'Absolute Chaos': Few Loans Going Out, New Players Coming in, Big Confusion on Taxes
THE RESCUE PACKAGE
Businesses trying to tap rescue loans have confronted “absolute chaos”: “Desperate small business owners who hoped for a quick government lifeline to help them survive the coronavirus crisis are still without funds ...”
“One week in, fewer than a quarter of the banks have actually funded the loans and sent money to businesses, said an executive at a bank industry group ...”
“While some banks were slow to get the necessary infrastructure up and running to accept applications, the problems were further compounded by technological issues at the SBA, bankers said.”
“Small business owners have also found the economic injury disaster loans problematic. The SBA began accepting applications in mid-March — these applications go directly to the agency’s website, www.sba.gov. Then, on March 29 it relaunched the application, using a new, streamlined version that allowed them to apply for a $10,000 grant provided for in the government’s $2 trillion relief package. That meant owners who had already applied had to apply again — but many didn’t realize that.” READ MORE
There’s a tax issue at the heart of the PPP loans: “The new law clearly states—contrary to typical tax law—that forgiven debt won’t be counted as taxable income. But the law says nothing about whether those ordinary expenses for salaries and other costs still trigger deductions like they normally do. If they don’t yield deductions, then the program is basically a wash from a tax perspective, which limits the potential value of the program. Tax-free income comes in, nondeductible expenses go out, and businesses pay taxes only on the revenues and expenses outside the loan forgiveness program. The forgiveness would still give a significant boost to struggling firms and help them survive. But if businesses can deduct those expenses, then the program contains a benefit much more powerful than the loan forgiveness alone.”
“Making the loan forgiveness tax-free without allowing the deductions almost defeats its purpose, because it yields the same basic result as making the loan forgiveness taxable and allowing the deductions.”
“‘The bottom line is they’re going to have to clarify this and clarify it very quickly,’ said Tony Nitti, an accountant at RubinBrown LLP. ‘People need to know that information now that are borrowing.’” READ MORE
Even with the Paycheck Protection Program, businesses still must decide whether to keep their employees: “Some economists are warning that program loans in the stimulus package, known as the CARES Act, may not be a great fit for all businesses — even if they can get them. ‘A lot of businesses know their revenue isn’t going back to February levels by the beginning of May, so they might be better off using other provisions of the CARES Act, like the expanded unemployment benefits,’ said Betsey Stevenson, professor of economics and public policy at the University of Michigan and former chief economist for the Department of Labor.”
“That’s the decision that Ivy Mix and her business partners made for their staff at the Brooklyn bar Leyenda. Instead of taking out a payroll program loan, they closed in mid-March and laid off 24 people until they learned more.”
“If they received the money in late April, they would be paying employees to stay at home rather than having the cash when they knew they could be open.”
“‘We’d rather tell our employees to file for unemployment benefits,’ she said. ‘We have a better chance of staying in business if we reopen and hire them back then.’” READ MORE
Many minority-owned businesses are at a disadvantage: “[Yasmine] Young is among the thousands of small-business owners at risk of being shut out of the government effort, known as the Paycheck Protection Program, because of limits set by lenders grappling with overwhelming demand. These loans, which do not have to be repaid if the money is used for payroll, rent or mortgage expenses, could be a lifeline for struggling businesses — if they can get them. And for small-business owners like Ms. Young, who is black, the hurdles could be much higher. That’s because minority-owned businesses often have weaker banking relationships than their white-owned counterparts — one legacy of the practice of redlining, or refusing to lend to people in communities of color.”
Ms. Young built her business without taking a bank loan: “‘I just built myself up,’ she said. ‘I kept building, building, building, saving, saving, saving.’” READ MORE
PayPal and Intuit have won approval to award rescue loans: “After weeks of lobbying, fintech companies are officially allowed to take part in the US government’s emergency lending program.”
“Financial Innovation Now — an industry group representing Square, PayPal, Intuit, Stripe and other non-bank finance companies — sent a letter to Congress in March asking that their members be included in any emergency funding.”
