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CARES Act Leaves Small Businesses Hanging

15 Apr 2020 112 views

Small business owners, especially those in the hospitality industries, have been some of the hardest hit by the coronavirus. Bars and nightclubs were some of the first ordered to close by the government, with restaurants following soon after. Many of these small business owners were thrilled to hear the government was working on a $2 trillion-dollar economic stimulus package, which has since been approved and put into law as of last week.

The initial excitement from small business owners in the hospitality industry quickly deflated once it was confirmed that they would receive a far smaller slice of the stimulus pie than they had hoped, or quite frankly, deserved. Small businesses in the hospitality industry are the embodiment of Capitalism and an American economy staple. They are a vital part of its life-blood. However, less than 20% of the $2 trillion dollars rescue plan was allotted to them. This is both unfair and unreasonable.

 

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At the heart of the stimulus package for small businesses is the CARES ACT, or the Payroll Protection Program, PPP for short. The CARES ACT covers small businesses that keep their staff on payroll during their business’ pandemic induced shut down. It’s designed to help keep businesses afloat with 8-weeks of cash-flow assistance to the small businesses who maintain their payroll during the emergency closures. Of the $2 trillion total dollars in the emergency stimulus package, $350 billion of it has been dedicated to the PPP. 

PPP, while initially a loan, can be converted into a grant upon meeting certain guidelines. However, the guidelines stipulated in the CARES ACT to become eligible for converting the loan into a grant are particularly unreasonable for the hospitality industry, specifically bars, clubs, and restaurants. That is in part because one of the requirements for converting the loan into a grant is having a small business’ staff equal to that of its normal full-operational staff within 8-weeks. Most small businesses in the hospitality industry cannot afford this loan not to become a grant if they hope to stay in business.

While other industries have no problem meeting this requirement, the hospitality industry is subject to the health and safety people must feel in order to spend money on their business. Furthermore, these job number requirements, as stated in the CARES ACT, must be met by June. An extremely unreasonable stipulation when you consider that people don’t have any idea what our nation’s battle with the coronavirus will look like at that time.

Although most small businesses in the hospitality industry will need their stimulus package loans to transfer to grants in order to stay in business, it seems that the CARES ACT has made that unlikely at best. With millions of Americans losing their jobs, it is reasonable to assume that small businesses in the hospitality industry will see a significant drop in sales due to the financial hardships so many of their past and future customers are dealing with. Yet they’re expected to return to full-staff when they don’t have enough business to warrant it?

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The CARES ACT is also unfair to hospitality businesses in larger markets, where rent is higher. There are no provisions in it that alter loan amounts based on city or rent paid. The PPP simply allots 75% of its loan be designated to labor and the remaining 25% toward rent and utilities. That puts unreasonable pressure on businesses in larger markets, such as New York City, Los Angeles, San Francisco, Washington DC, and others. These are cities where the cost of living is higher, as is the rent. The pandemic is also hitting people in those cities in larger numbers, which will result in a wider discrepancy in the gross earnings of hospitality businesses in these larger markets.

The measly 8-weeks between the bill being enacted and an expected return to full staff is not nearly enough time for hospitality businesses to qualify to convert their loans into grants. Hopefully, this arbitrary and unfair time-period will be pushed back with an amendment to the CARES ACT before June.