When the U.S. Small Business Administration’s Paycheck Protection Program launched in the early days of the COVID-19-caused economic shock, there was a rush for businesses to get to the front of the line. With a program that offered loans for payroll and a clear path to being forgiven, the initial $349 billion ran out in a couple of weeks, and was soon replenished by Congress with another $310 billion.
But the second round did not have the same rapid-fire demand as the first. Even after some tweaking to extend the period when the funds could be used and relax the amount that had to be used for payroll, there was more $130 billion left to be loaned when the program ended on Tuesday night.
Or, at least, that’s when the program was supposed to end.
Hours before the expiration at the end of the month, the U.S. Senate passed a bill to extend the program until Aug. 8. With the U.S. House of Representatives following up with passage on Wednesday, it appears that while applications are closed as of Wednesday, they stand a chance to reopen once again.
“When Congress passed the CARES Act in March, we thought that small businesses would be operational by the end of June, but it is now clear that our nation’s small businesses will still need support in the weeks and months to come,” U.S. Sen. Ben Cardin (D-Maryland), who is the ranking member on the Senate’s small business committee, said in a statement. “I am pleased that the Senate acted responsibly to keep PPP open for small businesses while Congress continues bipartisan negotiations on the next economic relief legislation.”
It’s clear that our nation’s small businesses will still need support in the weeks and months to come. I’m pleased the Senate acted responsibly to keep #PPP open for #SmallBiz while we continue to negotiate the next relief pkg. https://t.co/24hUJkETve
— Senator Ben Cardin (@SenatorCardin) July 1, 2020
While this may not be the end of the program, it remains a moment to take stock of an initiative that served as the federal government’s answer to keeping businesses afloat during a massive shutdown of the economy. Let’s do the numbers: Through June 27, SBA awarded just shy of $519 billion through in nearly 4.8 million loans. Nearly 80,000 Maryland companies who received funding from the program got nearly $10 billion in funding.
The loans were administered by banks. On Wednesday, M&T Bank reported awarding $1.5 billion in 9,043 loans. About $1.2 billion, or 80%, of that dollar total went to businesses in Greater Baltimore, which also made up three-quarters of the total amount of loans.
But the distribution of the funds has been unevenly distributed over time, as banks saw huge amounts of demand for the first round, then a slowdown toward the end.
“We did the vast majority of our participation in the very first round. That’s where we saw the biggest uptake, and we did not see nearly as much usage in the second round,” said Mary Ann Scully, CEO of Canton-based Howard Bank.
When the program launched, Scully said employees were working 16-hour days and seven days a week to get the initial round of loans out the door to businesses in the first 18 days, then saw another flurry of activity after Congress passed more funding. But since then, activity has “slowed to a crawl,” she said. Of the 1,000 loans administered by the bank, 800 came in the initial round, along with the $180 million of the $200 million in funds.
Among Baltimore companies receiving one of those loans was Morrell Park-based photobooth tech company Pixilated, where the event cancellations brought by the pandemic in March brought revenue to a halt. But aid programs including the PPP allowed the company bring employees back on, and CEO Nic China said the company has spent nearly all of the funds on W-2 wages, rent and health insurance premiums for employees. After the funds are used, the process of getting the loans forgiven remains, but China said the business seems to be in position for that to happen.
“We used the funding specifically for what it was intended to be used for,” he said. “We siloed the funds into a separate bank account and transferred exact amounts as necessary to pay expenses that fell underneath of the PPP forgiveness umbrella.”
When the PPP was initially passed, it was states that loan funds needed to be used within two and a half months. But new rules from Congress in early June extended that deadline out to 24 weeks. With that change, Spark Baltimore-based medical device company Infinite Biomedical Technologies is extending the time it uses the loan through Aug. 31, said CEO Rahul Kaliki.
“The change in the PPP terms definitely helped us ensure that we would be able to meet the terms for forgiveness,” Kaliki said. “It was much harder to figure out how we could meet the requirements in eight weeks.”
The loans were designed to help companies keep employees on staff through the tough months of lockdown. Kaliki said the funds helped fill the gap for the company, which builds technology to control assistive prosthetic hands, amid a downturn in sales from March to May. Now sales are picking back up, and June was the second-highest revenue month this year, Kaliki said. With other sources of funding likely, it is looking to expand the team again.
Other companies have adapted with products and offerings that are conducive to the time of virtual interaction. At Canton-based creative agency Kapowza, the PPP loan allowed the team to remain at current salary levels. While there is a hold on production for commercials that the agency produces, President Dan Schepleng said it added a focus on digital advertising and social media that it is hoping to keep permanently.
“Our entire pipeline is all social and digital projects,” he said. “We’re having a ton of fun posting organic content on behalf of clients like Nalley Fresh and running ads for clients like Home Land.”
