by Edwin Quinabo
Small businesses are running out of cash and running out of time.
Nine months after the first Federal assistance to help small businesses, companies are only now tapping into the second round of PPP and aid that became available through the passage of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (COVID Relief Law passed on Dec. 2020).
Federal help couldn’t come sooner. A US Chamber of Commerce Index survey found two-thirds of small business owners say more federal relief funds are needed.
Two local Hawaii surveys – the Hawai’i Commercial Rent Survey and Pulse Survey – show isles small businesses are still struggling with low revenues.
Even while a COVID-19 vaccine is rolling out, the business community wants Americans to know that the economy remains dangerously sluggish. Chamber of Commerce Hawaii CEO Sherry Menor-McNamara said “businesses are facing a long road to recovery.”
Some businesses already have elected to leave that road for good. It’s unclear how many businesses closed permanently, but data from the University of Hawaii Economic Research Organization show there are a third fewer businesses open in Hawaii now than there were before the pandemic.
Lawmakers know what’s at stake – small businesses, the heart of America’s economy, providing 30.2 million jobs and 63% of new jobs (half of the entire workforce) are at risk. They make up 50% of the GDP or 4 trillion in annual revenues. As many as a quarter of small businesses could fail, according to the US Chamber of Commerce.
Bills are piling up; employee salaries, operational costs, rent and utilities all must be paid even while the pandemic woes continue. Employers are holding on by a thread and say they could use all the help to get them through the worst economic crisis since the Great Depression.
Commercial Rent Survey
Ryan Tanaka and state economist Eugene Tian of the State of Hawai‘i Department of Business, Economic Development and Tourism (DBEDT) identified four industries most at risk in the latest Hawai’i Commercial Rent Survey.
“Restaurant, retail, entertainment, and wholesale trade. These businesses employ a third of our [Hawaii] workforce; over 200,000 jobs. If half of them close, we could lose well over 100,000 jobs,” said Tanaka.
The survey reveals over 85% of businesses saw a drop in revenue last year; and 80% expect the same this year.
One consequence of the revenue dearth is businesses ability to make rent payments. During April to December last year, five in 10 businesses missed rent payments. Tanaka says the situation is getting worse.
“Sixty-five percent of the businesses said without government-funded commercial rent relief, they do not expect to survive in 2021,” said Tanaka.
Commercial Rent Relief
State Sen. Glenn Wakai, chair of the Energy, Economic Development, and Tourism Committee (EET) and member of the Senate money committee Ways and Means (WAM) introduced SB 946 that allocates $180 million of CARES money to provide commercial rent relief (no state funds to be used).
Hawaii is estimated to receive from the latest federal stimulus $1.7 billion to $2.5 billion, from which the Commercial Rent Relief Program would get funded.
Wakai introduced this bill on behalf of Tanaka and the Retail Merchants Association. The veteran lawmaker said money would be given out as grants to businesses to pay their leases for up to three months.
“Government has been more foe than friend to local businesses. In our efforts to reduce the impacts of COVID, we have forced businesses to shut their doors, or severely cut back their ability to generate revenues. If it’s government’s fault for hurting businesses, I believe it’s government’s responsibility to throw them a lifeline. We help individuals with unemployment benefits, we should help businesses with rent relief,” Wakai told the Filipino Chronicle.
He added, “With so many businesses on the brink of closure, government cannot be ignoring their pleas for assistance. It is far easier to resuscitate a struggling company, rather than bring them back from the dead.”
SB 946 passed through the Consumer Protection Committee on Feb 12 and now is at the Ways and Means Committee.
On this bill passing through this session, he said “it will depend upon other legislative priorities. Government employees want to be paid, the health of our community is of paramount concern, and education never has enough resources. After we feed other departments, if there are a few million dollars left, I am advocating it go to struggling businesses.”
The bill is described as a win-win situation for both the commercial renter who would get a boost to continue business and for the landlord who must make payments on their commercial loans.
