Many business owners, myself included, are experiencing momentary relief as we “magically” received the equivalent of 2.5 months of payroll in our companies’ bank accounts these past few days. A few weeks ago I felt little hope that anything viable lay ahead (and unfortunately many still feel that way), and even created a video entitled “Last Call” letting our customers and neighbors know we would soon be shutting our restaurants (spoiler alert: their support and generosity kept us going for weeks). That was before we had any details of theCARES act and all that it entails. And while the process of applying for the PPP funds under the CARES act certainly felt chaotic to most, and for the bankers burning the midnight oil, it has been, relative to most alternative processes for raising capital, it was a relative cinch and almost mindless.

That’s where the simplicity ends.

Had these funds come either in the form of simple grants or straightforward loans — one or the other — what follows wouldn’t be necessary. However, the structure of the PPP Loan is a hybrid of the two, adding complexity that has accountants putting in overtime and borrowers scratching their heads as to how best to proceed.  And the decisions made in the days and weeks that follow could impact a business for years, if not be the difference between survival and failure.

Boloco essentially pivoted to a non-profit model for a few weeks and fed nearly 12,000 frontline workers.

The day the funds are received (in the case of two of the entities I control, we received $653,000 on April 14 and $127,000 on April 16), an 8-week clock begins to tick. As things look currently, everything stipulated in the PPP guidelines must take place in this 8-week period to be eligible for forgiveness of up to 100% of the PPP funds received.

Should certain thresholds not be attained, one of the most important being that 75% of the funds must go toward payroll, the amount forgiven begins to decrease and the remaining balance officially becomes a (very short) 2-year loan (at an admittedly attractive 1% interest rate).

One likely asks… 
What could be complicated about having tens or hundreds of thousands of dollars to spend, all of which can be forgiven if spent “correctly”?

Here is a short list of conflicts — all well-intentioned constraints, no doubt — that come to mind immediately. I also offer a couple of (perhaps, overly simplistic) solutions that would solve inevitable challenges for thousands of business owners and their employees under the current structure.

Conflicts

1.  Stay-at-home orders vs. 8-week PPP expenditure test period 
Most states have issued stay-at-home orders for all but essential workers in order to “flatten the curve” and keep people safe. As such, with almost no customers going about their normal business, most restaurants across the country are either closed or significantly down (50-85%) in traffic. 
In Boloco’s case, we shuttered four of our eight units on March 18 when Downtown Boston literally became a ghost town within days of the national emergency declaration. We shut two other locations a couple of weeks later on March 30. The two remaining units have been down 75-80% consistently for the past month, even with many neighboring competitors closed. Our only reason for keeping them open was to expend the generous donations we received from people all over the country to place meals in the hands of frontline workers and others in need. Without those funds (over $60,000 raised since March 25), Boloco would have been fully closed since March 27.

Instead, we had essentially pivoted to a non-profit model for a few weeks and fed nearly 12,000 frontline workers.

The PPP funds have a clear 8-week time constraint that has already started for many of us. In bringing laid off or furloughed employees back to the frontline to work — mainly to expend those PPP funds for purposes of forgiveness — when no customers are present, businesses will unnecessarily be asking employees to leave the safety of their homes to come into work where no essential service is provided.
Bottom line: as long as officials are saying “stay-at-home,” restaurants in areas impacted by those orders should not be considered “essential” businesses. There should not be any pressure applied to open restaurants, including an arbitrary 8-week test period for purposes of forgiveness of a loan.

2. Expanded unemployment benefits for employees vs. returning to work 
Many laid off or furloughed employees in the low-income brackets have not only had the rare chance to stay out of the direct line of fire of a crisis, but they’ve received more income to do so thanks to the additional federal $600/week unemployment benefit than they did even while working full-time. On a personal level, I applaud this first-in-a-lifetime benefit to those who are so often left behind. Think about it… it’s an extra $15/hour for a 40-hour workweek for which they don’t have to actually work. Some of us call that a paid sabbatical and feel we’ve earned it when we take it. Believe me… so do my team members and millions of others “deserve” it.

The conflict in asking them to return so quickly — again for the primary purpose of their employer making proper use of the PPP funds for forgiveness purposes — is not lost on them or business owners. The business needs, until customers feel safe returning, would not call for most employees to be rehired. In addition, since the employees have this short moment in history where they are paid the same as at work and usually more to stay safely at home, to help flatten the curve, it seems unreasonable to ask them to exchange higher and safer stay-at-home pay for lower working pay and greater exposure to sickness.

There are already cases appearing where people who are rehired from furlough are declining the offer: why go back to work to make less and be less safe? This is just the beginning of this dynamic.

3. 75% payroll threshold for forgiveness long-term survival of businesses
Most street businesses (restaurants and retail, specifically) already owe one full month’s rent for April and will soon owe for May, too. And while June is in question, it’s likely that depressed sales will not allow a majority of tenants to pay their landlords at all and certainly not in full. Boloco already owes more in non-payroll expenses than the 25% will allow, forcing us to decide whether or not to just ignore forgiveness concerns (likely) and focus solely on what the business needs to actually survive (vendors, rents, utilities, taxes, subscription software services, etc.). Most businesses, Boloco included, won’t be able to get back to full payroll until at least May 4, and likely much longer, so the only option would be to expend the monies to pay people while they are at home, not able to work. Per 2 above, this provides them with less compensation than they currently receive through the expanded unemployment benefits and ultimately leaves businesses with insufficient cash to reopen in “good” standing, if solvent at all, in a month or two from now. The 75% threshold simply shifts a great deal of the “unemployment” pay burden from the government to the business, delaying by only a few weeks the inevitable failure of thousands of small/medium businesses. 

