For the third time (Part III in the series) in the last 6-7 weeks, VetlikeMe honors American Empowerment with again nationally publishing in support of small business/entrepreneurship providing vital expert guidance (not generally available from other sources) in these challenging times. Again VetlikeMe leads!
Part III More on Pandemic Business Survival – “Who’s on First”
In Part I of this multi-part nationally recognized VetLikeme series (The Coronavirus Pandemic Financial Assistance for Business Owners – Serious Thinking Encouraged – This Apparent Fruit Might Instead be a Poison Pill, https://vetlikeme.org/pandemic-financing-help-or-poison-pill/) provided in candid terms a “real business world” overview of available pandemic financing..
In Part II (Surviving Coronavirus Economic Impacts – Government and/or Other Financial Supports – Help or Poison Pills – Options?https://vetlikeme.org/part-ii-surviving-coronavirus-economic-impacts-government-and-or-other-financial-supports-help-or-poison-pills-options/) provided further “hard facts” respecting available options.
This Part III explores what has occurred since then – improvements or more of the same?
Unfortunately, despite perhaps best intentions respecting goals, implementation of the governmental financial efforts remain dismally short of expectations.
Certainly the entry of partisan politics into the fray has become a serious negative factor – endless delays only means that under the best of conditions many thousands of firms will be gone. Why? This country’s small businesses needed the financial relief “yesterday”.
Much like one’s blood supply cash flow in business is an absolute essential for survival. When impaired or cessation occurs the body (as well the enterprise) shrivels and dies.
Borrowing from an old law school/business adage “remedies to a corpse are no remedies at all”!
Sadly, whatever our partisan Congress is or is not doing, the streets of America are already lined with enterprise corpses!
The cold hard realities are that the relief programs are not working as intended. As well there exist reasonable grounds to assume by their very structure, nature, and the processes (untimely would be understatement) that goals will not be achieved.
“Using debt funding to cure wholesale cash flow deficiencies (excepting receivable financing where appropriate) is a self defeating concept”.
Despite that straight forward financial precept governmental support funding (guarantees via banks and other financial institutions) remains exclusively tied to and through debt products with consequent adverse results when misapplied as with significant cash flow problems.
“Insanity is doing the same thing over and over again and expecting different results” Albert Einstein
* Even after additional funding approved by the Congress the “bottlenecks” continue https://apnews.com/f67f0d55ed8b45db57b4c1a8ed40898d
* There continues to be major questions as to whether the PPP (Paycheck Protection Plan) loan will be forgiven? If discretion exists with the SBA, some bank or other lender proverbially stated the “house” usually wins, not the borrower. That single lack of clarity is already and will continue to cost this nation exponentially.
* Also with the PPP program for loans greater than $2 million full audits, with spot checks for smaller amounts are required. The funds are intended to be strictly used to retain and rehire employees. Spending on any other items means non forgiveness. There are even hints of recovering the funds and prosecuting offenders? Of course the obvious question – Just who is going to do this auditing, spot checks, or verifications?
Given “The First Independent Objective Investigation of the US Small Business Administration (a seven part series published nationally by “VetLike Me” https://vetlikeme.org/; (series e.g., https://vetlikeme.org/is-the-small-business-administration…/; (the complete series at http://www.americanempowerment.org/the-first-independent-o…/ it would seem highly unlikely that SBA would either have the resources or expertise required for that kind of effective oversight.
Certainly banks have no real incentive to do more than make cursory overtures in the monitoring processes. Bottom line – there exist serious questions whether the federal financial relief will in fact get to the small business enterprises that need it the most and if so, whether any realistic verifications on proper usage will follow?
*Although eligibility requirements to include smaller firms along with allowing smaller loan sizes has been announced as a possibility, again it has not been cast in concrete as yet. Translation – a step in the right direction but delays mean more firms will fail and are failing! See, e.g., https://www.inc.com/diana-ransom/main-street-lending-program-paycheck-protection-program.html?
These are desperate times for countless firms nationwide. Words and promises are useless and do not pay creditors or current obligations. Borrowing from another adage: “show me the cash or the conversation is over (in more ways than one)”!
* It should be noted that the 25 per cent cap (75 per cent to be utilized for payroll only) was “not” stipulated in the original legislation. That was added via SBA \Treasury regulations. However without effective oversight (as noted above) the real question is “so what”? See, e.g., https://www.wsj.com/articles/for-many-small-businesses-u-s-coronavirus-aid-falls-short-11588325404?
Somehow “rolling the dice” on maybe or perhaps does not appeal to the intelligent business owner.
