PPP loans were supposed to keep unemployment low. That’s not happening in South Florida
When Abe Ng, the owner of Sushi Maki, the South Florida Japanese fast-food mainstay, received a Paycheck Protection Program loan from Miami’s City National Bank, he was elated. Sales had collapsed across the group’s eateries — many of which are housed at shuttered college campuses. The new funding, an amount Ng declined to disclose, seemed like it would help keep the lights on as Sushi Maki adjusted to the new realities of dining in the age of the coronavirus.
But now, Ng is not certain what to do about the loan. The PPP loan rules say 75% of funds must be used for payroll. That’s a figure Ng says he fears he won’t be able to meet, as there is now simply less need for staff.
“It’s hard to hire back everybody in this environment,” he said. “So while the intent is great, and we’re grateful the government moved as quickly as it did ... because of our current situation, it’s impossible and impractical to maximize benefits of the loan.”
Ng is far from alone. Though approximately $500 billion has been transferred to small businesses to help keep them afloat through the two PPP rounds, the intended effect of keeping employees on payroll has not been fully achieved — neither in Florida, where 1.4 million individuals have now filed for unemployment; nor in the U.S. as a whole, where the unemployment rate has soared to 14.7%.
The question of why more jobs have not been saved by PPP is now being addressed by the main architect of the PPP program itself, U.S. Sen. Marco Rubio. On Tuesday, he sent a letter to the U.S. Treasury Department and the Small Business Administration asking them to clarify rules so that loan forgiveness would be tilted toward those companies who made a good-faith effort to maintain payroll.
“The goal of the Paycheck Protection Program is to preserve employment,” he wrote.
According to Rubio, lenders should be allowed flexibility on whether to forgive a borrower’s PPP loan.
“For example, some manufacturing businesses hold a liquid buffer as insurance against the failure of high-cost, long-term research and development projects,” Rubio wrote. “We should not penalize manufacturers just because this is what their business model requires.“
Juan Vega is one such manufacturer. The proprietor of BMP Techincal Support LLC in Hialeah, an aviation parts repair and supply shop, Vega was forced to furlough his staff of eight while he waited for a PPP loan to come through. He finally landed an $85,000 loan from Birmingham-based Regions Bank.
But because business has been strangulated, Vega still has no work for them. He’s attempted to rotate staffers in and out of the office to perform small tasks — in essence using routine busy work to meet the 75% requirement.
“It’s noble — but it’s a waste of economic opportunity.”
A better solution, he says, would be the one that Rubio has proposed: Relax the 75% rule and instead allocate PPP money to pay for the cost of restarting so that demand can immediately be met when orders start coming in.
And then, he says, his workers will be back on the job permanently.
Michael Weinstein, chairman and CEO of Ark Restaurants Corp., whose two dozen restaurant locations include Shuckers Waterfront Grill in North Bay Village and Rustic Inn Crabhouse in Fort Lauderdale, is desperate to hire his staff back. But Weinstein said the loan program, though well intentioned, did not envision a world where capacity at many retail businesses would be cut severely by mandated safety restrictions.
“If you tell me I can only keep a quarter of my indoor seats, how can I bring back payroll?” he said. “The two are mutually exclusive.”
Weinstein and Ark, a publicly traded company, received a PPP loan for several of his eateries totaling $9.4 million. Weinstein still had to lay off 2,100 employees, including 151 at Rustic Inn and hundreds more across Florida.
“That’s the worst thing for me, as an employer,” he said. “I can’t stand the fact that my employees can’t make it through, that they’re on food lines. I’m so angry.”
Weinstein says he too faces restarting costs including new cleaning procedures — a better use for the PPP funds, in his mind.
“Without a working capital loan here, I’m going restaurant by restaurant to figure out how they can survive.”
Under current rules, if the terms of the PPP loans are met, the loan becomes a grant. If not, it becomes debt with a 1% interest rate that must be paid back in two years.
That may not seem like much — but for businesses operating on thin margins, it’s a lot, says Chris Meccariello, COO of Innovative Financing Solutions, which works with banks on government lending programs.
“Even though it’s 1%, you’re squeezing the amortization from 10 to 2 years, and that has a big impact,” he said. “Most small businesses don’ t have strong balance sheets.”
Another cross-current was the decision, under the federal CARES Act, to provide an extra $600 to those who file for unemployment. That, said Meccariello,, may be causing some workers to think twice about coming back to work.
But the $600 supplement only lasts for 16 weeks. For a South Florida worker, once that expires, the person will be back to the state’s regularly scheduled $275 unemployment benefits.
Still, it created a conflict, albeit a potentially short-term one, Meccariello says. “It incentivizes people to use unemployment instead of returning to payroll,” he said. “That’s a big issue that a lot of small businesses are dealing with.”
Richard Vona, a longtime waiter at Fleming’s Prime steakhouse in Coral Gables, was laid off in March.
“The fear from all news makes you think twice,” he said. And with new capacity limits when the restaurant does reopen, “I won’t be making the money I was making.”
This story was originally published May 14, 2020 at 6:00 AM.
