LOS ANGELES — On April 3, Dennis and Miguel Hernandez rushed to the Highland Park branch of Bank of America, seeking a $72,000 emergency loan to cover wages of 24 employees at the two Antigua Bakery restaurants they own.
They are still waiting for an answer.
With sales declining more than 55% a day after the stay-at-home orders took effect March 16 to control the spread of the coronavirus, the brothers mobilized to shift food orders for curbside pickup, resorted to take-out sales and switched a kitchen worker to do home deliveries.
They cut the work hours for 21 employees, laid off the dishwasher, saw two employees quit over contagion fears, and filed for a Small Business Administration (SBA) loan that may be forgiven if 75% of it is used to cover eight weeks of salaries before June 30.
“We are open, but it’s hard to operate under these circumstances.” Dennis Hernandez said. “If you don’t qualify for the loan, no one would help you. We haven’t received anything. Everything is in suspense. I’d like to know anyone who’s been approved.”
After a rough launching of the Paycheck Protection Program (PPP) loans by the SBA, agency representatives have offered guidance through a series of webinars on who should apply to get funds to cope with the economic wreckage dealt by COVID-19.
Business owners have complained that the SBA website is marred with glitches that slowed the process for hundreds of thousands eager to get cash and keep employees on payroll, avert permanent layoffs and hope for their business reopenings.
These webinars are scheduled to run through April to address concerns and answer doubts from business operators related to a handful of programs that cover national and regional emergency declarations and the economic downturn caused by the deadly virus.
The PPP loans, also known as P3s, are touted to offer lifelines from the $349 billion CARES Act approved by the federal government for struggling businesses “with 500 or fewer employees” struck by social distancing measures and closures.
The onslaught of diminished sales, staff furloughs and layoffs forced business owners to flock to community banks, branches of large institutions and other lenders attracted by the prospect of loan deferrals to ride above the deteriorating economy.
There are some caveats. Loan forgiveness are canceled if the funds cover portions of salaries of individuals earning more than $100,000 a year, while they are screened by administrators assigned to tally the amount each applicant needs to cover eight weeks of wages.
A formula to figure out a 3P loan centers on the total reported salaries in 2019, less any compensation to an employee, independent contractor or sole proprietor above $100,000. The business must calculate salary costs dividing by 12, multiplying the latter by 2.5 months, and add any outstanding balance made under the economic injury disaster, or EID, loan between Jan. 31 and April 3, less any advance of $10,000, which is forgiven.
For example, if no one earns more than $100,000, and the yearly payroll is $210,000, the average monthly wages are $17,500, which multiplied by 2.5 equals $43,750. If an EID advance is made, the total would be $53,750; otherwise the former figure stands.
The latter should be the maximum P3 amount.
Any charitable, veterans and tribal business organization registered before Feb. 15 qualifies to obtain the loans, which can also be used to pay independent contractors using the IRS form 1099-MISC.
Also, sole proprietors, independent contractors and self-employed individuals who draw their wages from running their enterprises and existed before the above date are eligible to submit one loan application per business, as long as they can document it with tax filings, payroll records or 1099 forms.
SBA representative Kristi Bain said the funds are available until they ran out, so she advised business owners to file immediately to get a loan number, and be put in line by their financial companies for eventual disbursement.
“Eligible business are any size business that meets SBA standards,” Bain said. “Loans should be used to payments of employment.”
P3s should not be used to pay federal taxes or to cover deductions earmarked for Social Security, Bain said.
She emphasized that her agency will not place liens, or require collaterals to back P3s because the purpose of the emergency loans is to cushion the blow of the coronavirus in the economy, allowing businesses to maintain as many employees while the pandemic moves on.
“It’s an unusual circumstance to issue these loans to help American employers and American employees,” Bain said in a teleconference. “The purpose is to … apply it before the disaster strikes.”
Fielding questions from business owners, Bain said P3s are not designed to cover workers’ compensation.
Business owner Gloria Gomez asked “if P3 funds can be combined with” an EID loan, offered to businesses in areas of declared natural disasters.
Bain answered that both loans may be deferred only if they are used to cover payroll expenses.
About 2,400 banks and lending institutions agreed to accept applications and provide the SBA-backed loans, but many were put on hold due to lack of clarification on lending terms and conditions.
Initially, loan rates were set at 0.5%, but banks persuaded the Trump administration to approve a 1% tacked onto the contracts.
Other loan seekers complained that large banks only processed petitions from clients with current loans, and ignored customers with checking or savings accounts in the same branches.
“We have employees and people with families, and if we don’t work, people don’t get paid,” Dennis Hernandez at Antigua Bakery said while only one employee took orders and another prepared food. “A lot of restaurants won’t make it past April 30.”
On April 6, the SBA estimated that more than 100,000 applications had been approved, with about $34 billion earmarked for businesses battered by the pandemic, but none had received disbursements in their bank accounts as yet.
Federal Reserve Chair Jerome H. Powell unveiled a new rescue package of more than $2.3 billion April 9 for small businesses and local governments to stave off economic deterioration “with alarming speed,” while the Senate debated details to pass another $250 billion in aid.
Both announcements came out after the Labor Department announced that 16.8 million American workers filed for unemployment insurance between March 15 to April 4, a number that has grown since then.
Flame Broiler, another restaurant casualty, closed its doors across Figueroa Street from Antigua Bakery days after mandatory takeout sales were imposed in Los Angeles.
Franchise owners Allen and Liza Cheung struggled to stay open nearly three days after the lockdown, laid off a handful of employees and resorted to run the joint alone, but realized it was impossible and locked up the business until further notice.
Neighbors do not know if the franchise will reopen when the emergency declaration is over, or if the Cheungs tried to shore up their losses with a P3 loan.
Frame Broiler founder Young Lee indicated on its website that owners must invest from $310,900 to $479,800 to start a new restaurant, plus an initial fee of $25,000.
“The restaurant business is very competitive, and very challenging,” Dennis Hernandez said. “Everything is a challenge, and then some more with local taxes. Supplies and rents increase in costs every year. About 70% of all restaurants are barely making it, without the coronavirus.
A petition from the Independent Restaurant Coalition to change the CARES Act aims to extend to three months funds of the P3s “after restaurants can legally reopen to full capacity,” and seeks to renegotiate repayment of existing loans from two to 10 years.
In an email, IRC Director Angela Kouters said that “the 500,000 independent restaurants across the country are among the most severely economically distressed in the U.S. right now,” and that restaurants accounted for 60% of the layoffs in March before the April 4 unemployment report.
“What we do know today is that the Paycheck Protection Program is not working for independent restaurants. It may be a lifeline for many small businesses, but it doesn’t work for us,” Kouters said.
The coalition asked the federal government to create a $100 billion fund in grants to independent restaurants to access capital needed to restart.
By Alfredo Santana