JOHNSON CITY, Tenn. (WJHL) – “Paycheck Protection Program” loans through the U.S. Small Business Adninistration (SBA) are in the pipeline and some could close as soon as Friday.
The forgivable loans, which can total up to 2.5 times a qualifying business’s monthly payroll, may well be the key to survival for a number of area operations, including Goodwill of TN/VA. The agency makes 87 percent of its revenue through store sales, and it closed those 13 stores March 24 (Virginia) and March 27 (Tennessee).
As a result, CEO Morris Baker said, Goodwill had to lay off 158 of the 225 employees that are directly paid through revenue. The organization is continuing to take donations and operate the salvage portion of its business, and has sent eight workers and three trucks to help Second Harvest Food Bank.
“If we didn’t receive the loan we would probably be shut down,” Baker said. “If we don’t have in store sales then we can’t operate, because we have to have that cash flow to pay our employees.
“We were just hoping and praying that something would be passed to help small businesses,” Baker said of the days directly after Virginia Gov. Ralph Northam’s executive order caused the need to close stores that operate on high volume and thus high customer traffic.
Goodwill is one of about 600 businesses that have applied for the loans just through Bank of Tennessee. CEO Dale Fair said while the bank had processed just $12 million through last April 7, that amount had risen to $90 million Tuesday thanks to some additional guidance from SBA and ramped up IT.
“We’re still getting guidance from the SBA on a daily basis how to disburse the funds and how to properly document that,” Fair said. “But we’ve got a lot of approval going on and we’re excited about starting funding.”
So are Baker and Michael Short, a sole proprietor who operates Artisans’ Village, a fair trade store in downtown Johnson City.
“Right now we’re operating at about 10 percent of what we would normally be doing (in sales),” said Short, who has offered curbside pickup. He is generally loathe to take on debt, but the crushing hit to his business and the prospect of the loans becoming grants under certain parameters was attractive enough that he applied.
“I feel very comfortable with the information I’ve been given that there’s a high probability we will be able to have those funds forgiven,” Short said inside his small, quiet store. “We were very concerned about taking on debt leading into what could possibly be a longer-term economic downturn.”
Generally, as long as Artisans’ Village spends at least 75 percent of the loan on payroll — essentially feeding his family and keeping a roof over their heads in Short’s case — the loan becomes a grant. Short said he plans to spend the remaining portion mostly on the store’s lease.
Fair said it’s businesses like Shorts and even Baker’s that are most in need of the PPP loans to hit their bank accounts soon.
“Larger companies have operating lines of credit and they can tap into that while they’re waiting, but the smaller non-profits, smaller businesses, that’s the ones we’ve been most worried about, because they can’t last very long without income,” Fair said.
‘Airplane’ coming along
Bank of Tennessee Chief Operating Officer Will Barrett has been in the trenches as the bank and its lending officers have wrestled with the SBA’s antiquated “E Tran” loan system and the shifting guidance. Last week, he likened the process to building an airplane while flying. He said the machine’s crash looks less likely.
“E Tran was designed a long time ago and it couldn’t support the volume of the requests,” Barrett said. Last week, SBA partnered with Amazon web services to add more “lanes.”
Now, about $220 billion of the $349 billion is claimed, though Barrett said he’s hopeful Congress will approve another $250 billion tranche perhaps as soon as this week.
“It’s a problem when you’re trying to give away money, how do you get people to the trough on time, and there’s only so many lanes to get to that trough,” Barrett said. “That’s basically why it’s even taken this long to give $220 billion away.”
Late Tuesday, the Tennessee Bankers Association reported that $4.7 billion of that total had been processed in the state as of Monday, representing 19,074 borrowers. Banks are paid origination fees of 5 percent on loans under $350,000, 3 percent on loans between $350,000 and $2 million, and 1 percent on loans of $2 million or more.
Barrett said some ambiguity remains surrounding documentation for self-employed or independent contractors regarding proving they’ve used the funds for payroll purposes. Regardless, he suggests people in that category contact their bank, just as Short did.
“Go ahead and do that just to get your place in line,” Barrett said. “A lot of people in those situations are so in the trenches they don’t have a finance person or anyone paying attention to the guidance on this.”
The program remains a work in progress, though, with borrowers still often having to fill out multiple applications. “I think everyone has had patience, given the spirit of the law and the intent, but this week is when I think nost of the small businesses are going to start to actually see the money, and that’s what counts.”
Families’ welfare hangs in the balance
At Goodwill, Baker said many of his employees long to return to work — and that many had barriers to employment that the agency understood and accommodated, or looked past when others might not.
“They may have been incarcerated, they may have a disability, and if Goodwill’s not in existence about 220 folks would not be employed,” Baker said.
He hopes the loan of nearly $1 million will transition to a grant. Goodwill national said it’s unsure how sales will be coning out of the crisis, especially if some social distancing measures are maintained, which could make operating difficult in stores that depend on lots of shoppers and volume.
“We’ve seen some interim guidelines published by SBA and we’re hoping we’ll be able to call enough employees back. It will allow us a bridge to continue operating.”
Short, too, said he can’t help but wonder about his store’s future.
“That’s something you think about daily, but there are so many unknowns at this point that it’s very difficult to draw any firm conclusions,” Short said.
“Ultimately it’s going to boil down to how the consumer is able to bounce back. And when.”
Until that time, everyone seems to be adaptable to constant change, including with respect to the PPP loan program.
“There’ll be some mistakes both customers and banks make, but I think the challenging tines will justify it,” Bank of Tennessee’s Fair said.
Fair said the business cycle will take awhile to normalize even when the economy opens, and his counterpart Barrett urged anyone whose business is being affected — or might be — to contact their bank.
“If you don’t utilize those funds someone else will, and I would rather them stay in this region and go to help our small businesses and economy,” he said.
Baker didn’t disagree.
“The rules have changed and we expect then to continue to change, but we’ve got to have this money to survive,” he said. “Not knowing the guidelines, that’s a little scary, but we’re hoping in good faith we can use that money to keep folks employed and keep the organization going and come out stronger on the other end.”