The Paycheck Protection Plan seemed like a great opportunity for small New York businesses. However, reported CNBC, “Millions of small business owners have not received government loans under the CARES Act.” Is the paycheck program working in NYC?
One worry is that its forgivable loans “could leave many small businesses with more debt,” wrote Vox. Businesses across the nation exhausted program funding by the 16th of April. The Federal government issued another $310 billion on April 27. And, the National Economic Council Director, Larry Kudlow announced a possible third round of funding to meet demand.
While the Empire State received a large percentage of the funding, New York City enterprises felt the pain. In fact, it stands as one of the hardest-hit centers of the Coronavirus pandemic. That means that even with the stimulus package loans, the city’s small businesses face enormous challenges.
The Goals of the Paycheck Program
The Small Business Association (SBA) manages the paycheck protection program in New York City. And, the Federal government slated $349 billion for it. It’s one part of the $2 trillion aid in the Coronavirus Aid Relief & Economic Security (CARES) Act.
The Feds designed the plan to provide small businesses with forgivable loans. It aimed to pay eight weeks of payroll costs. Additionally, recipient businesses could use it to keep laid-off workers.
The Paycheck Program has been open to eligible small businesses since April 3, 2020. It funds small businesses, with 500 or fewer employees.
The federal government focused on the quick liberation of the funds. So, it initiated the program with few criteria for eligibility.
Businesses in New York and elsewhere must use the money to cover payroll for 8 weeks. Afterward, they may use some for rent, utilities, or other operating costs. The Federal budget may cover the loans, so, businesses keeping employees at current compensation may even have loans forgiven.
Where Did the Money Go?
California, Texas and New York have the nation’s biggest state economies. They accounted for 23% of the loans or more than $82 billion. New York had 81,075 in loans, with a total of $20.3 billion. Even with the funding, NYC businesses suffer exceptional hardships.
Many NYC businesses did not apply. And a CNBC survey revealed that nationwide 45% applied. Of those, only 13% were approved for funding. And, only 7% received financing. The remaining 18% had not yet had a response from a lender.
Is the Paycheck Program Working in NYC?
Many business owners, nationwide, see financial disaster in using their Paycheck Program loans. And New York City makes no exception.
For example, Otway owner, Samantha Safer received a loan. Even so, the operation has completely shut down. Its website includes a message asking for support from friends and neighbors.
“Safer is afraid to use the funds … considering uncertainty around when business will return to its regular rate.”
Another business owner, Lia Hakim of Hot Salons, received a $292,000 loan. However, NYC cannot lift the Coronavirus quarantine in time for a smooth recovery.
Hakim laments that the money came to her too soon. The narrow spending window simply does not fit the budget gap.
Also, the available funds do not meet unemployment pay rates. So, she’s losing newer hires.
What About Loan Forgiveness?
Once the State of New York lifts the lockdown, the scenario will face new challenges. While the SBA touts forgiveness to businesses sustaining employees, it issues no guarantees.
Meanwhile, New York business owners with federal stimulus loans can hedge their risks. Forbes suggests that loan holders follow several steps to ensure forgiveness.
First, loan holders should evaluate their own eligibility and need for a loan. The SBA safe harbor deadline leaves the opportunity to return unused funds. That’s one way businesses can minimize potential debt.
Secondly, it suggests, using “at least 75% of the loan for payroll expenses. In other words, use the money as the feds intended it.
Third, it recommends checking the eligibility of the non-payroll expenses that you cover. Again, using the money as the feds intended it hedges your risk.
Finally, keep especially detailed and accurate fiscal records. Get together with your accountant to ensure that documentation meets federal requirements.
The Paycheck Program in New York City
So, is the Paycheck Program working in NYC? Until the COVID crisis ends, the results of the federal stimulus will not surface. Even then, economists warn that business-as-usual may pan out much later.
For now, NYC evidently received a significant portion of the funds. However, unrest arising from the use of the funds has New York small business owners wondering.