*SBA just recently issued its 11-page Paycheck Protection Program Loan Forgiveness Application. The application walks borrowers through a step-by-step process to determine loan forgiveness amounts based upon the information the borrower enters. It must be emphasized that the application requires borrowers to provide documentation to support the payroll and non-payroll costs paid using PPP Loan funds. See, https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
*Then again the Treasury Department and Small Business Administration issued even more new rules – borrowers must retain their PPP documentation for six years after the loan is forgiven or paid in full, indicating that a review could come at any point over that time and revised guidelines also require companies seeking loan forgiveness to alert state unemployment offices if workers refuse their requests to return to work (a common problem because of the generous terms of the current unemployment benefits) PPP businesses will not be subject to a reduction in the amount of loan forgiveness in situations where employees refuse to return to work. In all other respects the rules main the same – the 75 percent of loan funds must be spent on payroll only to receive loan forgiveness. see, e.g., https://www.wsj.com/articles/questions-persist-after-release-of-new-small-business-loan-rules-11590269875
*Compounding this matter (PPP) is the situation where a business owner receives all funds requested (remember 75% restricted to be spent on rehires or new employment). The owner is then confronted with the obvious problem of time for the business to regain customers (especially if retail) and/or to get product/services flowing again. By definition, incurring employment related costs will only occur when that business arises and only as needed (it’s called best business practices).
In the interim period as all other business costs continue unabated, what is the business owner to do? Unable to otherwise cover those non employment related costs, the business has no way to sustain itself. It will likely fail even though the owner has PPP money in hand – but unable to use it. How long can a business owner keep the PPP money? If the business goes down due to the inflexibility in terms is the owner required to return the PPP funding (or personally liable for it?)?
Again there are no straight forward concrete answers to any of these questions? The SBA/Treasury is seemingly overwhelmed already in just dealing with getting the funding out. Effectively responding to serious questions appears to remain a non essential function?
* Although perhaps all of the above were intended to clarify the PPP funding issues one could reasonably argue that the continuing adding of ever minute detailed requirements into the process does the complete opposite – “muddying the waters where even a seeing eye dog would have problems negotiating”!
* One issue previously raised in Part I was whether the financial relief would be tax free as well allowing for normal deductions for payroll and other business expenses? Obviously having the benefit of both features would an extremely strong incentive for small businesses (especially for those marginally able) to survive. However the IRS has now denied that benefit thereby lessening the potential value (even if the loan is forgiven) of this option. See, e.g., https://www.wsj.com/articles/irs-denies-deductions-tied-to-small-business-loans-amid-coronavirus-1158828604
On May 6, 2020, there is Senate proposed legislation introduced (the Small Business Expenses Protection Act of 2020 (“the Act”))https://www.congress.gov/bill/116th-congress/senate-bill/3612?q=%7B%22search%22%3A%5B%22small+business+expenses+protection+act%22%5D%7D&r=1&s=3 that would allow some small businesses to deduct from their taxes expenses paid with their forgiven Paycheck Protection Program (“PPP”) loan (effectively voiding the previously noted IRS denial).
However, with a partisan Congress wherein delays have become the order of the day, awaiting alleged “potential relief” solves nothing. Small businesses require answers, clarity, and solid support yesterday. Without such businesses will continue to fail needlessly.
*One new potentially promising development has recently arisen – the Securities and Exchange Commission is allowing “temporary, conditional relief” in the form of modifying the terms and conditions for “Crowdfunding offerings”. The temporary changes would go to expedite offerings and reducing financial statement requirements. . To advantage this option a firm would have to meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. https://www.sec.gov/news/press-release/2020-101; see also, https://www.reuters.com/article/us-health-coronavirus-sec-crowdfunding/u-s-sec-eases-crowdfunding-rules-for-firms-due-to-coronavirus-disruption-idUSKBN22G2PG
However whether or not this in fact provides a viable option for relief requires the owner to have the requisite business financial acumen in the first place (as well solid legal advice support).
As with all business financial options/alternatives there are always the “good, bad, and sometimes downright ugly”! Aside from the obvious risks for fraud throughout crowd funding options it pays handsome dividends to know exactly what one is doing (an entire chapter devoted to Crowdfunding within the Ultimate Financing Guide – get your copy http://www.ultimatefinancingguide.com/get-your-copy/
“Risk comes from not knowing what you’re doing” Warren Buffet Summary/Conclusion
Bottom line: The cold hard realities are that little respecting the critical “terms and conditions” within the governmental and/or commercial special pandemic financial alleged relief packages have been properly finalized. Many vital questions remain unanswered and/or unknown.
The vast majority of small businesses that desperately needed the relief yesterday have already expired simply because of delays (past, present, and ongoing), uncertainty regarding the co-called available options, and lack of trust in those managing the processes. Due to the inherent restrictions respecting use, even actually getting funding may not save the day as noted above.
Respectfully, when taking a stark overview of what has transpired to date (from Congress to SBA/Treasury to the banks (other financial entities)) one is reminded of the old Abbott &Costello routine of “Who’s on First”? see, https://www.youtube.com/watch?v=kTcRRaXV-fg
Unfortunately for small businesses nationwide it is no longer a laughing matter!
Woodrow D. Wollesen
Chairman, American Empowerment / http://www.americanempowerment.org/
One the nation’s foremost experts/authorities respecting small business operations/capital/financing/entrepreneurship/ ethically grounded reasoned thinking – serial entrepreneur/businessman – military veteran – former SBA Financing Champion – former Executive Officer Officer/Board of Directors/Instructor, National Women’s Business Center, Washington, DC , former national law firm partners/litigator/appellate counsel before the highest courts/tribunal s in the country.