shutdown. When he reached out, he found that many of his employees didn’t want to come back to work. They were making more on unemployment than they had on his payroll. 

To make things worse, the loan terms required he use his funds within eight weeks of receipt. As that deadline nears, Patel grows more certain that Calirornia will extend quarantine measures and he’ll have to survive on take-out alone. Now, bearing more debt and soon to be without financial support, he’ll have to lay off the employees he only just managed to rehire.

The fault lies with the Payment Protection Program (PPP), a loan plan designed to accomplish two goals at once: keep businesses afloat and workers at their jobs. The program grants loans of up to 2.5 times payroll costs, forgivable if employers spend 75% of the money on payroll, rehire and retain their staff until June 30 and use the funds within eight weeks. 

In theory, the loans would have provided businesses with fiscal relief so they could then support their workers. In practice, the PPP has created loan terms that leave workers unemployed and employers staring down the barrel of bankruptcy. 

“You either have to have a plan that helps small businesses or a plan that supports payrolls,” said Adam Ozimek, chief economist at Upwork and the owner of a restaurant and bowling alley in Lancaster, Penn. “But to try to do both you end up not quite doing, either.”

The PPP has married the fates of employers and their workers, for worse. It’s moved employers to take on debt with questionable forgiveness terms and pull their workers off generous unemployment for jobs that depend on an open economy, one they can’t guarantee will be there come July. 

The program’s first speed bump is its rehire requirement. The coronavirus rescue package, the bill that encompasses the PPP, contained another bucket of aid that expanded unemployment insurance by $600 a week. The extra benefit means many workers now take in more in unemployment benefits than they had while working.

Patel laid off all but 3 members of his 30-person staff in March. When he got his loan, he was tasked with calling them back. So far he’s only managed to rehire half his staff. Some are caring for family members. Others have underlying health conditions themselves.

“We also knew a lot of them were picking up the extra 600 bucks a week in unemployment,” said Patel. “It made no sense for them to come back because they’re going to get paid more. sitting at home.”

The loan’s original terms tied forgiveness to rehiring. Employers had to restore their pre-shutdown headcount of full-time employees by June 30. Those who didn’t risked losing a proportional amount of forgiveness. Without half his staff, Patel would’ve had to pay back half his loan.

By law, furloughed employees have to return to work when their employers call them back, otherwise they become ineligible for unemployment.

“While that’s technically true, we’re talking about small businesses here,” said Marc Goldwein, senior policy director for the committee for a responsible federal budget. “It would create a very bad adversarial relationship in many cases for an employer to force their workers to come back for less pay.”

Employers would’ve had to report employees to the state to get them back at work, something owners like David Loria, who owns a small cleaning business outside of Detroit didn’t want to do.

“It would just be a huge culture issue. I’d be taking something away from them that I think, honestly, is benefiting them,” said Loria. “I wouldn’t want to do that to them.”

On May 3, the Small Business Administration (SBA) released an amendment to address rehiring difficulties. If employers provide documentation that proves they made a good-faith effort to rehire and employees refused their offer, those employees wouldn’t count against the total employment levels required by June 30 to be eligible for forgiveness.

The rule change reintroduces the same tension between employers and employees. To avoid getting docked for unhired employees, business owners must notify their state unemployment office that an employee refused their work offer. By notifying the state, the employer shares that the employee isn’t actively looking for work, making them ineligible for unemployment. 

The forgiveness employers would receive for reporting an employee could be what helps them survive the shutdown.

For Loria, shouldering added debt could prove fatal, especially in the shadow of larger companies, with more established savings to float them through a downturn in business.

“It’s cheap money for them, for all my competitors who are larger than us are, like Molly Maids and Merry Maids,” said Loria. “We’re going to be stuck with nothing.”

A further complication is the deadline the loan sets for business owners to use their funds. Many employers applied for loans as soon as they opened. Now, their deadline for using the money falls several weeks before the day they have to retain their staff. Owners will have to pay their employees out of pocket in the interim.

The earliest recipients of PPP loans are employers like Patel who got their money sometime in early April and have roughly two months to use those funds. With business still seized through much of the country and only tentative reopening plans in place, many employers fear their funds will run dry before they can resume full operations and turn a profit.

Patel’s restaurants are in Los Angeles County and the Bay Area, two regions that are only now inching toward Stage 2 of California’s four-phase reopening plan, which allows low-risk venues like retail stores to open for curbside pickup. 

Bars don’t get the go ahead until Stage 3, which the state has yet to set a date for. Even when restaurants do reopen it will be with limited capacity, a restriction sure to hurt returns.

The loan requires employers to retain all rehired employees until June 30. The earliest approved businesses lose their funds a few weeks into June, but have to pay workers through the end of the month. 

Some business owners like Ozimek had a financial cushion that allowed them to delay their application until the second round of PPP funding. Now, Ozimek only has to weather a few days between when his loans run out and when the month ends.

“What you really want to do if you’re a restaurant is wait to start your PPP,” said Ozimek. “There’s a better chance that you’re going to know what your future looks like, and you’ll be able to actually use the people on payroll to operate your business.”

Many restaurant owners, Patel included, didn’t have a financial safety net. Restaurants operate on notoriously small margins and many required immediate aid.

Now Patel has to keep paying his staff 10 days after his loan runs out, about $10,000 a week. Come July, he’ll likely have to lay everyone off again.

Without a viable plan to reopen, Patel doesn’t have enough work for his employees and without more loan money, he can’t afford to pay them when he’s not making a profit. 

The final glitch is how much forgiveness employers will actually receive. The complicated loan terms, coupled with the ambiguity of proving appropriate business spending leave Patel and others anxious they’ll be audited and forced to pay back more than they can afford.

Patel does all of his business banking out of one account. His transactions include spending on overhead costs and goods purchases not approved for loan spending.

“Are they going to try to audit and say, ‘You used this one for something you shouldn’t have.’? How can we disprove that?’” said Patel. “I’m fairly certain that a lot of it won’t be forgiven for us”

The slowness of bank bureaucracy throws another wrench in forgiveness. Repayment starts six months after receipt, but banks have 60 days to approve forgiveness applications, which then go to the Small Business Administration, which has a 90-day processing time. 

If either of those timelines are extended, employers will need to start repaying loans they ultimately aren’t responsible for. 

“And the last thing any small business needs is more debt to pay off,” said Patel.

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