The newly reopened Paycheck Protection Program sought to eliminate logistical hurdles and overly restrictive rules from its prior iteration, but some say it’s still missing the mark when it comes to helping hard-hit small businesses.
Specifically, the new guidelines for “second-draw” borrowers require them to demonstrate a 25% cut to gross revenue in 2020 – either the whole year or a specific quarter – compared with the same period in 2019.
That restriction takes Bill Kitsilis, owner of Angelo’s Palace Pizza, out of the running for a second loan. The Cumberland restaurant owner has faced revenue losses all year, but the up and down roller coaster of virus surges, changing weather and state restrictions means that while he has individual months with more than 25% revenue loss, he does not have that for three consecutive months in a designated quarter.
Kitsilis acknowledged that he fared better than many of his fellow restaurateurs, bolstered by a $340,000 PPP loan in the initial round, strong takeout and delivery service, and a large patio conducive to outdoor dining during the summer. But without a second payroll loan, he is now facing hard choices of where to cut costs, including potential layoffs.
“My worst pain in this pandemic is right now, November to February,” Kitsilis said. “If sales stay the same as they are right now, I’m just not sure.”
Pawtucket Credit Union has heard similar stories from prospective second-time borrowers who realized they cannot apply for more money because of the 25%-loss requirement, according to George J. Charette, CEO and president of PCU. He suspected this stipulation was a big reason why overall program participation had dropped roughly 40% compared with the previous round in 2020.
Anthony Mangiarelli, a partner and director of enterprise solutions for Kahn, Litwin, Renza & Co. Ltd., estimated one-third of the firm’s customers with PPP loans were out of the running for more money because of this requirement. Another one-third of them met the minimum 25% loss, but because they were just at the threshold, they still hesitated to apply due to the “good faith” clause that they needed the loan to survive amid the current economic uncertainty.
“They’re nervous to take the loan, and then have the [U.S. Small Business Administration] say they don’t need it, and then what that might do to forgiveness of their [first PPP] loan,” Mangarelli said. “It’s a huge issue.”
Despite hearing similar frustrations from some members of the local business community, Mark S. Hayward, district director of the SBA’s Rhode Island office, defended the program requirement, insisting it was an improvement over the prior version and effective for those who most need it – evidenced by the $163 million across 1,900 loans for Rhode Island applicants approved as of Jan. 24, the latest SBA update.
The revenue-loss requirement also serves an important purpose in protecting against fraud or lending to major corporations that don’t need the money, both of which were sources of criticism, according to Peter Nigro, Sarkisian chair of financial services for Bryant University.
“You can always pick out anecdotal examples and say the policy doesn’t work,” Nigro said. “As a whole, they made good changes in terms of how they rolled it out that showed they did learn something from the first round.”
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
