Coronavirus PPP loans are running out as Congress weighs new funding

Ryan German has kept 40 employees working at his restaurant, Caffe Gelato, in Newark, Delaware.

The Paycheck Protection Program provided a lifeline to help him through an unprecedented spring as the coronavirus pandemic tore through the country. The loan, now exhausted, covered seven weeks of payroll. But the restaurant is facing down an unknown future with extended restrictions on operations and changing consumer preferences.

“We need another injection of capital,” German said. “We’re trying every angle to stay open but facing a lot of headwinds.”

The Italian restaurant is located near the University of Delaware and operated throughout the pandemic. It started up a  business to deliver groceries and home meal kits to customers’ homes. Its staff also began to pick up outdoor services like power washing, to keep everyone working, German said.

But uncertainty remains its biggest challenge, German said. The university has shifted to remote learning and it’s unclear when students will return to campus. The restaurant’s catering business for weddings and events is on hold.

“The thing that’s missed are the big holidays. The big, busy, busy days in restaurants don’t exist,” German said. “While we may be able to get 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of sales on any given day, we are missing Mother’s Day, Easter brunch, University of Delaware graduation.”

Business owners like German are eagerly awaiting the next round of stimulus to see what’s done with the PPP. The program still has $131 billion remaining in funding as of July 17, and businesses who have not yet applied for a loan can do so through Aug. 8.

A proposal from Senate Republicans revealed Monday set aside $190 billion for PPP loans. It also allows small businesses with fewer than 300 workers that have seen revenue fall by more than 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to apply for a second round of PPP aid, and authorizes $100 billion for loans to seasonal businesses and companies in low-income census tracts that can show a revenue reduction of more than 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}. Those areas have been disproportionately impacted by the Covid-19 crisis.

Recent data from the National Federation of Independent Business finds the majority of members surveyed (71{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}) have now used their entire PPP loan, with the remaining 29{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} not far behind. In addition, about a fifth of small business owners either have or anticipate having to lay off employees after using the PPP loan, and almost half of borrowers anticipate they will need additional financial support in the next 12 months.

What’s more, about a quarter of respondents said they would have to close their doors if the current economic conditions don’t improve in the next six months, with an additional 22{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} reporting they will not be able to operate for longer than seven to 12 months under current economic conditions. More than half are not anticipating near-term problems as they are better financially situated.

House Small Business Committee Chairwoman Nydia Velazquez (D-NY) said at a recent hearing on the PPP that some 110,000 small businesses have already permanently shuttered, with 7.5 million facing the same fate, underscoring the idea that the pandemic’s impact on business is far from over.

At a separate hearing, Treasury Secretary Steven Mnuchin advocated for automatic forgiveness of the smallest loans, under $150,000, which made up the vast majority of loans made under PPP. The business community has been vocally supporting this idea in recent weeks.

Mnuchin also said he favors a revenue test, which is in the GOP proposal, something some advocates do not favor.

German, for example, wouldn’t pass a revenue test of declines of more than 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} due to his creativity in operations, but he needs the support.

“If we have to paint houses or power wash or do deck staining or if we have to rake leaves in the fall, in addition to serving food, then that’s what we’re going to do, but we don’t intend to lay people off,” he said. “It’s just that even with all those different endeavors, we do need help from the federal government. We need Congress to act. We need Congress to pass the second round of stimulus.”