Staff Photo by Matt Hamilton / Owner Kelly Hailey at the North Shore location of her Pigtails and Crewcuts business. Hailey has used Paycheck Protection Program finding to keep her business going during the pandemic, and is applying for another round of the forgivable federal loans.

Nearly a year after the COVID-19 pandemic sent them scrambling into survival mode, local business owners are still puzzling through how to make the most of financial stimulus programs designed to keep them going.

"I spent all of the [Paycheck Protection Program] money paying employees, and then when it ran out we were kind of still in the situation we were before," says Kelly Hailey, owner of two local Pigtails and Crewcuts salons. "It was a blessing to keep us open through that phase because we may not have reopened, but at the same time it's a struggle now."

Having depleted her first infusion of crisis funding, Hailey is trying to decide when to apply for forgiveness for that loan, and how much to pursue in the next round of the stimulus money. In the meantime, she says, her business is in "white-knuckle" mode. She had 12 to 15 employees when the pandemic hit, and now has more like 10, though traffic in the salons is too slow to justify that most days, Hailey says.

"There's many days where I'm just working people because I committed to giving them a job," she says.

George Wilson, owner of Southern Payroll & Benefits, says he has told many clients to hold off on seeking forgiveness for their initial loans, and he is working with them to go after a second round of funding.

"Pretty much everyone is out of PPP money at this point," says Wilson, who has helped clients get about $3 million in funding. Until the details of the current round shake completely out, it makes sense for many businesses to hold off on seeking forgiveness for the first round, he says.

"At any point I'm happy to do that for them, but I don't want to charge someone to do it and a week later I hear there's blanket forgiveness, or if you want round two it's lumped into round one and you don't have to do a separate application for forgiveness," he says. "I have only done one forgiveness application out of like 100 clients."

He's also practicing what he preaches, Wilson adds.

"We as a company are holding off — I'm not going to do ours yet," he says.

Round 2 of the Paycheck Protection Program

* Businesses must show a 25% quarter-over-quarter revenue loss.

* Restaurants and other hospitality businesses can multiply their average monthly payroll costs by 3.5, making them eligible for more funding.

* Second-time PPP borrowers can qualify for a second loan if they’ve used up their first PPP loan and have fewer than 300 employees — down from 500 in earlier rounds of funding.

Hailey has 10 months to apply for forgiveness from the time she took her initial Paycheck Protection Program loan in May, and she has decided to hold off on seeking forgiveness and apply for another round of funding.

"Everyone I've talked to that was familiar with my business agreed to wait," Hailey says. "They said things are changing and if I apply for the second round things might evolve after that and I might be able to do forgiveness for everything."

Initial loans for less than $150,000 have a simplified forgiveness process that might be combined with the process for the second round of funds, says Lynn Chesnutt, director of the Tennessee Small Business Development Center. And there may also be businesses that didn't seek funds in the first round that decide to go after them this time, he adds.

"I hope and pray 2021 is a better year, but we don't know," he says. "You've got to be planning for what you don't know — you have to expect the worst and hope for the best."

Moving target

One challenge of these stimulus infusions has been how how much the rules changed in the early weeks and months of their launch, says Justin Follis, a CPA who oversees East Tennessee for LBMC.

"A lot of practitioners probably felt this, that all of a sudden we've become experts on this ever-evolving program," he says. "There was no precedent. I don't know what you could have possibly compared it to."

For the time being, waiting to apply for forgiveness is typically the best guidance, Follis adds.

"My advice continues to be, unless you just absolutely need to, wait as long as you can on applying for forgiveness," he says. "That has less to do with what might happen legislatively and more to do with gaining more insight into this process before you go rushing into it."

There is a timeframe to work inside, though, he adds.

"Ten months after you got the cash you have to make the application. The clock starts when you got the cash," he says. "If you didn't get a loan until May or June, you've got some time on the clock — take some time and see how this plays out a little."

Miguel de Jesus, the owner of 1885 Grill in Ooltewah, had just opened his eatery in Cambridge Square in January when the COVID-19 pandemic hit in March.

"We opened up with a bang in January and closed March 16 and had to furlough everyone," de Jesus says.

The restaurant had 63 employees, and de Jesus moved quickly to get them separation notices so they could claim unemployment.

"We knew this wasn't going to be a short-term thing," he says. "We wanted to get our employees out in front of it so they wouldn't be part of a big group having to wait months to get benefits."

The restaurateur decided to move a little slower, however, when the time came to apply for a Paycheck Protection Program loan, he says.

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The price of a pandemic

"It was very convoluted as far as the measures for rehiring, how they would calculate full-time and part-time employees, so we were fortunate because once we had a few weeks of hearing and reading and meeting about it, we were able to come up with a plan," he says.

