COVID-19: Montclair Small business owners having trouble with loan process
As the COVID-19 crisis continues to batter the economy in New Jersey and across the United States, the federal government has launched two programs to help ease the strain on small businesses.
But in the early stages, some small businesses in Montclair are reporting difficulties in accessing those programs and the much-needed financial assistance offered.
The Payroll Protection Program (PPP) and the Economic Injury and Disaster Loan (EIDL) program are aimed to help small businesses. Larger corporations are covered by other elements of the stimulus package recently passed by Congress.
Businesses are applying through general lending institutions as well as banks, which also function as Small Business Administration certified lenders.
Although some small businesses may apply to both, in reality PPP and EIDL are aimed at slightly different situations, said Jerry Fasanella of Upper Montclair Finance and Accounting.
“[The PPP is] helpful for small businesses that are having trouble paying payroll or are considering laying off employees because business has slowed down significantly,” Fasanella said. “The [EIDL] are geared more for the companies who cannot continue to operate ... they’re shut down because they’re not considered essential.
“They have incurred a real economic injury, and the real objective of those [loans] is to help those companies.”
The PPP is a $350 billion program offering potentially forgivable loans to companies with no more than 500 employees, located principally in the U.S. and operating by Feb. 15.
Sole proprietorships, independent contractors, gig-economy workers and self-employed individuals are also eligible for a PPP loan.
Such loans are intended to cover salary, wages, commissions, and other compensation such as tips, as well as leave, severance packages, employee group healthcare benefits, and state and local — but not federal — taxes on the compensation.
The PPP can be forgiven if all employees are kept on the payroll for eight weeks, and the loan is used for payroll, utilities, rent, and mortgage interest.
EIDL is actually not a new program, and is administered through the Small Business Administration. It’s been expanded, however: Whereas once a business must have suffered a substantial economic injury and be located in a presidentially declared disaster area, President Trump’s COVID-19 emergency declaration essentially named the entire country as a disaster area, meaning almost any small business can qualify.
As with PPP, a company cannot have more than 500 employees, though some industries including religious institutions may have their cap based on receipts, not on how many employees they have. Nonprofits are also eligible, as are sole proprietorships, independent contractors, gig-economy workers, and self-employed individuals. The loan amounts are determined by the SBA and max out at $2 million.
Unlike PPP, the money can be used more broadly, but some things like dividends or refinancing pre-existing debt are not allowed. The loans are not forgivable, according to Fasanella.
“The EIDL are not going to be forgivable loans, but they could have extended repayment terms up to 30 years depending on the circumstances,” he said. “And an interest rate of anywhere from … 3.75 for a regular business and 2.75 for a nonprofit or certain nonprofits.”
Fasanella said the deadline to use PPP money is June 30, but ultimately it’s not that clear-cut.
“June 30 is what they laid out, but it’s really 60 days from when your loan gets disbursed,” he explained. “So you have until June 30 to apply for the PPP loan. If you were to apply for the PPP loan, let’s say on June 1, and it got it immediately approved and they funded it to give you the money on June 5, you would have to Aug. 5 to spend the money.”
But while the program offers the potential of much-needed relief to small business owners like Kacy Erdelyi, proprietor of the organic café Joyist in Upper Montclair, so far the reality has been messier.
The story that Erdelyi, who had to shut Joyist’s doors at the end of March, tells about the hurdles she has run into applying for the federal aid is a common one: So far she has been unable to apply for a loan, and is in a holding pattern with the bank. Banks and lending institutions have been overwhelmed by a deluge of applicants, and if they are accepting applications at all, they give priority to customers who already have a lending relationship with them. Applicants who only have bank accounts, and then new customers, follow in line.
Erdelyi is just one of many business owners discovering this.
“Unfortunately for me, my loan is from Chase, and my checking accounts are with what used to be Oritani but just became Valley Bank, which is a small regional bank,” she said recently. “I would get the first priority from Chase because I have a debt relationship with them; however, they are only allowing people who have an account relationship as well to apply. So as a result, I get put in the second tier with Valley, which is someone who I have several accounts with, but no debt relationship.”
