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Coronavirus aid helping businesses survive, but could sink them if not properly used

Posted at 6:26 PM, May 06, 2020
and last updated 2020-05-06 18:26:35-04

Coronavirus aid coming to small businesses has the power to keep business afloat during coronavirus social distancing orders stay in place. But, if the money isn’t properly accounted for and used in the right ways, business owners tell News 5 the potentially-forgivable loans could sink a business.

The Small Business Administration (SBA) says there have been 606,812 individual Paycheck Protection Program (PPP) loans awarded through May 1, 2020, accounting for $88,080,070,149 just in the Great Lakes Region of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.

Even with those large totals, News 5 has reported about the many businesses who have applied for loans but haven’t been able to get the grants to cover rent, payroll, or bills.

Cleveland’s Phoenix Coffee Company is one of the lucky ones.

“It’s really just a bridge to get us to the end of the crisis,” said Phoenix Coffee’s Director of Coffee Christopher Feran.

Phoenix Coffee got a PPP loan of $200,000 and the impact has been immediate. Of the company’s 39 employees, only 13 were working reduced hours before the loan.

Now, even when staff isn’t working because of reduced carry-out hours at four of the company’s five stores, they’ll all get paid.

“Everybody will be on paid leave for the duration of the PPP program or at least until this crisis becomes safer,” said Feran.

Now that Phoenix Coffee has the money, the next step is making sure every dollar is accounted for.

“It’s very critical that they keep track,” said Krizman and Associates CPA Ilona Daw-Krizman.

Daw-Krizman has been taking calls from small businesses across the nation, trying to make sure they’re using their COVID-19 relief the right way.

“My worry would be for some small businesses, if they receive the money, they don’t realize what it has to be used for,” said Daw-Krizman.

Many of the programs, whether from the federal government or local credit unions, come with strings attached if the loan is to be completely forgiven.

75 percent of PPP loans must be used to pay employees for the loan to be completely forgiven. If it’s not used in the correct ways, companies can be forced to repay some or all of the loan, potentially with interest.

“For a business of our size, it’s essential,” said Feran. “We can’t afford the two-year term of the loan,” if Phoenix Coffee Company were to have to pay it back.

Feran says Phoenix Coffee Company set up a separate bank account to hold all the PPP loan money.

“Any time there is a draw from that account, we are able to associate it with a specific payroll event,” said Feran.

That practice creates a solid paper trail to make sure the loan is eventually forgiven.

But, the PPP loan only lasts for eight weeks. By then, Feran says he’s just hoping business picks back up again. If not, he says the company will either have to change the way it operates or seek out additional funding aid.

“Come July 1, if we can’t open [Phoenix’s downtown location], if we’re still running [reduced hours] 7 am to 1 pm every day on 40 percent of our previous revenues, it’s a hard life,” said Feran.

Daw-Krizman says its important for small businesses to take the following steps:

  • Document relief funds
  • Understand what the money has to be used for based on the criteria of the loan/grant
  • Get help from accountants, bankers, bookkeepers, U.S. Chamber of Commerce, local SBA offices if you have questions

Small business owners looking for guidance should be able to find it here.