Even with the Paycheck Protection Program, small-business owners say it’s not enough to ensure they can survive

Bank review, current USBR score and consumer report

Subscribe to Outbreak, a daily roundup of stories on the coronavirus pandemic and its impact on global business, delivered free to your inbox.

It’s rare for the federal government to include small businesses in stimulus packages designed to prop up the economy during a financial downturn. But the coronavirus pandemic is, clearly, no ordinary event. So small businesses across the country—defined as companies with less than 500 employees—were, at least momentarily, bolstered by the announcement of the $349 billion Paycheck Protection Program. Small businesses operate in every sector of American industry, from restaurants to web designers, art galleries to auto repair shops, bus companies to tour operators.

“We’ve never had to shut down the economy to stop a pandemic,” said John Lettieri, president and CEO of public policy organization Economic Innovation Group (EIG), based in Washington, D.C. “The level of concern and anxiety [at small businesses] can’t be overstated. There’s no analogue for it in other crises. Even during the Great Recession there was no off switch for the economy.”

The Paycheck Protection Program, announced on Tuesday by Treasury Secretary Steven Mnuchin and the U.S. Small Business Administration (SBA), will provide loans up to 2.5 times the borrower’s average monthly payroll costs, with a cap of $10 million. The loans, which partially convert to grants as long as the majority of the loan is used for “payroll costs, interest on mortgages, rent, and utilities,” are supposed to help companies keep their staff employed (and, as Lettieri noted, have the added benefit of retaining institutional knowledge) when there might be little or no income coming in. Companies, including sole proprietors, the self-employed, independent contractors, nonprofits, and veterans’ organizations can apply through participating lenders starting Friday.

“On the one hand I understand why it’s very short-term, but what has happened is going to have repercussions for much longer than the next quarter,” said Jen Bekman, founder and CEO of N.Y.C.-based online art seller 20×200.  

Jen Bekman is the founder and CEO of N.Y.C.-based online art seller 20×200.
Courtesy of Jen Bekman

With an estimated 30 million small businesses in the U.S. and almost 60 million small-business employees, according to the SBA’s Office of Advocacy, the more companies that can survive, the faster the country will be able to move toward recovery. If the unemployment numbers keep sliding, recovery could take years. “We’re already seeing unemployment at historically unprecedented numbers—times five,” said Lettieri.

That has left small-business owners and entrepreneurs “desperate for information and desperate for clarity,” said Lettieri. “There’s a huge information gap.”

Because there’s no way to know when companies will be able to open their doors again, some employers are wondering if their staff members would be better off getting laid off and going for the bumped-up unemployment checks. And with several programs on offer, including traditional disaster assistance and the new Paycheck Protection Program, small-business owners are unsure which best applies to their companies and, at times, if taking assistance from one would make them ineligible for another. As of Tuesday, Bekman’s understanding was that employers couldn’t receive both Paycheck Protection Program benefits and tax credits for required paid leave.

“It is extremely confusing,” said Astrid Storey, the creative director and sole proprietor of Storey Creative, based in Aurora, Colo. Though she had originally started a disaster loan application, she didn’t finish it, because she thought the Paycheck Protection Program would be a better fit. Even with a CPA and a bookkeeper helping her figure things out, the confusion continued. She spent six hours waiting to speak to somebody at Chase to find out what she needed to do to apply for the program. “But if you don’t have a personal relationship with a banker, you’re not going to hear back,” she said.

Most of Storey’s clients for her creative and digital marketing services were in the conference and events industry. “I lost every single upcoming client engagement between the last week of February and the first week of March. By Friday, everything I had built was gone,” she said. “It was like a barreling train. You could hear it.”

Storey’s business is an LLC. The company’s biggest expense? Her paycheck. Though she has one client on retainer that will still give her some income, her take-home pay from her at-home business took a big hit. The “primary breadwinner” for her family, Storey “had to make my peace with the fact that my credit score was not going to escape unscathed. I kind of had to make it very clear that keeping the utilities paid and the mortgage paid and the car paid were going to be the top priorities, as well as food on the table. Every other creditor can figure out what they’re going to do because they’ll get paid if they get paid, and then they won’t.”

Though Storey has bumped up her networking significantly and has pivoted to focus on industries like supply chain management that might come out ahead because of the downturn, it’s clear that money is going to be far tighter. “I had to forget about my ideal client and my ideal project and my ideal budget. Before I could make $1,000 in six hours. Now maybe I’m making $300 in six hours,” she said.

But, with the help of the Paycheck Protection Program, she plans to push through the downturn. “I’m going after this loan because I intend to stick with this for the duration,” she said. And as a sole proprietor who works from home, she added that her biggest expense is her own salary, so she expects most of the loan to convert to a grant.

