Personal Finance

Your small business got a Paycheck Protection Program loan. Now what?

Key Points
  • Small businesses that got a loan from the Paycheck Protection Program are among the lucky few. 
  • Business owners must now decide how to spend their money. 
  • Some are using the funds immediately to rehire workers and others are delaying disbursement, for example. 
NEW YORK, NEW YORK - JULY 30: Alan Rosen visits the Build Brunch to discuss Junior's Restaurant & Bakery at Build Studio on July 30, 2019 in New York City. (Photo by Gary Gershoff/Getty Images)
Gary Gershoff

Small-business owners who got a forgivable loan from the $349 billion Paycheck Protection Program must now decide what to do with their money.

Some have vastly different answers. 

Robert Miller is using 85% to 90% of the funding to rehire workers at his three Pittsburgh-area restaurants, with the remainder going toward some business expenses like rent and utilities.

Miller, who employed 60 workers before the coronavirus pandemic, has furloughed nearly 50 of them since mid-March as business fell off drastically.

His three loans — $60,000, $75,000 and $80,000, one for each restaurant — will allow him to rehire workers at full pay and offer raises to those (like cooks, cleaning staff and delivery folks) who've been working throughout the pandemic.  

Miller also plans to bring back several currently inactive workers to the restaurants for one-off projects like basement cleaning and property landscaping.

Wasted money?

Alan Rosen, owner of Junior's Cheesecake, which has four restaurants in the New York tri-state area, is taking a different approach.

He got loan approval for each of his restaurants, for $5.5 million in total. (He's still waiting on funding for one loan.)  

Rosen, who furloughed 650 of his 850 workers as a result of the pandemic, isn't planning to spend the money for several weeks or months.

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Instead, he'll keep his workers furloughed (and hopefully collecting unemployment benefits). He's continuing to pay their medical benefits.

He's keeping the loans as an emergency stash until the business is able to reopen for good — which he feels is in the spirit of the PPP loans to help guarantee the long-term viability of small businesses.

"If we want to do this smartly, we have to wait until people are comfortable from this medical crisis to sit shoulder to shoulder," Rosen said on CNBC.

How one business plans to use his PPP loan
How one business plans to use his PPP loan

"Until that time it would be, in my opinion, wasted money to start spending it," he said. "We have to wait until we have a very clear pathway to success."

The dichotomy highlights the difficult — and potentially unpopular — decisions business owners face as they weigh how best to employ their funding during the coronavirus crisis.

The ones who received money from the initial funding round of the Paycheck Protection Program, overseen by the Small Business Administration, are among the fortunate few.

Three-quarters of small businesses have applied for the forgivable loans, according to the National Federation of Independent Business. Roughly 80% of applicants haven't had their loan processed or funded.

The loans can be granted in amounts up to $10 million to businesses with 500 or fewer employees.

I don't know if anyone knows what's right.
Robert Miller
owner of three Pittsburgh-area restaurants

To be fully forgiven, 75% of the loan amount must be used for payroll costs and businesses have to rehire any furloughed or laid-off workers, according to Treasury Department guidance.

That's the approach that Miller, the owner of Sidelines Bar and Grill, Sidelines Beer House and The Fire Side Public House, has taken.

"People are very appreciative, and it's been encouraging," he said of his workers' reaction.

"I don't know if it's right," he said of his approach. "I don't know if anyone knows what's right."

Unemployment conundrum

Some workers, like waiters and bartenders, are opting to stay furloughed and collect unemployment benefits, which were expanded significantly by the $2.2 trillion coronavirus relief package enacted last month. That law also created the Paycheck Protection Program.

Those workers decided they can earn more remaining unemployed than receiving their prior pay, Miller said.

Workers who are re-offered a job but don't take it, however, may not be able to collect unemployment benefits, according to experts.  

There are other potentially adverse factors to choosing to remain unemployed, like reduced Social Security checks in retirement (due to a period of not paying into the system) and a potentially more challenging time finding a job when re-entering the labor pool, said Julia Rosner, an employment attorney at Legal Services NYC.

Miller is unsure whether people choosing to remain unemployed will ultimately mean his loan can't be forgiven.

"I'm just going to hope I'm doing the right thing in the spirit of how [the PPP] was created," he said. "And hope for the best."

Rosen would use around three-quarters of his loans for payroll costs and the remainder for business expenses if he ultimately needs to use the funds, he said.

His strategy of holding the funds, for now, has a primary aim of keeping his family's 70-year-old business afloat.

"I could take people off unemployment insurance today, not have the opportunity to reopen our business, and run out of funds in 2½ months," he said. "Yes, that's an option."

"[But] I have an obligation to make sure this business continues for the next 70 years."