Since the CARES Act was signed into law on March 27, small businesses owners in the U.S. have rushed to apply for government-funded loans from the Small Business Administration to keep their companies afloat. But reports have shown that the loan program is “unraveling,” with applicants seeing long wait times to receive funds or being told they will receive much less money than they originally applied for.
As salons are among the businesses that have been hit especially hard during Covid-19, Glossy talked to salon owner Krista Depeyrot of Salon Bisoux in Alexandria, Virginia about what the application process has been like for her and the 12 employees at her company.
When did you close your salon and what kind of measures have you had to take financially?
We closed on March 19, with the assumption that we would be closed until April 23, and then [the state of Virginia] changed April 23 to June 10. We gave everybody a letter of temporary layoff so that they could apply for unemployment insurance, and weren’t totally left high and dry. Everyone is commissioned hourly, so the minute the business closes, there’s no more income coming in.
We’ve had really wonderful clients. I sent out a big email about our GoFundMe [set up for the staff], and about the fact that the closure has been extended to June 10. A lot of people have bought gift certificates since then, which is nice. People want to support you and make sure you’ve got some money in the bank. I mean, all of us were like, “What?” I knew it would be longer than April 23, but I was surprised it was as long as June 10.
What is your opinion of the government-provided assistance being offered?
I truly believe that it is meant for everyone to be able to have an income and not have to owe money. But I have to apply for unemployment [as a business owner] while my whole staff gets paid [via the PPP loan]. That really doesn’t make sense. I feel like [the government] just hasn’t ironed out the details yet. And the details are trickling out.
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There’s only so much money to borrow; that’s the other thing: There’s a lump sum. So, how many small businesses are going to be competing for this money? It’s on a first-come, first-serve basis.
You applied for the Payroll Protection Program — what will this relief bill provide to your business?
You have to figure out what your payroll is for the last 12 months and report what 250% of the monthly average, to come up with what your loan amount would be.
The PPP loan is specific to covering eight weeks of most payroll expenses: health care costs for the employees, rents, utilities and mortgage interest. The formula for is 2.5 times the average payroll amount shown by 941 [forms] and payroll data. The amount is granted only if you can prove it will be used for these expenses. In our case, it will not cover the loss of income to the owner of the businesses or their health care. It is for our employee costs only, and the amount forgiven (or that does not need to be repaid) goes down if you do not guarantee pay of 75% of the normal payroll and/or if you must have a layoff again due to less income/business.
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Some of it has been disappointing, and some of it has the potential to be great. The problem is that it’s supposed to include sole proprietors and business owners, but it turns out that there’s a stipulation to that: If you don’t earn your business income by something called guaranteed payments, then you don’t qualify to have [the loan] forgiven. We’re sole proprietors and we pay ourselves on draw. Because of that, it doesn’t qualify.
We’ve had a viable business for years. We’ve never been in the red; we don’t owe anybody anything except for our mortgage. We’ve been profitable since the beginning. We don’t want to increase our debt burden.
I think the most important thing about that bill is that it will be forgiven if it’s used to pay payroll and keep people off of unemployment. The way it’s working out for us is that it benefits our staff. We take the burden of the loan that hopefully will be forgiven. They would get paid normally. We [owners] wouldn’t be paid at all [based on our first application]. It was a bitter pill to swallow. I feel really good about being able to pay my staff, but the problem is that if we’re still closed on June 30, and we have to furlough anyone, the amount of forgiveness starts to go down. That’s a problem because you don’t want to take on debt.
What changes have been made to the process since you applied on April 7?
There have been clarifications on amounts considered forgivable, on payroll expenditures not allowed to be included if they did not pass through payroll and on our income as owner operators who are paid as a pass-through [in which income is taxed at the individual rather than corporate level]. They have also added in 401K matches for employees, health-care premiums for the staff and some FICA payments of the payroll process.
The Small Business Administration released a new rule on April 14 stating that the self-employment income of general partners may be reported as a payroll cost up to $100,000 on a PPP application. Did you have to fill out additional paperwork for this?
Just did it. There is an application [for business owners] that must be amended each time there is an amount change [by the applicant], explaining the amount of the monthly payroll cost with the formula multiplied by 2.5 to get the final loan amount. My banker is probably getting tired of how many times I have changed the application, but the law keeps getting clarified.
Have you heard back on your application? Will you receive the full amount you applied for?
We put our name in at our bank [United Bank] on the date the loans first were accepted. It is currently “in queue,” so we are waiting. That was 11 days ago. We have not heard back.
Do you know the date you can expect an answer by? Can you expect the full amount?
I believe that, if we get it, it would be for the full amount of $130,090. But I have not asked when we will know and how long it will take to get the funds. If we get it too early, and it covers eight weeks of payroll, and we are not yet opened (we are supposed to open June 11) or not fully operating — and then have to miss a payroll or minimize staff, the loan becomes less forgivable.