What happens after that money runs out isn’t clear. Lettieri said the first round of $349 billion will likely last just a week or two if all the businesses he expects to apply do so. Though Mnuchin talked about expanding the pool of money over time, Lettieri said Congress has to be ready to pass legislation on that now “before they even get back to Washington. [Small-business owners] need to have certainty now to weather a protracted crisis.”

In addition, EIG is advocating for loans with 20 years amortization at 0% financing. The federal government can secure those rates, and businesses, he said, need a “borrowing capacity that will allow them to be resilient coming out the other side.”

Because entrepreneurs tend to be personally invested in their businesses and the well-being of their employees, many will go deep into their own funds if the business can’t support itself. That’s the case for Jeff Lipton, owner and chief mastering engineer at Peerless Mastering, based in Newton, Mass. In business for 25 years, Peerless has worked on masters for artists including Wilco, Andrew Bird, and Throwing Muses. Lipton is hopeful that the stimulus plan will help him get through what is already a significant downturn in his business.

Fifteen years ago, Lipton bought the commercial building where his studio is housed. Buying the building seemed a good idea, he said, until this downturn when it became clear that his tenants are all in distress, and at least two of the three won’t be able to pay rent. And Lipton’s own business is down 50% from a year ago. Musicians pay for mastering and albums through touring, a business that took an immediate hit because of the coronavirus.

Laying off his sole full-time employee is not an option, he said: “She’s absolutely essential.” He can keep the business running for another three months without an influx of cash from other sources, but that would mean going all in with his personal finances too. So after three months, “I would lose my business, my house, everything.” In the meantime, Lipton said, he’s doing some work from his home studio, but that includes offering pay-what-you-can to support musicians who are struggling.

The uncertainty will surely change the small-business landscape for years to come. With so many businesses going dark for, at least, the short term—and the retail landscape already in distress—it’s nearly impossible to imagine a post-pandemic America with an immediately-booming small-business economy.

Some owners are starting to wonder if they should bail out now, no matter how much they would have pushed to stay all-in in the past. For a lot of small businesses, Lettieri said, “it’s now a question of, ‘Should I cut my losses and shut down?’”

For 20×200’s Bekman, the question of whether to pump more money into an uncertain future is definitely top of mind. Like most entrepreneurs, she thrives on risk, but has recently been considering whether there’s a point at which she should just…stop. “Creativity comes from constraint,” said Bekman. “In some ways it’s a puzzle: How do we reinvent ourselves? But I’ve been in this specific business for a long time. I can look back and see times when I should have said ‘uncle,’ and didn’t. There’s a part of me that doesn’t want to make that mistake again.”

Without a loan, grant, or use of her personal funds, Bekman would have to shutter the business just about immediately. But even if she gets one of the loans, if the pandemic and wait for a vaccine push the requirement for social distancing and shuttered businesses to six months, a year, or longer, “Then what?” she asks.

More coronavirus coverage from Fortune:

Financial advice for the millions of Americans won’t be able to pay all their bills this month
—“It’ll never be fast enough”: 5 questions for a ventilator manufacturer
Everything you need to know about furloughs—and what they mean for workers
Financial advice for the millions of Americans won’t be able to pay all their bills this month
SBA small-business loans: 8 things to know about the Paycheck Protection Program
—The stock market had its worst quarter since 1987—and its worst Q1 ever
How to job hunt during the coronavirus pandemic
—PODCAST: Two health care CEOs on why coronavirus tests and vaccines are the ammunition needed to fight COVID-19
—VIDEO: World leaders and health experts on how to stop the spread of COVID-19

Subscribe to Outbreak, a daily roundup of stories on the coronavirus pandemic and its impact on global business, delivered free to your inbox.

11 Things You Should Know Before You Get Your First Credit Card

A credit card may seem like just another tool to help you make purchases, but it can be much more. When used responsibly, a credit card can help you build

What Is a Balance Transfer, and Should I Consider Doing One?

In a perfect world, no one would carry a balance on their credit card. We would all pay our bills in full each month and never have to worry about

How Is Credit Card Interest Calculated?

So your bank tells you that your credit card has a 15% APR. What does that actually mean? How does your bank calculate your interest rate, and how does that translate into how much you actually pay? …

What Is a Balance Transfer, and Should I Consider Doing One?

In a perfect world, no one would carry a balance on their credit card. We would all pay our bills in full each month and never have to worry about

Subscribe to our e-mail list and stay up-to-date with all our news.

The US Bank Review is an independent authority and bank watchdog group monitoring financial institutions operating the in United States. We have no affiliation with any banks featured, reviewed or profiled. All rights reserved. Terms of use and Privacy Policy