By Sage Sauerbrey I Special to Moonshine Ink
A key piece of government response to the Covid pandemic has been the Paycheck Protection Program, designed to bridge the gap in the employer’s ability to keep staff on payroll through hard times. While the first round was delivered when most local businesses were temporarily closed with uncertain futures, the second round came when the field was split between a struggle for survival and a record year. The PPP pot dried up early this May, weeks ahead of its May 31 deadline, leaving some struggling businesses feeling cheated, and others with surplus money in the bank.
The program delivered $521.2 billion to U.S. businesses in 2020, but the first round was criticized for leaving behind many small businesses, including a majority of businesses in the Truckee/North Lake Tahoe region. Larger operations with dedicated financial departments, strong bank relationships, and larger loan amounts were given higher priority by lenders, and sole proprietor businesses had to wait a week longer than others to file.
In our region, smaller businesses make up the substantial majority of those filing for loans. Of the 2,432 loans distributed in both rounds of the program to the Truckee/North Lake Tahoe region, 2,222 fit into the small business category with less than 20 employees.
“For Truckee/Tahoe, a business with 10 employees is considered large,” said Kristin York, director of the Sierra Small Business Development Center. “When you get to 20 employees, you probably have a full-time finance person.”
York said the saving grace for these smaller operations was the presence of so many local banks that prioritized locally and weren’t distracted by enticing large loan amounts. A U.S. House of Representatives committee reported in 2020 that larger banks were encouraged to prioritize “wealthy existing clients at the expense of truly struggling small businesses in underserved communities.”
The second round, which opened on Monday, Jan. 11, attempted to rectify this and targeted small businesses specifically, but that was plagued by a host of other problems. This round of PPP-approved lending, which ran out of funds and ended prematurely early this May, saw 6.5 million loans approved nationwide, for a total of $274 billion as of May 24.
“I think the biggest frustration with the PPP in both the first and second rounds was how the rules kept changing,” York said. “You’d just get it figured out and then they would change the rules, and this happened over and over — or the portal would jam.”
One example of this shifting playing field cost local businesses thousands. On Feb. 24, the Small Business Administration opened a 14-day window for businesses with less than 20 employees intended to streamline the application process. One week later, it changed its reporting requirements from a business’s net income, to a business’s gross income (in addition to payroll expenses). For businesses with high costs, this change led to a substantial increase in the loan amounts they received.
Tourism and hospitality-oriented industries in the Truckee/Tahoe region were hit hard. York explained that a tech business might not have a glaring difference between gross and net incomes, but a hotel or restaurant with substantial costs might have a discrepancy of 75%.
“Certain businesses were really penalized if they got in early,” York said, and for those businesses, there were no avenues for re-filing.
Before Covid, Grant Kaye owned a destination photography business, taking students on trips to places like Iceland, Alaska, and New Mexico to teach the finer points of landscape photography. The lessons and his own commercial photography work made up a business that he had cultivated for eight years, but travel restrictions and shrinking advertising budgets constituted what he calls a “magic bullet” that closed his whole operation.
The first PPP loan covered three months of his business costs, but in the fall of 2020 he transitioned his attention to caring fulltime for his young son. The second PPP loan offered hope, but was not quite enough to reopen his business. If he had procrastinated filing until May, as opposed to filing immediately in January as the SBA suggested, it would have been a very different story.
“I got the second loan, which was great, you know. That enabled me to entertain that maybe this is going to go away and I’ll be able to reopen my business spring or summer, but that money was gone in three months,” Kaye said. Under the changes made in early May, Kaye would have received three times the original amount. “That’s how serious this was for me, I would have gotten that loan at the amount that everybody that procrastinated got it, and I wouldn’t have had to go look for a job. I would have continued in my ninth year of operating my business.”
Kaye nevertheless is excited to be starting a new job as the director of marketing and community outreach for Truckee-Tahoe Lumber Company in June, and has a grateful, yet disheartened attitude toward the whole loan process.
“I want to say how grateful I was to get [the loan]. I don’t want to sound like I’m bitter about it,” Kaye said. “The thing that I’m bitter about is that the government didn’t have the foresight to provide a pathway for the tens of thousands of people that are in the same situation.”
By the time the SBA changed its policy on net versus gross reporting, 249 local businesses had, like Kaye, followed the SBA’s advice to file early, and had already applied for loans. To bring attention to the issue, Kaye and another local photographer, Court Leve, started the website myppploan.org to give others an opportunity to see how they might have been affected by the change. He says there is still no avenue for re-filing.
On the flip side of the coin, the second draw likely included a number of businesses that qualified for a loan even while revenues remained flat or rose to increased tourism, according to York.
“There were still businesses that took a second draw, that probably didn’t need the money, but they were able to prove that they had reduced [income],” York said. Income reports needed to show a 25% reduction in the last year, which Tahoe’s more extreme quarantine caused for many. However, the tourism bump after Covid restrictions eased caused some businesses to be as busy as ever at the same time as the 2nd PPP loans were being distributed. “A lot of businesses could prove that [25% decrease], especially if they were closed, so that’s why so many people got it even though they were having the best year of their lives.”
York referenced a business owner with over $60,000 in unneeded and forgiven PPP loans sitting in the bank, that is planning to give the total to charity.