The last email Erdelyi saw from Valley seemed to indicate they were starting to accept applications, but she has not received an application yet.
Watchung Bookseller owner Margot Sage-EL had a similar experience to Erdelyi when she tried to start the application process.
“I just got an email from Chase that they are not ready to start receiving applications,” Sage-EL said. “They will send us an email when they are ready to send an application.”
Mike Guerriero, owner of Gelati by Mike, received an email last week with a sample application and can start filing paperwork out and sending it back to his lender, TD Bank, but it’s been slow going overall, even though he had procured an SBA loan several years ago when his business expanded.
Even if he gets the loan, he may not be able to make it last as long as other businesses can.
Guerriero applied for the EIDL, and also for an emergency grant up to $10,000, which will be forgiven if the business uses it specifically on payroll, paid leave, mortgage, or lease payments.
It’s awarded per limited liability company (LLC), which means a company like his could end up getting less than another that has multiple LLCs.
“Some people have four or five LLCs, and might have multiple units,” he said. “Ours are under one LLC. We will get a one-time payment of $10,000.”
And after that, everything else he borrows will have to be paid with 3.75 percent interest.
But he still hasn’t heard if the lender has started processing the application for the emergency loan.
Stumbling out of the gate
Part of the frustration from small business owners locally is the seemingly erratic way the programs have been rolled out.
“I don’t know how this could have gone smoothly,” Erdelyi said. “I mean, they're trying to move fast because they want people to know that money is coming eventually, I don’t think they feel confident to make business decisions now, which is smart, right? You don't want to until it's all completely ironed out and then six months have gone by and everyone has shut down because they think nothing’s coming. So, it’s sort of like chicken or egg. You have to just kind of figure out the details as you go, which is, I think, what they’ve had to do.”
Sage-EL was more blunt.
“[This] roll-out has been bungled,” she said.
Guerriero said, “Could be months before we get our money.” He added that he hasn’t seen any guidance from his lender in terms of timing.
As of April 8, the SBA had not given promissory notes to lenders. Without those documents, lenders were hesitant to move forward for a variety of reasons, according to an article on CBSnews.com.
Recently, however, lenders have received the assurances they need and begun sending payments out, or at least approving loans.
There have been nearly $6 billion in loans approved for New Jersey small businesses alone, with 17,187 loans approved as of April 13, according to the SBA.
The promise of repayment wasn’t the only thing slowing the process down, according to Fasanella.
He explained that things such as just handling the sheer volume of applications have created a logjam.
“It took a while, from a technological standpoint, for the banks to get all the technology in place to accept loan applications and to process loan applications, and [it’s] no fault of the bank’s,” he said. “Most banks have a couple of people who work on SBA loans, and now the SBA is undertaking this mass loan program that was not anticipated.”
On top of that, the process and rules are shifting constantly, and Fasanella said that what is requested for a PPP loan on Friday or Saturday could be very different from what was asked for on Monday or Tuesday.
“I think they honestly launched it a couple of days too early,” he said.
When Watchung Booksellers gets its money, Sage-EL is hoping it will have a big impact for her store.
“I’d be able to pay rent, pay employees,” she said. “This is not going to end soon. We will run out of money rapidly.”
For both Sage-EL and Guerriero, the community has continued to be supportive.
Guerriero acknowledges that as the crisis continues, even his most loyal customers may have to cut back. The money would mean stability.
As good as the money would be, Erdelyi is concerned that businesses that are closed may feel pressure to open too soon when they get it, because that money will be gone when the virus runs its course.
“I only have two months to spend that money, so that means I have to open a restaurant,” she said. “I’ll use it all by August, which is great for my employees, and great for the economy and important and necessary, but that still doesn’t really solve the problem. I probably will have lower revenue for at least six months while this is all working itself out.”
It helps in the short term, she said, and could help her employees stay paid now, but if she and other businesses can’t reopen and stay profitable, those same employees could be out of a job not long after.