How Miami’s small businesses can benefit from the $2 trillion coronavirus relief bill
Miami’s small business-centric economy is crumbling in the face of a government-prompted recession to stop the spread of coronavirus.
Washington has a solution — $350 billion in small business loans that do not have to be paid back if the owner uses the money to keep employees on payroll — but the idea is untested.
Starting Friday, small business owners across the country with fewer than 500 employees can apply for up to $10 million in federal assistance through banks or lending institutions.
Ron von Paulus, the owner of Big Ron’s Tree Service in Miami, said he plans to apply the minute applications go online.
Von Paulus laid off two of his approximately 25 employees but is able to stay in business because his tree-trimming operation is classified as essential. But work has slowed over the last three weeks.
“We’re just trickling along,” von Paulus said. “The priority here is to maintain business. I don’t want to make a profit. I want people to be able to eat, but I don’t want to go into debt I’ll never be able to pay back.”
Von Paulus said he learned through a webinar that his business is eligible for the loan, but no one was able to tell him how quickly he’ll receive the money after applying.
“No one’s given me any kind of timeline for the actual funding,” von Paulus said. “They’re all just waiting and nobody wants to [give me misinformation]. I’m a very strongly opinionated person, I don’t mind you telling me you don’t know, but if you lie to me you’ll make me angry.”
Florida Republican Sen. Marco Rubio, who helped write the Paycheck Protection Program for small businesses in the $2 trillion coronavirus relief bill that became law last Friday, said during a conference call with local businesses on Wednesday that successful applicants will ideally get their money in a matter of “days, not weeks.”
But Rubio compared the loans, which are funded by the federal government but processed by banks, to someone using their ATM card at a bank that isn’t their own. In this case, it will be thousands of people asking for hundreds of thousands or even millions of dollars in a short time-frame.
“Ultimately, it comes down to the capacity of the lending institution to move the money and get it back-filled by the federal government,” Rubio said.
Businesses can use the loan to cover payroll expenses beginning March 1, 2020, with the idea that businesses that laid off employees in the last few weeks can re-hire their workforce, and businesses that kept people on staff will not be forced to lay off employees.
The maximum loan amount is $10 million and the amount of an individual employee’s salary that is covered is capped at $100,000, so small business owners will be responsible for covering the remainder of a high-earning employee’s salary. The loan amount is also capped at 2.5 times an employer’s monthly payroll or $10 million, whichever is less. Money that isn’t used for payroll can be used for other expenses like paying rent or a mortgage.
Juan Vega Sr., owner of Hialeah-based BMP Technical Support LLC, which performs complex and aviation maintenance tasks, captures the uncertainty facing local small businesses.
Vega says he successfully applied online for federal disaster loan assistance through the Small Business Administration. He said little paperwork was needed, and notes that the government is offering businesses a $10,000 loan advance.
The disaster loan assistance program is run directly by the Small Business Administration and requires businesses to prove economic injury to receive the money, just like a business applying for a loan after a hurricane. The loan advance does not have to be paid back.
The disaster loans also must be paid back, as opposed to the $350 billion in payroll assistance loans that do not have to be paid back — if it’s used to keep workers on the books.
As for the state’s emergency small business program, Vega says he found it much more cumbersome — and also doubts whether the $50 million set aside for it will be adequate.
“If you’re talking $50,000 per business, that’s only 1,000 businesses,” he said. “That’s not even going to cover all of Hialeah.”
For some businesses, the expedited money from the federal government may be too late.
Gilberto Suárez owns Cono Pizza in Miami. He said his sales are down 94%, and that he already laid off four of his 11 employees. His business, which thrived off of late-night orders, must now close at 10 p.m.
A planned expansion is now on hold. “I invested $200,000 in a space in Hialeah that is closed, but I am paying rent and electricity.”
His landlords still expect rent and utilities to be paid in full and on time, he said. But Suárez hopes to apply for a loan, and potentially use the money to keep the employees he hasn’t laid off on payroll.
“There are many businesses like mine that didn’t last a week,” Suárez said.
More than half Miami’s economic output comes from the 82,000 companies with fewer than 500 employees, according to a Florida International University study. More than half of those — almost 55,000 — have fewer than 5 employees. Unlike large corporations, small firms are less likely to have access to lines of credit, and are also less able to exert leverage over a landlord to relax lease terms.
Rubio said he’s hoping the program will provide immediate relief to small business owners and their employees, saving employers the hassle of gearing back up without workers once the crisis ends and employees from navigating a state-based unemployment system that doesn’t work.
But in addition to worries that lenders may not be able to process applications fast enough, or even be available to handle them in a time when most banks have reduced hours or shuttered physical branches, Rubio acknowledged that the program could work too well.
“My biggest fear is two weeks into this, the $350 billion is gone,” Rubio said. “If we can make this program work and it works so well, I fully anticipate we’ll need to put in another 300 billion dollars.”
But authorizing more federal spending, even on a program that was popular with both Democrats and Republicans along with President Donald Trump, isn’t easy when Congress isn’t scheduled to be in session for three more weeks. Returning to Washington to pass more legislation is a logistical and public health challenge for lawmakers.
And there’s also the issue of educating small business owners, sole proprietors and gig economy workers like Uber drivers who could benefit from the loans.
Lynda Carson Scheuermann is still not sure what relief is available; as of Wednesday, it was her understanding that sole proprietors were not eligible for an emergency loan. In fact, CARES Act loans cover an expanded portion of the American workforce who weren’t eligible for traditional Small Business Administration loans, including sole proprietors like her.
Carson Scheuermann has owned Nautica Design Gallery, a gift shop in South Miami, since 2006.
For the moment, she says, she is financially secure — since she always keeps two-months worth of cash reserves on hand in case her business closes as a result of a hurricane. She has not been offered a rent abatement — and is choosing to not seek one, since she knows it would put her landlord at a disadvantage.
But she is afraid the crisis will only accelerate a move to online purchases.
“I’m on the front line,” she said. “I see foot traffic down with everybody.”
Rubio said he’s worried that newly eligible sole proprietors and gig economy workers may not have an existing commercial banking relationship that employers have like von Paulus, the tree-trimming company owner.
“The one area that we remain concerned about is the people who sort of fall through the cracks, that may not have an existing banking relationship,” Rubio said.
But Rubio added that anyone who can prove they owned a business or were in business for themselves as of February 15, 2020, will be eligible.
Von Paulus said he would “rather have a hurricane” than be dealing with his current situation, but he’s hopeful that the loans will serve their intended purpose — to keep small businesses operating and their employees on payroll.
“’I’m a tree guy — a pretty successful tree guy, I was just looking forward to a normal season,” von Paulus said. “[My banks] explained that we have a forgivable loan to pay all my people for the next eight weeks and feed them for the eight next weeks even if they aren’t working. I’m going to sleep good tonight.”
Miami Herald reporter Rene Rodriguez, El Nuevo Herald reporter Sarah Moreno and McClatchy DC reporter Kevin G. Hall contributed to this report.
This story was originally published April 2, 2020 at 6:00 AM.