While reopening has been underway for several weeks in Maryland, the economy remains in a downturn, and activity is only picking up at a fraction of what it was for some. While Baltimore city lifted a ban on indoor gatherings last week, the largest still remain canceled and travel has slowed.
While China still sees uncertainty, Pixilated responded to the current moment with new products that focus on digital and virtual events, as well as smaller gatherings. It launched an online photobooth called the PixiWeb which offers shared photo galleries and experiences to keep folks connected. For events, the company also has the PixiTab brand, which provides self-service photo booth rental.
“Unlike our staffed event services, these products are highly scalable, low-touch, available nationally, and priced favorably for the current market conditions,” China said. “COVID-19 has forced us to shift our entire model, yet we have high hopes for the future of Pixilated 2.0.”
More 🔥 PixiWeb content is live on the Pixilated #blog. Check out "5 Ways to Use PixiWeb at Schools & Universities" https://t.co/Lfzw3RgoDb#getpixilated #virtualevent #virtualgraduation #Graduation #prom #schoolspirit #remoteschool #photomoment #graduationpictures #community pic.twitter.com/2RINdaMKPi
— Pixilated (@Pixilated) May 15, 2020
Like many minority and woman entrepreneurs, Takia Ross, owner of makeup artistry business Accessmatized, said the reopening has brought a process of figuring out what its mobile service looks like and new processes to keep clients safe, as service is capped at 168 hours a week and additional sanitation steps are put in place. During the pandemic, Accessmatized created a new business line of creating, manufacturing and distributing makeup products, which it continues to rely on heavily despite its own set of supply chain challenges.
“I believe that we made the right move in pivoting our business to include products and I believe that if we are going to remain in business we need to keep pivoting and challenge ourselves to diversify our revenue streams even further,” Ross said.
Accessmatized was among women and Black-owned businesses in Baltimore that were unable to access aid from PPP or other types of government funding. That’s owed to a set of factors, including PPP’s focus on payroll when Accessmatized and many businesses like it employ few if any full-time employees, as well as the high number of sole proprietorships in the Black community and less contact with traditional banking. Ross is applying for grant funds that are available through other programs, as well as the private sector.
But it adds up to a disparity in aid. According to an April study the Center for Responsible Lending, 90% of businesses owned by people of color stood to be shut out of the program nationally, CBS reported.
“If we do not address these issues, have the hard conversations, and more importantly be willing to do the hard work necessary to change the systemic barriers that minority communities face, in addition to addressing issues around access to capital for Black-owned businesses — especially those run by Black women — the gulf will continue to grow,” Ross said.
While Congress is extending the PPP as the program still has funds, the re-up of an existing program that had lower demand in the second round brings questions about the structure of the program alongside the length of time it is available.
Scully said the change in the forgiveness rules helped the program do more to meet its intended goal of protecting payrolls. At the same time, she said she was “surprised” that Congress didn’t take the opportunity of extending the program to apply the learnings about who benefitted and who didn’t, as well as changes that could be made.
Along with small businesses with few employees and minority-owned businesses, different industries will require different kinds of relief, Scully said. In Maryland, for example, construction has continued to operate while professional services businesses have functioned in a remote environment. Restaurants and hotels had to close in-person services. They’re going to have different kinds of needs. Going forward, Scully advocated taking a “scalpel rather than a hatchet out of the toolbox” in policy terms.
“We’re glad for everything that’s happened. It’s kept the economy going, but it is time to start being a little bit more thoughtful about, ‘How do we go from here?'” she said.
It is also a time when businesses are in different phases of the recovery, as different geographies can experience different phases of lockdown. Cases could spike and wreak havoc again on the economy broadly. Infinite Biomedical Technologies has sales across the country and internationally, including in states like Florida and Texas that have seen COVID-19 cases spike back up this week, so Kaliki has concerns that further lockdown could play a role.
In Congress, Senate Democrats are backing another measure called the Prioritized Paycheck Protection Program, which would provide the option for a second loan to PPP recipients and has a specific amount set aside for underserved communities. Republicans, who control the chamber, say negotiations won’t begin until July 20. Treasury Sec. Steven Mnuchin told The Washington Post that small business aid “will be much more targeted” for struggling businesses.
And beyond aid, there are wider considerations about the economy as a whole. While businesses are adapting for the times, it is still a reality that they are facing issues bringing in money at a time when many who were spending are now holding what they have to see what’s going to happen in a time of uncertainty. As Scully points out, an economy can’t run on government payments like unemployment and small business aid alone.
“We need to find a path to creating an economy that’s generating revenue,” she said. “This is a revenue problem. It isn’t an expenses problem.”
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