Fear and desperation on Main Street as small businesses struggle to survive despite PPP and other federal loan programs

Lia Hakim was excited to get her $292,000 loan from the federal Paycheck Protection Program to cover payroll at her four Hott Salons locations in Armonk and Rye Brook, New York, but it came long before her state is open for business.

When the crisis forced her to shut Hott Salons’ doors on March 21, she encouraged her 47 employees to apply for unemployment; she also submitted her application for the loan through Chase, her service lender, the first day the bank was taking applications.

After five weeks Hakim’s loan was accepted, and she received the funds on April 20. There was one problem: The state wasn’t allowing salons to open yet. The New York State on PAUSE order is in place until May 15, when a phased reopening is planned. Under the rules covering the loan, Hakim can only use the money for payroll from April 20 through June 15. “It came entirely too early,” she says.

Meanwhile, her entry-level employees are reluctant to return. “They don’t want to come back,” she says. “They’re making more money sitting at home.” She is referring to the $600 bump up in unemployment checks under the CARES Act added to traditional unemployment checks, which in New York State max out at $504 a week.

Hakim’s workaround has been to get advice from the Mastermind group for salon owners to find creative solutions, such as bringing back higher-paid stylists, who earn a six-figure income, as soon as she’s allowed, and paying their holiday bonuses early so she can use the PPP money to pay her lease.  “I doubt we’ll be back open by the time the PPP runs out,” she says. “It’s very upsetting. We desperately need it.”

Many small business owners are in a similar predicament. Some had high hopes for the Paycheck Protection Program, a part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which offers businesses forgivable loans to cover payroll for eight weeks after the loan is signed, as well as rent, interest on mortgages and utilities. At least 75% of the money must go to payroll in order; the rest must be used for other business-related purposes in order to get loan forgiveness.

Although some of the money was disbursed to small businesses, the PPP ran out of the $349 billion in funds allocated by April 16. It then resumed lending on April 27, after Congress  authorized another $310 billion round of funding. With demand very high, National Economic Council Director Larry Kudlow said on May 3 that a third tranche of funding may be needed.

An SBA report on the PPP dated April 16 found that 1,661,367 loans worth $342,277,999,103 processed through 4,975 lenders had been approved by that point.

Another SBA report, from April 24, found that 1,192,519 advances under the EIDL program, totaling $4,805,897,000, had been processed as of that date; another SBA report found the 38,984 loans, worth $7,967,174,888, had been approved as of the same date.

More from Invest in You:
Online lending platform SoLo Funds opens spigot on interest-free peer-to-peer microloans
She got a forgivable loan. Her employees hate her for it
How this company totally transformed its business model to survive the coronavirus

In the meantime, many owners didn’t get the funds quickly, and millions have fallen through the cracks and are still waiting for aid. With the law and subsequent guidances not taking into account the reality that many businesses can’t open brick-and-mortar stores yet, many owners, like Hakim, are struggling to figure out what to do about employees who’ve been laid off or furloughed.

“You don’t want to hire them back and have them sit,” says Marc Lion, a CPA and partner in Mazars USA and a practice leader for the Entrepreneurial Services Group at the firm.

Yet, Hakam is one of the lucky ones. Millions of small business owners have not been successful in receiving government aid. Those who didn’t get CARES Act funding are scrambling to use whatever resources they can find to stay in business. Many didn’t apply for funds under the CARES Act because they thought they wouldn’t qualify. Only 45% of small businesses who polled in the CNBC|Survey Monkey Small Business Survey conducted from April 21-27 said they applied. Of those, only 13% were approved for funding, 7% have received financing and 18% are still waiting for a response from a lender.

Advances from the Economic Injury Disaster Loan (EIDL) program, another component of the CARES Act, were also slow to arrive. Under the EIDL program, businesses that are experiencing a temporary loss of revenue have been able to apply for a loan advance that does not have to be repaid for as much as $10,000. That program, also pounded by applications, also got an additional $60 billion in funding during the second tranche of funding for CARES Act programs.

“We’re hearing the intensity in everyone’s voice, and the sense of urgency is very, very real,” says Christina Camacho, founder and CEO of Ivy Lender, a fintech firm that created a COVID-19 SBA Loan Marketplace, which delivers applications to SBA-approved lenders. “What I see is fear and desperation.”