Unemployment Insurance Increase
Another point of interest closely watched by Hawaii’s business community is unemployment insurance. In the Pulse of Business Survey conducted by the Hawaii Chamber of Commerce Foundation with Omnitrak, businesses surveyed expressed concern over the cost of paying unemployment taxes and a possible increase in the unemployment tax schedule.
The survey found three in five businesses say they cannot afford any increase in unemployment insurance this year. Almost all businesses surveyed (94%) favor unemployment tax relief, with 72% of businesses strongly supporting such relief.
“Our [Chamber of Commerce Hawaii] top priorities are pushing legislation that mitigates the huge unemployment insurance tax increase. If nothing is passed and signed by the Governor at the beginning of March, employers will face a significant tax bill that will lead to cut in positions and other resources. For example, on average, a business who is paying $600 per employee now will pay $2,600 per employee if nothing is passed,” Menor-McNamara told the Filipino Chronicle.
Filipino Chamber of Commerce of Hawaii (FCCH) President Jeoffrey Cudiamat said one of the Chamber’s two main concerns is also the possibility of an unemployment insurance increase. He said companies cannot afford any increase in taxes, fees, or other business-related expenses.
“For unemployment insurance, the cost (in my case for my own personal small business) will be more than 4 times more than we would normally pay in a fiscal quarter. This will amount to nearly $250,000 extra that we have to make just to pay for the increased unemployment insurance. This is one of the examples of how much of the burden is placed on corporations,” said Cudiamat, CEO & Principal Structural and Civil Engineer of Structural Hawaii, Inc.
His other main concern is the possibility of a raise in the state’s minimum wage which he believes wouldn’t be a sound idea especially during this critical time.
He said, “Small businesses are instrumental in the success towards a thriving economy, and the State should be trying to support them for this road to recovery rather than extract more funds from businesses.”
The FCCH met with Gov. David Ige on Feb. 10 to discuss the progress of the deployment of vaccines in the state. Cudiamat encouraged the Governor to open up travel to Hawaii because of the impact the hospitality and tourism industry has on the jobs and livelihood of many Filipinos.
“Everyone is hoping that the State and Counties will be easing up on restrictions, allowing businesses to open up fully very soon,” said Cudiamat.
Mana Program and other State initiatives
Sen. Wakai said lawmakers are working on protocols for various business sectors so they can operate outside of the city’s blanket tiers. He said they are starting with restaurants. By the end of the month, the Department of Health will be rolling out its Mana Program.
“We have worked with the restaurant association to come up with practices that will keep customers and employees safe. It’s a voluntary program. If a restaurant gets a ‘Mana certificate’ they can remain open no matter what tier level Honolulu is in. We are trying to reward the good actors,” said Wakai.
“Government’s blanket tier system is hurting too many businesses. Any mandated shut downs have to be based in data and evidence of spread.”
On expanding the small business pool, Wakai is also working on a program to turn “Artisans into Entrepreneurs.” He said there are many talented artisans who don’t have a background in business. “The state should be helping them to turn their hobbies into full-fledged companies. I have a bill that takes the Made in Hawaii program from the Dept. of Agriculture and places it into DBEDT.
“Made in Hawaii shouldn’t just be about exporting coffee and pineapples, that brand can be so much more.”
One business owner said, “Business needs a lot of things – bridge loans, rent moratoriums, not taxing PPP (like the IRS), etc. – but most important is don’t make this crisis worse by adding to the cost of doing business. The private sector has had to cut jobs, but the State was yes then no on [State employee] furloughs. So only the private sector has to adjust?”
“Government has been more foe than friend to local businesses. In our efforts to reduce the impacts of COVID, we have forced businesses to shut their doors, or severely cut back their ability to generate revenues. If it’s government’s fault for hurting businesses, I believe it’s government’s responsibility to throw them a lifeline. We help individuals with unemployment benefits, we should help businesses with rent relief. With so many businesses on the brink of closure, government cannot be ignoring their pleas for assistance. It is far easier to resuscitate a struggling company, rather than bring them back from the dead.”State Senator Glenn Wakai
Other Findings in Pulse Survey
More than two in three Hawaii’s businesses are facing severe downturns in revenue. On average businesses surveyed saw dips in revenue averaging 50%.
