Business lending programs are badly flawed, Home Furnishings Association members told an official with the U.S. Treasury Department in a conference call May 5.
Howard Haimsohn, owner of Lawrance Furniture in San Diego, said he was anxious while he waited for a Paycheck Protection Program loan and is equally anxious since he received it. That’s because he only has eight weeks to spend the money – most of it for payroll – yet his business still can’t reopen. That means he’s paying employees, but they have little work to do.
“I can promise we’re going to need a lot of help at the end of our eight weeks because we’re just buying time, not rebuilding our business,” Haimsohn said.
Hannah Resig, a policy analyst at Treasury, listened to concerns about the lending and tax credit initiatives enacted by Congress to help businesses through the coronavirus crisis. PPP is the program most commonly used by HFA members. It’s attractive because it offers up to 100 percent loan forgiveness, although its effectiveness is severely limited. To earn forgiveness, businesses must use three-fourths of the loan amount for payroll costs within eight weeks of receiving the loan funds. That wasn’t practical while businesses had to shut down because of state orders. Some are still waiting to reopen.
A new bipartisan proposal in Congress, called the RESTART Act, seeks to remedy the PPP drawbacks, but it has yet to gain broad support.
The RESTART proposal, advanced by Sen. Todd Young (R-Ind.) and Sen. Michael Bennet (D-Colo.) would double the eight-week period, lengthen the term of the loan for portions not forgiven, and allow mid-size companies to apply. The PPP excludes most businesses with more than 500 employees.
Little help offered for larger HFA members
Congress hasn’t provided much help for businesses that are too big to qualify for PPP loans yet have been closed for up to two months, said Rod Johansen, president and CEO of HOM Furniture in Coon Rapids, Minn. The company has claimed Employee Retention Tax Credits, but they offset just half of payroll costs.
Chris Andresen, HFA’s representative in Washington, raised another problem with the ERTC program. Treasury doesn’t recognize the value of medical coverage that employers – including some HFA members, such as El Dorado Furniture in Miami, Fla. – continued to provide for employees who were furloughed.
Treasury’s interpretation of this program “runs directly counter to congressional intent,” Sen. Chuck Grassley (R-Iowa), Sen. Ron Wyden (D-Ore.) and Rep. Richard Neal (D-Mass.) wrote in a May 4 letter to Treasury Secretary Steven Mnuchin. “Allowing employees to retain their employer-provided health insurance, even while furloughed, is an important component in ensuring millions of Americans access to affordable health care.”
(Update: On May 8, the Internal Revenue Service changed its interpretation to conform to congressional intent.
“Qualified health plan expenses are properly treated as qualified wages if the allocation is made on a pro rata basis among covered employees (for example, the average premium for all employees covered by a policy) and pro rata on the basis of periods of coverage (relative to the time periods for which such wages relate),” it said in revised Frequently Asked Questions.)
The Main Street Lending Program launched by the Federal Reserve carries problematic restrictions, according to Shannon Collins, an attorney for W S Badcock Corp. in Mulberry, Fla. One is that companies accepting a loan must remain neutral in any union organizing effort.
Everyone needs a pause until business comes back
Collins and Badcock Executive Vice President Wogan S. “Wogie” Badcock III contended that a better approach is to require lender and rent forbearance for up to six months. “Everybody take a pause,” Badcock said.
That would let companies retain their cash while they bring back employees and build up sales – without accepting government funds.
Resig said she understood HFA members’ concerns and would convey them to associates at the Treasury Department.