Although Ivy Lender has seen 90% of the loans it has processed get funded, some banks Camacho has approached with prepackaged applications don’t want them, leaving many businesses unfunded. Some want deals within a certain distance of their branches, she notes, and certain types of businesses, such as those involved in real estate rental and leasing and residential facilities that do not provide healthcare or medical services, are not allowed to get funding under the PPP.

But even businesses that finally got funding have been forced to cut their spending to the bone after weeks of economic disruption. “I see tremendous cost-cutting,” says Amanda Elam, Diana Institute Research Fellow at Babson College and President/CEO of Galaxy Diagnostics, Inc., a 12-person medical diagnostics company in Durham, North Carolina.

Her company suspended executive pay, including Elam’s salary, in order to make payroll prior to getting the PPP on April 28 and an EIDL advance soon after. “We’re hoping this will get us through,” she says.

Vanessa Roer has also had to get creative in how she keeps her business afloat, due to slow-arriving funds. When Roer had to close Roer’s Zoofari, her family’s zoo in Reston, Virginia, due to the coronavirus shutdown in the state, she got very worried. The family business is a seasonal one that depends on its revenue from the warmer months.

To keep the zoo in business, Roer laid off six of her year-round staffers—who usually number 11 to 13; raised $30,000 in a GoFundMe campaign and put out a donation box to collect meat and vegetables from the community to feed the animals. She applied for a loan under the Paycheck Protection Program (PPP), part of the aid package for small businesses under the CARES Act, on April 3 but the funding did not arrive until April 20, forcing her into a position where she had to defer her mortgage for three months.

“It’s due at the end of those three months,” says Roer. “If we can’t pay it, we’ll lose the zoo.”

The mother of three is now contemplating an act of civil disobedience: opening the zoo in the middle of May, before the state’s stay at home order lifts on June 10. She believes the outdoor environment at the zoo will allow for plenty of social distancing.

 “We just came off the winter and were low on funds when this hit,” Roer says. “We’re getting to the place of do or die. We don’t get federal funding and are strictly reliant on admission sales.”

Chris Guerrero has worked double time to sell online memberships to bring in revenue at Westchester Fit, a boutique fitness training business in White Plains, New York, where he is founder and president. He waited weeks for his $72,000 loan after applying on April 2 through Blue Ridge Bank and finally got it this week. Because of a change he needed to make to his application, an intermediary who works with his lender had to redo the application by hand, and he didn’t sign the loan documents until April 30. By then the program was closed.

In the meantime, Guerrero lost about 20% of his revenue because of memberships that were cancelled or frozen since he had to close the doors to his studio on March 16. He continued to pay his eight employees but wasn’t sure how much longer he could hold out.

 “My objective was to keep people employed as long as I possibly could,” he said. “”But if the shutdown isn’t lifted in New York and I cannot open for business by next month, I may have to shut the business down and move on to something else.”

In some cases, owners who’ve received funds got so little relief money until recently that it has barely covered their costs.

That’s the case for Jerome Infantado, who co-owns Blink Aesthetics, a salon that offers services such as eyelash extensions in Ft. Myers, Florida, had to close its doors on March 30 under the state’s stay-at-home order. He and his sister co-own it, relying on contractors for help.

The shop, which has been in business since 2006, applied for an EIDL through the SBA, on March 29. He received a $2,000 advance that he does not have to repay and then a loan of $43,700.

“It’s not enough,” says Infantado. “My rent is $2,000 a month.”

And he has few other options. He did not apply for unemployment, because he was also applying for the PPP. About a month after his application, he got a request to upload additional paperwork but then never heard from the bank again. Frustrated, he applied for the PPP through the fintech company Square and got approved “conditionally” within the hour on April 20.  

Infantado reluctantly dug into his personal savings while waiting for the outcome of his application. “You shouldn’t be using your personal savings to save your business,” says Infantado. “If your business goes down, you won’t have any money.”

Given that the state’s stay-at-home order expired April 30, Infantado decided the only option was to get back to the salon. He perused the state’s safety guidelines for cosmetologists and was fully booked by Friday, May 1. He stocked the shop with masks, gloves and hand sanitizer for both his team and customers so they could make the most of a difficult situation: “It’s tax season,” he said. “People got their refunds and stimulus checks.”

Then he found out the state had not allowed personal services like salons to open yet and had to contact the customers he’d booked. “I had to cancel all of them or risk going to jail for 60 days,” he says.   

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.

CHECK OUT: What to do if you think your stimulus check is for the wrong amount via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.