Drops in revenue resulted in almost half of businesses (45%) reducing their workforce. This number would have been higher (63%), if businesses had not received federal Paycheck Protection Program (PPP) funds.
While most businesses surveyed were not directly involved in the visitor industry, business owners say the drop in visitor arrivals is the single most important factor impacting employee cutbacks.
On the upside, nine in 10 businesses surveyed expect to still be in business the next six to 12 months, and even out to the next two years. But recovery to pre-COVID operation is estimated to take over a year to 16 months, or up to April 2022.
COVID Relief Law (2nd Round of Federal Assistance) Highlights
To avoid a repeat of large corporations and marginally affected companies from accessing limited funds, this second draw of the PPP program is much more targeted.
U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley said, “The second draw PPP is really an opportunity for the hardest-hit small businesses to get another loan that can also be forgiven. If your business is only off 5%, you don’t qualify for the second PPP even if you qualified for the first.”
The available funds for small businesses this time around ($284 billion) is also less than the first stimulus. Applications will be available through March 31 for both first-time and existing PPP borrowers. A possible third stimulus (first one under the Biden Administration) is still being deliberated in Congress.
On changes found in the COVID Relief Law, SBA Administrator Jovita Carranza said, “Today’s guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”
Below are a few of the updates:
*Update to the SBA PPP enables businesses that have already received a PPP loan to apply for a second loan up to $2 million. New categories of expenses now qualify for forgiveness, and Congress extended PPP eligibility to additional types of businesses and nonprofits.
As in the first PPP round, qualified small businesses can apply for zero-fee loans of up to $10 million to cover payroll and other operating expenses. They can seek forgiveness for PPP funds spent on eligible payroll and overhead costs, such as rent, mortgage interest payments, and utility costs. Small businesses must spend at least 60 percent of the funds on payroll costs and no more than 40 percent on eligible overhead costs.
*PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs.
*PPP loans will cover additional expenses, including operations expenditure, property damage costs, supplier costs, and worker protection expenditures.
*Congress refreshed the EIDL emergency advance program and emergency grants for eligible small businesses. It expanded eligibility for SBA economic injury disaster loans (EIDLs).
EIDLs are loans up to $2 million with interest rates of 3.75% for businesses and 2.75% for nonprofits. It also established an EIDL emergency grant program, which allows loan applicants to request an advance of up to $10,000 to keep employees on payroll, pay for sick leave, or otherwise pay business obligations.
*There is a new SBA grant program for live venues impacted by the public health crisis. Eligible grant recipients include live venue operators, promoters or theatrical producers, independent movie theatre operators, museum operators, and talent representatives.
*There is refundable payroll tax credit for businesses and nonprofits that retain their employees during the COVID-19 crisis.
*For small businesses that already have an SBA loan (such as a 7(a), 504, or microloan) or took one out within 6 months after the CARES Act was enacted, the SBA will pay all loan costs for borrowers, including principal, interest, and fees, for six-months.
*For government contractors, agencies will be able to modify terms and conditions of a contract and to reimburse contractors at a billing rate of up to 40 hours per week of any paid leave, including sick leave.
Who can qualify for a second PPP loan?
*Those who previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
*Small businesses that have no more than 300 employees; and
*Businesses that can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
On future Federal stimulus, Menor-McNamara said the recent Chamber Foundation survey found businesses would like to see more assistance programs made available, along with grants and rent and lease forgiveness.
“We hope in the next round of support, that Congress will provide States and Counties CARES monies to come up with creative programs to help stimulate the economy. For example, the Hawaii Restaurant Card and the Hawaii Business Pivot programs, as well as the Small Business Recovery and Relief Fund were stood up with monies from the first CARES package.
“We also hope that Congress considers helping States, including Hawaii, whose Unemployment Insurance Fund was decimated due to the overnight surge in the unemployment rate, thus forcing many states to take out loans.”
The business community is relying on federal, state, and county efforts to provide temporary relief. The race to get aid into the right hands will determine how robust or weak the national economy will be in the next two to three years.