What Happened When We Got A PPP Loan

The end of March was a scary time for The Modern Laundry Company of Maysville, Ky., my family's 125-year old business. Gov. Andy Bashear issued his "Safe at Home" order on the 25th; the next day officers from the Mason County Department of Health came to our HQ to tell us we had to close our storefront. The business itself could still operate--luckily, laundry is considered an essential service--but that doesn't help when you have utilities and mortgage bills to pay, and your best commercial customers are out-of-commission indefinitely. So, when Congress passed the CARES Act on March 27th, setting up the Paycheck Protection Program (PPP), we knew we had to apply.

Getting a PPP loan looked like a lifeline less than a month ago, but now its benefit is unclear, even for a small business as straightforward as our own. Our experience shows how small flaws in the hastily conceived and executed program may turn into major headaches for recipients down the road.

Chapter I: The Application

Now, our family business is exactly the sort of venture the program is supposed to help. Founded by my great-grandfather in 1895, the Modern Laundry incorporated in 1915; it's been owned and operated by the clan ever since then. My mother is the president, I'm the treasurer, and my sister is the vice-president. It has survived so long because people can't dry-clean their own clothes, and it's not practical for businesses to send pounds of linens, towels, and tablecloths a great distance.Your local laundromat is as essential as a grocery store and as embedded in the community as a church.

Our business is particularly well-suited for the PPP loan's mandates, too. Though we were not allowed to serve customers in person, or let people use the self-service, coin-operated machines, we were able to keep cleaning clothes and offer home or curbside pickup and delivery (we had a delivery service in place before the lockdown order). What's more, more than half of our monthly costs are for labor. So a forgivable loan to cover our payroll during the lockdown period sounded like a great way to keep afloat until the viral storm had passed.

Of course, getting the funding wasn't easy, even though we had a few advantages out of the gate. Number one was an existing relationship with PNC Bank, the ninth-largest bank in the U.S. (based on assets). Number two was our record-keeping. We made sure to have ready all of the documents at hand required by the PNC loan checklist that was distributed to businesses before the program opened for applications on April 3.

But PNC insisted that all applications had to go through their web portal. Predictably, it crashed several times before we could upload all our information. After the application was finally submitted, the website insisted we could not call their help center or ask our local branch representatives about the status of our loan.

Weeks passed, and things started to get tight. With our bread-and-butter clientele--restaurants, event spaces, and government offices--shut down, our revenue had plummeted to a third of what it was in January, and January is seasonally our slowest month. We dug into personal savings to keep meeting the payroll. We were forced to furlough three of our eight full-time employees, and we cut hours from 40 per week to 20.

Finally, on April 26--a Sunday--a rep from PNC called the President, aka Mom, and said we were approved for a loan. The genuine courtesy and consideration of this PNC loan officer was a relief--no traditional bankers' hours for this person--as was the sum totaling two-and-a-half times our monthly payroll deposit.

Chapter II: The Aftermath

The initial shock of losing two-thirds of our business in two weeks and reports of the CARES Act in the news made applying for a loan seem like a no-brainer. But things got a lot more complicated after we were approved. For example, just because we got money to rehire employees doesn't mean the demand for our service has returned. Until Kentucky's "Safe at Home" order is lifted (hopefully before the end of May), we won't be able to open our storefront. And more importantly, the businesses we service--the restaurants, event spaces, and government offices--won't be able to send us their laundry to be cleaned.

Until that happens, our PPP loan is just a replacement or extension of unemployment insurance as we bring on employees to work the same hours but with far less to do: fewer loads to wash in our industrial washers, fewer rugs to steam clean, and no tablecloths and napkins. Paying our staff to work less isn't a moral problem, but the SBA has made it clear that only gross payroll will be forgiven, which does not include federal withholding (FICA) taxes. Though we won't have to make enough money to pay payroll, we will have to make enough to cover the federal taxes on payroll whether that work earned money or not.

Again, the laundry is lucky that we're not in a high-rent, low-wage operation like a restaurant in New York or retailer in San Francisco. But the rules are inflexible on how much money can be spent on substitutes for payroll that could cover other necessary expenses, like utilities or servicing other debts, like the note on equipment that can't be used because of the lack of customer demand.

The rules contain another ambiguity that presents us a difficult choice: They alternately say we have to use 75% of the loan for payroll, and we have to maintain at least 75% of our pre-crisis workforce. The loan was calculated based on our payroll for the four quarters from Q2 2019 to Q1 2020, and if we only hire back 75% of the total headcount, we won't be able to pay out 75% of the loan-- which is calculated on 100% of our previous headcount--by the end of the period stipulated in the loan.

What if one of the three furloughed workers is making more money from the generous unemployment benefits also provided the CARES Act? According to the payroll services provider ADP FAQ page, if we make a good faith offer in writing, and the offer is refused, "the employee's rejection of that offer will not result in a reduction of the company's loan forgiveness amount." But what does that mean? We don't have to spend that portion of the loan money on payroll?

More Money, More Problems

These questions stop being annoying and start being anxiety-inducing when some sources say not using the PPP money for its intended purposes could result in criminal charges. What if we can't spend the money on payroll or utilities or rent in eight weeks? We're not allowed to spend it on anything else, like paying down other debts or suppliers. Though the unused portion will be counted as a loan, will we have to give it back to the bank unused, or we will have to keep as a loan to pay future, un-incurred utility and rent payments?

We know we were lucky to get this loan, when so many small firms were shut out. But: more money, more problems, as the saying goes. The Modern Laundry was founded at the start of the modern age, near the turn of the 20th century. I'm beginning to wonder if it will it survive the 21st.