To use a medical metaphor, the U.S. economy is in the intensive care unit, at least as far as the many small businesses in Forest Park are concerned.
Karen Mills, a Senior Fellow at the Harvard Business School, said small businesses in general have around 27 days of cash on hand and restaurants in particular have on average just 17 days. “If you run out of cash,” Mills said, “you’re dead.”
The National Federation of Independent Businesses estimates that because of the lock down of businesses in response to COVID-19 “half of small businesses could be out of business in two months and another third in three to six months.”
Lynn Sorice, who owns several Forest Park establishments, said, “What is scaring many of us is wondering how long it will take to get demand back to an acceptable level of normalcy. Discretionary spending is habitual and can be fickle. In the long run, all of us who are qualified will eventually get a PPP loan. Even with that loan all of us are not going to survive and that scares me.”
And, when small businesses are not open for business, employees are laid off and don’t get paychecks — 22 million workers nationwide have filed for unemployment since social distancing took effect.
To continue with the medical analogy, that’s why the small business loans provided by the federal CARES Act like the PPP (Paycheck Protection Plan) in the amount of $349 billion can be, like ventilators for people infected with the coronavirus, the difference between life and death for hundreds of businesses in Forest Park.
And that’s why there is a palpable sense of urgency in the local business community. Businesses are making haste to apply for the lifesaving “transfusion” of cash. Loan officers in the two local banks have been working overtime to get the needed financial injection to them.
Dan Watts, president of Forest Park Bank, reported that as of April 20, 150 businesses and organizations had applied or shown interest in the PPP loans and 105 had already been approved by the bank and sent to the Small Business Administration (SBA) for a final green light.
The loans have ranged in amount from the smallest at $5,000 to the largest at $1.5 million.
He said the PPP stimulus can be critical to the Forest Park economy by noting that small businesses are “the backbone” of our economy and if small businesses remain open, their employees keep their jobs. When they get regular paychecks they can afford to pay their rent and their landlords have enough revenue to pay their mortgages and everyone is able to buy things at the retail shops in town.
“Our economy,” he said, “is like a complicated machine with many component parts. When one of those parts gets jammed up, it has an effect on the whole machine.”
Watts said the roll out of the programs created by the CARES Act has not been flawless as President Trump boasted shortly after he signed it into law on March 27. But given the short time between then and now and the massive number of applications which the Small Business Administration and Treasury Department have been inundated, what has been accomplished is “amazing.”
As in the roll out of Obamacare, Watts said, there have been delays and glitches. As of April 9, two weeks after the CARES Act was signed into law, Forest Park Bank had 105 loans all set to go but they had not yet gained access to the SBA system.
Once that happened, Watts credits his three commercial lenders who worked right through the Easter weekend and late into many nights to get the loans processed so the money could flow to local small businesses. Watts said the first loan was funded on April 16.
When asked if he was competing with the U.S. Bank branch at the corner of Madison and Desplaines for business, the president of the Forest Park Bank replied that in this situation it’s a case of all hands on deck and banks are working together to get the loans out as quickly as possible.
Another unanticipated hold up had been that the SBA ran out of money to fund more loans. The $349 billion which the CARES Act provided had already been exhausted by April 16, which meant that until Congress reloaded the PPP with additional funding last week, lending institutions including Forest Park Bank were not accepting applications until more money was made available.
Watts expressed some frustration with Democrats in Washington for holding up the PPP reload by insisting that additional funding for hospitals and local governments be added to the bill. “That’s not to say,” said Watts, “that the economy doesn’t need those additional programs, but to tie that discussion to this successful program is going to be detrimental to many businesses.”
The way the CARES Act is written loans made under the PPP can in effect become grants if after eight weeks of receiving their loans businesses can show that at least 75 percent of the money received was used for wages.
The problem with that eight week stipulation, Watts said, is that restaurants in town, for example, aren’t paying wages to their employees during the lockdown so if they receive funding on April 17 and they aren’t allowed to reopen until late May a big portion of the loan will not qualify for forgiveness. That’s why he is hoping that Congress will pass an extension to the eight-week requirement.
“The PPP program is working,” said Watts. “It’s amazing. Everything from trucking companies to tool and die shops to restaurants to churches have applied. We’ll see if this stimulus is enough to keep businesses going and people employed.”