The rollout of the Paycheck Protection Program (PPP) could be described in different ways. I have heard from many, and their experiences have been vastly different. Even within franchise systems, owners have had vastly different experiences depending on if they have a banking relationship and who it is with.
As we sit here today, there are a lot of moving parts. Below are a few updates and thoughts as you continue to lead your franchise through these times.
PPP for the Self Employed
Depending on how your franchise system is structured, your franchisees may be 1099 workers. Friday, April 10, was the first-day independent contractors and self-employed individuals could apply for loans under the PPP.
Unfortunately, there was no additional guidance issued for these loans. In a National Small Business Town Hall put on by Inc. Magazine and the Chamber of Commerce last Friday, Neil Bradley, the U.S. Chamber of Commerce executive vice president, said, “We were up late last night, hitting ‘refresh’ hoping it would show up. It didn’t”.
As such, these individuals are left with the same guidelines as everyone else. These individuals use the same forms previously available. However, they substitute their income for the average monthly payroll calculation. The biggest issue lacking clarity is how the forgiveness will work on these loans. Essentially, it would appear if they are used to pay just the self-employed individual, the loan would be forgiven.
Where Does the PPP Stand
Many small business owners, franchisees, and franchisors have yet to even apply for the PPP worry that funds will run out. The American Bankers Association reported on April 12 that $205 billion of the $349 billion had been claimed. Since the SBAs approval occurs prior to the loans actually being documented and funded, this would presume this number represents only the applications that the banks have processed and been approved by the SBA.
I have one client that has received their approved funds (they received them on Saturday). I have multiple other clients that have been approved and are waiting on final documents (hopefully early this week). However, many of my clients are struggling to get any traction on applying.
Why are businesses struggling to apply, and what to do?
Most banks have imposed rules that if you are not a current customer, they are not accepting applications. Some banks take this a step further if you aren’t an existing customer with debt or a loan, you cannot apply. This was not the SBAs or CARES Act’s intention, but rather one that banks are self-imposing.
I spoke first hand to three banks on Friday on behalf of a client only to be told that since they weren’t customers, they weren’t eligible to apply. To make matters worse, I have a client who is a customer with Wells Fargo, where you can technically apply online. Still, that application is only to be contacted later to actually apply.
Now that I have spent the past few paragraphs worrying you and our franchisees, here is a little bit of good news. The SBA has been actively trying to approve new lenders. Many of these lenders are from FinTech rather than traditional banking. Starting last Thursday, online vendor Kabbage began taking applications. There is not a requirement to be a customer and, at least up to this point, I have been impressed with their responsiveness. PayPal also emailed Saturday announcing they were taking PPP applications (they are using a third-party lending partner). If you or your franchisees have had trouble figuring out where to apply, start with these two and keep watching out for more this week.
Will there be additional government help?
The short answer is yes. Congress is looking to add $250 billion to the program. However, as you may have read, Democrats and Republicans are arguing over the provisions that are agreeable to pass this. While this will most likely go back and forth for a few days, this should ultimately pass. If it doesn’t pass, there are projections that the $349 billion approved initially will run out by this Friday (April 17). Both sides agree that there need to be additional funds, it’s just a matter of compromising on other rules and regulations around those funds.
Some in Congress, on both sides of the aisle, are starting to discuss what comes next. There is a realization that even if the economy “opens back up” in May or June, the recovery will be slow for a lot of business owners.
Senator Josh Hawley (R-Mo.) wrote an op-ed in the Washington Post calling on the federal government to immediately start covering 80% of wages for workers at any U.S. business. He also proposed a bonus for busineses that rehire workers laid off over the next 30 days.
U.S. Rep. Pramila Jayapal, (D-Wa.), has unveiled a plan to guarantee wages for all workers earning up to $100,000 annually during the coronavirus pandemic. Under Jayapal’s plan, the federal government would provide grants to employers of all sizes, for at least three months, to cover payroll and keep workers from the unemployment line. The legislation would also uphold employer-sponsored health plans and supplement a portion of other business expenses, including rent.
Regardless of if either Hawley or Jayapal’s ideas are advanced, there are several politicians on both sides of the aisle actively discussing Phase 4 and even Phase 5 deals. Based on comments above and those from Nancy Pelosi (D-Ca.), Corey Gardner (R-Co.), Lamar Alexander (R.-Tn.), and several others, they appear to know there is need for additional support. While the next phase of help may not pass until mid-May, take some comfort in knowing that there seems to be more help on the way.
Lastly, there may be local support available for you or your franchisees. Many cities and county jurisdictions have announced small business relief programs. This relief ranges from the deferral of sales taxes to small business grants. These grants are typically less than $15,000, but that might at least pay rent for a month or two. I won’t get too much into these local programs because they are specific to different locations, but do keep a lookout for them.
What’s next for your business?
It is important to keep educating yourself and staying up to date with the current aid packages. For a lot of business owners and franchisees, the aid provided may be the difference between shuttering for good and reopening.
However, I am going to start discussing strategies around reopening and making your business better. While no one was clamoring for weeks or months without revenue, the COVID-19 crisis has given time to companies to better themselves and come out of this stronger. Yes, it is a struggle for all of us, but that doesn’t mean you can’t make adjustments and changes to your business. Later this week, I will be putting out some articles on some thoughts and considerations to improving your business. At some point, we need to talk about the future, and I would like to sooner than later.
As always, don’t hesitate to reach out to me. I have had several conversations with franchisors and small business owners the past two weeks. Conversations don’t cost a thing, and you don’t have to be a current client. We all need to help each other out during these times. You can contact me at email@example.com.
About Krieger Analytics
My name is Matt Krieger, I’m the founder of Krieger Analytics, a CFO advisory partner for small businesses and franchisors. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado. During my time as a small business owner, I realized the benefits that a CFO could bring to smaller organizations. I also realized that franchisors and small business owners didn’t have the need (or budget) for a full-time CFO. That is why Krieger Analytics is a part-time resource for our clients. While most think of CFO’s being involved in finance and accounting, I am also involved in so much more. I partner with clients by coaching them on strategy, clarity on their business, building effective processes, and confident business decisions. Conversations are free, so don’t hesitate to reach out to me at firstname.lastname@example.org.