Here’s a hopeful development in the fight against the coronavirus: Washington is throwing a lifeline to small businesses, which account for over 4.7 million jobs in Texas — almost half the total private workforce.
Nationwide, small businesses are slated to get about $350 billion from the massive relief bill winding through Congress. That translates into loans of up to $10 million per company, depending on their monthly payroll. And the entire amount can be forgiven if owners maintain their workforce for at least a few months.
They don’t have to demonstrate hardship as with other traditional government disaster loans. Nor do they have to provide collateral or a personal guarantee, because the government will fully back the credit.
To qualify, a business owner must make “a good faith certification that the loan is necessary due to the uncertainty of current economic conditions,” according to a summary of key parts of the bill.
They’re also eligible for an emergency grant of $10,000 within three days of applying for aid.
Small companies, generally defined as having up to 500 employees, could start applying in a week or so if the process gets fast-tracked as promised.
For many business owners, this is a chance to boost cash flow immediately, keep workers on staff and build a bigger financial cushion. Such moves could make the difference in surviving today’s crisis and coming out stronger on the other side.
“I’m all over it,” said Chris Hillen, who’s never applied for a government business loan but sees no downside to this one. “I’m planning to hold on to my employees anyway, so this could be great.”
His Dallas company, Seal Tex, repairs commercial kitchens and has some big clients, including Texas Roadhouse, Olive Garden and Wendy’s. Last week, he sent his 40 employees home, both for their safety and to help slow the spread of the virus in North Texas.
He’s paying them as if they were working 30 hours a week, he said, because it’s the right thing to do and he can afford it. With a government loan, he could bump up their hours or keep carrying on as is, depending on the pace of the recovery.
“This will allow us to fight on for longer,” Hillen said.
For others, especially in hard-hit industries like restaurants, the federal dollars may not be enough to change their prospects.
The loans have attractive terms, even for companies that won’t qualify for loan forgiveness. Notes don’t have to be repaid for six months to a year because the government will cover the principal and interest. When government help ends, the maximum interest rate will be 4% and repayment can be stretched for up to 10 years.
Yet borrowing still may not make sense.
With his dining rooms closed, revenue has dropped over 90% in the Austin and College Station restaurants, he said. He’s already laid off about 140 of 160 employees, he’s not paying himself and big rent bills are looming.
Kenney said he’ll take a hard look at the loan program, but he doesn’t plan to rehire folks, not until the virus recedes and the economy starts to recover.
To have a loan forgiven, a company has to maintain worker levels for eight weeks after taking the money; otherwise, the benefit is reduced proportionally, with current job levels compared with prior-year totals.
He’d likely be stuck with the loan, and he can’t be sure about future cash flow.
“I’m damned if I do, and I’m double damned if I don’t,” Kenney said about taking out a loan at this time.
Manda Machine Co. in Dallas, which started 70 years ago, has been holding up fairly well. The company makes machine parts for aerospace companies, including major defense contractors General Dynamics and Raytheon.
It has a solid backlog and nearly all 16 employees are coming into the factory daily, said co-owner and general manager Andy Ellard.
Workers can easily maintain a safe social distance in the 8,500-square-foot factory and Manda is considered an essential business because it serves the defense industry, he said.
Still, he’s planning to apply for a government loan because he’s worried that some big customers could be forced to cut back, which would trickle down to his employees.
“When you’re a small business, everybody’s family,” Ellard said. “I don’t wanna see any of these guys lose their income.”
During the Great Recession, Manda’s revenue fell 45% in a single month, he said. He and his two brothers, who are co-owners, went six months without a paycheck, he said. And they had to renegotiate the purchase of the company from their parents.
With credit markets practically locked up, they had to get a loan through the U.S. Small Business Administration.
“It took 11 banks and five months to get it,” Ellard said.
The SBA will administer the small business loans in the relief program, and the process is supposed to be streamlined. The goal is to get money into owners’ hands quickly so they won’t have to lay off as many workers.
Ramiro Cavazos, CEO of the U.S. Hispanic Chamber of Commerce, said he’s expecting to see a short loan application, maybe just a single page.
Companies must document their average monthly payroll expenses from the previous year, which can include wages, health and retirement benefits, payroll taxes and payments to independent contractors. Employees paid over $100,000 annually do not count toward payroll costs under this calculation.
Owners can borrow 250% of those monthly expenses through an SBA loan, which will be coordinated through banks, credit unions and other lending institutions. The loan program runs until June 30.
What counts toward loan forgiveness? The amount that companies spend on payroll, including the above items, plus rent, utilities and certain interest payments in the eight weeks after getting the money.
“What we’re hearing is that we just need to keep small companies alive for the [coronavirus] shutdown period,” Cavazos said.
He believes the relief package is an improvement over the financial rescues of 2008 and 2009. There’s more oversight, he said, and more help for more working people.
“The last one worked but not for small businesses,” Cavazos said.