4. Payment to suppliers not included in permissible PP uses
Many of our suppliers, especially the smaller ones, are struggling as badly as their restaurant customers. Most of our landlords are large, extremely successful, corporations with healthy balance sheets. While including rent in the permitted use of PPP is critical because landlords have so much leverage, the suppliers need to be paid, too. I don’t know with certainty if it’s permissible to do this and simply lose forgiveness consideration, or if it’s forbidden altogether with possible legal recourse. But I hope to be able to spend some of our PPP loans, as do others, to support struggling vendor partners and suppliers and other payables that keep the company in good health as our teams come back to work.

5. Large businesses applying for small business PPP loans 
Lots of headlines in the past few days revealed that large restaurant companies as well as large-ish companies in other industries, including tech, were applying for, being approved for, and even accepting the full $10 million cap. A few companies even double-dipped based on favorable corporate structure. I received a few calls and texts from people asking my thoughts on companies with strong and even gargantuan balance sheets applying “aggressively” for the PPP loans because they were under 500 employees (and in the case of restaurants, under 500 per location, which includes nearly every restaurant in existence, including McDonald’s and Starbucks). No doubt their lawyers saw it as their responsibility to exploit this loophole, but in no way was the PPP loan meant to support such businesses.

Shake Shack returned the money to great fanfare in some corners, but I can’t imagine they didn’t know what they were doing every step of the process. Even a company led by people I respect a great deal makes missteps and then have trouble owning up to the missteps for fear of even more public outcry. Bottom-line… we all know in our gut when we are doing something wrong. Successful, public companies applying for the Small Business PPP loan? Should never have happened. That’s wrong.

A few solutions

1. Adjust the 8-week clock 
Adjust the 8-week clock start date to 14 days after the lifting of stay-at-home orders by the Governor of any given State (For Massachusetts, if the date sticks to May 4, for example, the start date for our 8-week test period would be May 18). This gives businesses a chance to restaff in an orderly, safe manner and also meet the first payroll when sales will still be likely severely depressed in those early weeks.

2. Include rents and other occupancy costs in 75% threshold for use off PPP funds 
Until landlords have known solutions themselves, which often require lenders to take relief action (which I’m warned is slow even in drastic times like these), small businesses are legally on the hook for crippling amounts of money that could take away any benefits of having paid their employees through the PPP program. An alternative could be to include occupancy costs and payroll as part of a larger percentage of the use of PPP funds that are forgivable… say 85-90%. Let the business owners determine the best mix for them. If business owners can’t pay landlords and mortgages, the jobs and/or income they provide in the next eight weeks won’t go much further. Same with suppliers… leaving room in the permitted use of forgivable funds to pay for accrued payables to vendors is a critical piece of getting businesses back up and running in a sustainable way, leading to more stable jobs for the employees.

3. Increase loan duration from two to four years
Should none of the other suggestions take place, simply extending the maturity dates of the loans will allow many business owners to make the decision to expend funds as they see fit AND have room to breathe and pay back the loan as business recovers. The current duration of two years puts unnecessary stress to focus on forgiveness, when four years, as an example, would allow business owners to consider options more thoughtfully. 
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I want to emphasize that I don’t mean to sound ungrateful. Before the details of the PPP loans were announced, I had largely given up hope that my company could re-open all of our New England restaurants once we reached the other side of the curve. The PPP loans were done extremely quickly, which many of us applaud. Better to move swiftly and leave a few things unanswered and imperfect than take the extra time (in this instance, especially) to get it perfect (never possible) which would have caused business owners to take more dramatic, fear-based actions in ways that could have been hurtful and possibly irreversible. I’ve said to a few people… had someone approached me and offered me a simple $300,000 2-year loan at 1% interest to help get through this crisis, which is a likely outcome of my own circumstances, I would have had the pen out to sign with zero hesitation. (The other irony I’ve shared is that when the idea of forgiveness of these attractive 1% loans coupled with paying unemployed people $15/hour for 40 hours of non-work was put into law, Bernie dropped out of the Presidential race when the little voice in his head said “my work here is done.”

In closing, I’m most grateful for the Expanded Employment Benefits that have allowed people in low-wage jobs to leave their positions with a level of security and freedom to take care of families and themselves in ways many never thought possible. A well-deserved break, to be sure. Regardless of what might have happened to my businesses, this “paid sabbatical” for millions of low-wage employees alone would have been a welcome change in how we in the U.S. treat those who are too often left behind. Sure, it will make it harder for employers trying to convince them to return to work for a while, but most of us in the employer category are pretty lucky compared to those we employ. I’m not going to be doing any hard selling when it comes time to rehiring.

Thank you to anyone reading this. I would love to hear from you. Keep it clean, civil, and respectful. We are all looking for answers, and I don’t claim to have any of them. But I am happy to help arrive at them in whatever way possible.

Please check here for more news and insight on how COVID-19 is impacting the retail industry.

John Pepper is CEO of Boloco.