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Omaha Magazine

Financial Pandemic Infects Small Businesses: PPP loans Have Helped, but Financial Outlook Remains Uncertain

Jan 18, 2021 08:49AM ● By Lisa Lukecart
Michael Greteman of Lutz M&A

Michael Greteman: Photo by Bill Sitzmann

"We are nearing a dangerous period of this pandemic and fear that many more lives will be lost without action from all Nebraskans,” warned a letter drafted by three doctors from the University of Nebraska Medical Center and Nebraska Medicine. “We believe in the people of this state.” 

Over 1,700 Nebraska Medicine and UNMC health care providers signed the letter in November, pleading with the community to make greater sacrifices as COVID-19 cases climbed in the state. The letter mentioned people should stay home, but did ask that “Nebraskans support local businesses in any way you can through these challenging times.” 

The ambiguity of the rising pandemic storm has created an uneasiness among business owners. The bottom line during these current times is uncertainty. Many keep a cautious eye on the COVID-19 numbers while keeping another on the decreasing dollar amounts on their books. Closed doors and less traffic of consumers seems imminent if spikes continue in the state. The Coronavirus Aid, Relief, and Economic Security Act was a $2.2 trillion stimulus bill signed into law in late March that came to an end in December. The government has bounced back and forth on further relief packages.

Michael Greteman, a financial analyst at Lutz M&A, said in November he hoped another round of loans like the Paycheck Protection Program would happen sooner rather than later since some businesses are in limbo wondering what will happen next.

The second COVID-19 relief bill was signed Dec. 27. Lutz assisted with almost 500 applications from PPP1, but only about 40 have been forgiven.

“Certain industries haven’t seen any impact yet, but it may be coming,” Greteman said.  “I mean, everybody is just trying to get through it and that’s all you can do right now.”

PPP1, created under the CARES Act, kept businesses afloat despite its chaotic start, depleting its $350 billion limit in two weeks and requiring Congress to approve another $310 billion. The forgivable loan helped supplement payroll and provided some overhead relief for such necessities as rent and utilities. Bankers, accountants, and financial analysts scrambled to make sense of the law and interpret it for loan seekers. The challenge was the sheer scale of the endeavor and a messy rollout left more questions than answers. 

“[PPP1] came out in a fast-based, dynamic setting, and a lot of information kept changing. But if PPP wasn’t available, we would have had more businesses shut their doors by now,” said Adam Mroczek, vice president of commercial lending at Dundee Bank. 

The first application deadline closed Aug. 8, with $135 billion left in the coffers. More than 5.2 million PPP1 loans were approved, worth $525 billion in emergency relief for small businesses. Nebraska reported 44,000 PPP1 loans, totaling over $3.4 billion, according to the Small Business Administration (SBA).  

Refunding of the loans has been slow going despite a simplified form that was rolled out in October by the SBA. Businesses need to reach out to advisers, bankers, and accountants sooner rather than later within that last covered period before the loan matures. Otherwise, borrowers might be stuck with payments.  

Dundee Bank utilized a transparent itemized approach when customers withdrew funds for the loan. Mroczek believes this, along with a smaller community-based experience, made it easier for loans to be forgiven faster. Of the 476 small businesses that applied for PPP1 loans through the bank, 400 have applied for forgiveness and 325 have already been forgiven. About half of the loans were for $50,000 or less. 

Christopher Lambert, a senior tax accountant at Frankel Zacharia LLC, said the intention of SBA was to forgive as many loans as possible. Companies must meet the requirements with 60% of the funds designated for payroll costs during the eight-week or 24-week period of disbursement. Those short on any of these might still be eligible for a partial forgiveness. Even after the application deadline for PPP loans ended owners could still apply for the SBA COVID-19 Economic Injury Disaster Loan which accounted for about 14,000 loans, or $850 million, in Nebraska. The EIDL provides temporary relief for those who might need a boost. It’s a 30-year fixed loan at 3.75% interest for small businesses and 2.75% interest for nonprofits. 

“I highly encourage any small business, especially a startup, to get a good circle of advisers around them to monitor the situation that is unfolding with these different programs so they are aware of what they need to be doing,” Lambert added. 

The SBA asked those borrowers with loans over two million to complete a questionnaire documenting why the loan was needed. With tight timelines and unanswered questions, some are asking for delays in their forgiveness applications. Some of this was to prevent widespread fraud in how the funds would be used. 

“We weren’t too worried about fraud. We tried to help anybody and everybody that applied, but if any red flags came up, we did our due diligence,” Mroczek said. 

Taxation is another headache. On Nov. 18, the U.S. Treasury Department and Internal Revenue Service doubled down on the idea that expenditures used with a forgiven PPP loan are not deductible. PPP borrowers must add back these expenses to their 2020 taxable income if they “reasonably believe” the loan will be forgiven in the future. Companies can only deduct those expenses if the loan is not forgiven. Therefore, the Treasury has encouraged businesses to file right away to forego any misunderstandings. Some members of the House and Senate are fighting to allow deductions, but as of now, businesses need to prepare for a bumpy tax season. 

“Expenses that normally you get a tax deduction for, those deductions would not be allowed so taxable income would be higher. It’s important to plan appropriately for that,” Greteman said. 

As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines; expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations; and covered operating costs such as software and cloud computing services and accounting needs.

With luck, PPP2 will alleviate some of the stress that many small businesses are experiencing.

“I don’t think anyone can say what is going to happen in 2021, let alone a month,” Lambert said. “We live in a great community and people are supporting small businesses by ordering out and doing pickup. But the fact of the matter is, businesses have expenses and the number one expense is payroll. If no additional movement happens (in Congress), there are some who will be forced to close.” 

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This letter was in the February/March 2021 issue of B2B.