Virus Relief Was a ‘Bridge to Nowhere’ for Sports Apparel Maker
(Bloomberg) -- Gary Ficken got a $235,000 small-business relief loan in April that let him rehire the 27 workers he furloughed a month before from his sports apparel company, with hopes the money would last until the pandemic eased.
By early June, Ficken had spent most of his funds from the Paycheck Protection Program. But professional baseball and other sports teams hadn’t yet resumed play, slowing revenue to a trickle at Bimm Ridder Sportswear, whose ball caps and apparel are sold at stadiums. He was forced to furlough most of his employees again, leaving him with a pang of frustration.
“It ended up being a bridge to nowhere,” Ficken said in a telephone interview when asked about the federal aid.
The Cedar Rapids, Iowa-based company’s struggles reflect the challenges faced by millions of small businesses across the U.S. as coronavirus persists and their access to federal aid dwindles, fueling another wave of job losses. Their experiences will provide a way to measure the effectiveness of a $669 billion program that was the centerpiece of Congress’s initial response to the virus.
Now, as lawmakers debate another round of pandemic relief, pressure is growing to provide additional assistance to mom-and-pop firms, with possible changes to address some of the PPP’s shortcomings. The program is on pace to have more than $100 billion in leftover funds when it ends on Aug. 8.
Some lawmakers, including Republican Senator Marco Rubio, have urged repurposing leftover funding and providing additional targeted aid for small businesses by restricting aid to firms with a certain number of employees or those that have lost at least half their revenues. Those proposals are expected to be part of negotiations on a new relief package that could be unveiled by Senate Republicans as soon as Monday.
For small companies like Bimm Ridder, one major issue has been a mismatch between the program’s design and how the pandemic unfolded. When lawmakers created PPP in March, they decided to cover only eight weeks of payroll because that’s all they thought would be needed given other relief options that were then available, said Senator Ben Cardin of Maryland, the top Democrat on the Small Business & Entrepreneurship Committee.
“At that time, I think we all were much more optimistic about the status of our economy by July than the realities,” Cardin said in a telephone interview. “The impact of Covid-19 was underestimated in March.”
The impact of those decisions in March is being felt at companies across the country, like Ficken’s. With dozens of colorful baseball caps stacked neatly on shelves, Bimm Ridder has pivoted to making face coverings with the team logos. But that requires only a fraction of the staff that typically fills the downtown facility, and even with Major League Baseball starting a 60-game season this week, Ficken said that doesn’t help with no fans in the stands to buy apparel.
The company that Ficken and his partners started 32 years ago now plans for only 25% of its normal revenues for the next year, forcing many of its longtime employees to look for other jobs.
The PPP allowed small businesses to apply for loans of as much as $10 million that could become grants if most of the proceeds were spent on payroll, plus some overhead costs. The goal was to keep workers employed and firms ready to reopen when states lifted their stay-at-home orders.
Millions of businesses used PPP to do just that. But as Covid-19 cases spike across the U.S. and states re-impose shutdowns or scale back re-opening plans, surveys show that the program wasn’t a long-term solution for many small firms.
About 22% of National Federation of Independent Business members that received a PPP loan expect to furlough one or more workers once their loan runs out, and 46% that applied for federal help expect to need more in the next 12 months, according to an NFIB survey taken July 6-7. A Goldman Sachs Group Inc. survey found that 84% of PPP recipients will exhaust their funding by the first week of August, and only 16% are very confident they can maintain payroll without more government aid.
“It was a good short-term boost for those who received the money, and it did help the economy from totally crashing,” said Karen Kerrigan, president and chief executive officer of the Small Business & Entrepreneurship Council. “On the other hand, there’s just so much more that needs to be done -- or that can be done -- to make it more effective.”
Program supporters said that while glitches were to be expected for such a large and unprecedented initiative created and launched in a matter of days, it successfully approved loans for almost 5 million small businesses totaling $519 billion through Thursday night, according to the SBA.
The Small Business Administration and Treasury Department, which jointly run the program, said PPP supported 51.1 million jobs and as much as 84% of all small business employees across the U.S. through June 30, and economists widely credit the program for contributing to the surprising increase of 2.7 million jobs in May and 4.8 million in June. Mark Zandi, chief economist for Moody’s Analytics, estimated that as much as one-fifth of the increase in those two months was due to PPP.
A new study by Massachusetts Institute of Technology and Federal Reserve researchers estimates that PPP boosted private employment by between 1.4 million and 3.2 million jobs, at an estimated cost of $224,000 per job supported.
“Without PPP, we would have faced the extinction of small business as we know it,” Rubio, who chairs the Small Business & Entrepreneurship Committee, said at a June 10 hearing. “Countless blocks of urban and suburban America would have been hollowed out.”
The PPP program was a lifesaver for established businesses with little debt and payroll that comprised a large percentage of their monthly expenses, said Tony Wilkinson, president and chief executive officer of the National Association of Government Guaranteed Lenders.
But many small firms have significantly higher rent costs, and the lack of clear PPP rules at the start, along with ever-changing guidance and concerns about having to repay loans, prompted companies to return loans, or pass on the program altogether. Businesses owned by people of color without established relationships with a lender were far less likely to qualify, according to the Center for Responsible Lending.
Spurred by pleas from small businesses struggling to use their PPP funds, Congress voted in June to allow more proceeds to used for rent and other expenses and to extend the period for spending funds to 24 weeks or the end of the year. That was too late for many firms, and it prompted only a slight uptick in new PPP applications.
“What we have is a one-size-fits-all program with small businesses that have varying needs,” Wilkinson said.
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