“'Small businesses are not well served by traditional financial institutions, nor will existing federal small business loan programs deliver funds soon enough,’ the letter reads. ‘Any federal small business loan program must leverage digital advances in the marketplace to ensure that stimulus can reach those businesses most in need.’” READ MORE
THE 21 HATS WAR ROOM
Surviving the Crisis and Beyond: Brian Canlis is co-owner of a fine-dining restaurant in Seattle, called Canlis, that has reinvented itself for the crisis and set itself up to emerge stronger on the other side. Dave Whorton is a former venture capitalist who soured on venture capital and founded the Tugboat Institute, which encourages entrepreneurs to build businesses to last rather than to sell for a quick profit. We’ll talk about what has worked during the crisis and what hasn’t for Canlis. We’ll talk about how other so-called Evergreen companies are faring. And we’ll talk about whether 100-year companies are better positioned to survive 100-year storms.
Time: 2 PM ET on Thursday, April 16. REGISTER HERE
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HUMAN RESOURCES
At least 41 grocery workers have died and thousands have tested positive: “Next to health-care providers, no workforce has proved more essential during the novel coronavirus pandemic than the 3 million US grocery store employees who restock shelves and freezers, fill online orders and keep checkout lines moving. ... Some liken their job to working in a war zone, knowing that the simple act of showing up to work could ultimately kill them.”
“Job postings for grocery clerks have jumped 60 percent in the past four weeks, according to Julia Pollak, a labor economist for the site ZipRecruiter.”
“‘I’ve been way more anxious this week,’ [one worker] said. ‘They’ve started telling people, ‘Go to the grocery store as little as possible. And yet I’m going there every day.’” READ MORE
RETAIL
Sneeze guards, temperature checks, one-way aisles, advanced cleaning tech are all part of the new retail landscape -- perhaps permanently: “Shane Aaron, a partner at Selser Schaefer Architects in Tulsa, Oklahoma, who has expertise in grocery store design, said the illness may change basic assumptions about how retail locations are designed, while accelerating trends that were already underway. Right now, companies that already offered curbside delivery or pickup for online orders have an advantage over those who didn’t. This may spur wider adoption, which in turn could mean a bigger portion of retail locations will be set aside for preparing orders, and less for customer traffic, Aaron said. Touchless payment availability such as Apple Pay, which has been slow to catch on, may become more popular, too.” READ MORE
Dumped milk, smashed eggs, plowed vegetables: “In Wisconsin and Ohio, farmers are dumping thousands of gallons of fresh milk into lagoons and manure pits. An Idaho farmer has dug huge ditches to bury 1 million pounds of onions. And in South Florida, a region that supplies much of the eastern half of the United States with produce, tractors are crisscrossing bean and cabbage fields, plowing perfectly ripe vegetables back into the soil.”
“The closing of restaurants, hotels and schools has left some farmers with no buyers for more than half their crops.”
“‘People don’t make onion rings at home,’ said Shay Myers, a third-generation onion farmer whose fields straddle the border of Oregon and Idaho.” READ MORE
OPPORTUNITIES
At a P&G plant in Albany, Georgia, workers are racing to produce toilet paper: “The factory has ramped up production by 20 percent of both toilet paper and paper towels, even as it revamps its operations to keep its roughly 600 workers healthy. Among other measures, it has instituted pre-shift temperature checks and staggered start times. P&G declined to comment on whether employees have tested positive.The plant sits in a midsize town of 75,000 people ravaged by the new coronavirus. More than 1,020 people have tested positive in Dougherty County, which includes Albany, and 62 have died as of Thursday afternoon. More people have died in the county than in Fulton County, which includes Atlanta and has a population more than 10 times larger. READ MORE
OBITUARY
Earl G. Graves Sr., founder of Black Enterprise magazine: “Mr. Graves created Black Enterprise in 1970 with a $175,000 loan and the backing of advertisers he courted himself. The magazine was designed to appeal to newly ascendant African-American professionals, to encourage young people to become entrepreneurs in their own right, and to make black executives a more recognizable part of American corporate culture. The idea of targeting the black business community was novel, but Mr. Graves pitched it with confidence befitting the multimillionaire publisher and businessman he would become.”
“In time it became a combination of publications like Forbes, Money and Fortune aimed at African-American readers.”
“In ‘How to Succeed in Business,’ Mr. Graves wrote that when he was a student at Morgan State and told acquaintances that he hoped to be a successful businessman, they often reacted with incredulity because ‘the concept of a black businessman with his own corporation’ was ‘largely a foreign, even a laughable, one to blacks as well as whites.’” READ MORE
-- Loren Feldman
Please send comments and suggestions to lfeldman@21hats.com.
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