Once it reopened in May, 1885 Grill needed to bring back 96% of its employees to qualify for loan forgiveness, and that was easier said than done when unemployment payments had been boosted by $600 a week with pandemic aid. To make it work, he adjusted his employees' pay, de Jesus says.

"We said, anybody who comes back full time, we'll give you a salary plus split the tips for this eight-week period," de Jesus says.

Using the aid to guarantee pay helped him get 56 of his employees back and use the money for purposes that will meet the threshold for loan forgiveness. But he hasn't yet decided when to apply for forgiveness of the loan, and he's still sorting out whether he'll qualify for a second round of pandemic relief, though he will take it if he can get it.

"A lot of people are holding off, there's a lot of uncertainty," he says.

Initially, that uncertainty was largely the result of changing rules for how and when the aid could be used in the first round. Once de Jesus had the stimulus money in May, he had eight weeks to spend it, and he had to use 75% on payroll. But the rules were amended in June to give business owners 24 weeks to spend their loans, and reduce the percentage that had to be used for payroll to 60%. The new rules also gave business owners until the end of the year to bring back their employees, rather than the original deadline of June 30.

But those changes came too late to help him and, either way, the money is long gone at this point, de Jesus says.

"That money was gone for us back in July," he says. "It was able to get us back the employees and get people through tough times, and we've been able to build back the business to about 75% of what we anticipated before coronavirus.

"We're definitely fortunate — we've been able to keep our head above water."

For the new round of funding, he's not certain he'll qualify because the application requires he show a 25% revenue loss from the same two quarters in 2019 and 2020. He didn't open until January 2020, so he doesn't have previous-year results, but the program is available for businesses that were operating in February 2020.

"We're still diving into that portion," he says. "I am going to pursue the next round, but I don't know how successful I'll be."

The whole process required help from his banker, his lawyer, his payroll professional and his accountant, but while it wasn't easy, it probably saved his business, de Jesus says.

"It made a huge difference for us — we wouldn't have been able to do without it," he says. "I don't know where we'd be today if that had not come through."

For now, he's focused on getting to the other side of this crisis. The restaurant is operating at reduced capacity, on a reservation-only basis, and relying on carryout orders to help boost sales. Particularly now that the weather has cooled off and the patio is shut down, it's a high-wire act, he says.

"The winter months are already the toughest months for restaurants," he says. "The main thing for 2021 is to just get through the next few months and get to where we can get ahead of this thing and people feel safe and comfortable coming back out."

Solid ground

Chattanooga Floor Care & Sanitizing started 30 years ago as a side hustle of Barry Jeffery's, but he and his son, Matt Jeffery, made it an official full-time business five years ago. The pandemic presented some hurdles, but they were able to grow their team and keep the business steady using Paycheck Protection Program funds, they say. They were initially cautious, however, about using the money, Matt Jeffery adds.

"We took the money and we let it sit through through April, and by May we felt like we had kind of an idea of the scenario at hand," he says. "We had that luxury, but companies that were shut down didn't have that luxury."

Though their business was classified as essential and they didn't have to close, costs went up, supplies got harder to come by, and schedules shifted as businesses adjusted to the pandemic-related disruptions, Matt Jeffery says.

Paycheck Protection Program snapshot

* Forgivable federal loans through the Paycheck Protection Program originally included $349 billion in funding, but that money was gone within two weeks of applications opening in April 2020.

* A second round of funding for $320 billion wasn’t depleted, but applications closed in August.

* Applications for the current round, this time with $284 billion in funding, are open through March 31.

* At the end of 2020, more than 5 million businesses in the U.S. had tapped $522 billion in the stimulus funds, including more than 99,000 businesses in Tennessee and more than 169,000 in Georgia.

"Construction is booming and we added a crew and had a great year, but our margins dove," Matt Jeffery says. "We flatlined for the year, and during a pandemic I'm fine with that. We were able to keep our guys busy and not have to lay anyone off — that's a win."

They have already applied for forgiveness of the money, and won't pursue the next round of funding, he says.

"We try to be as debt-free as possible — we have 16 employees and we're a father-son business," Matt Jeffery says. "We knew we needed to take care of employees, but knew we weren't willing to crash the company to do so."

It took the work of a team that supports his business — including an accountant, an attorney, a banker, a payroll expert and a good in-house administrator — to make the application process manageable, Matt Jeffery says.

"We were lucky enough to be a small business founded on principles of having professionals making these decisions for us," he says. "If I had to do that alone, no way, I would have shied away and been scared of making a mistake."

Follis says he always advocates getting advice on these programs from professionals who have a role in supporting a business.

"The lenders know what's got to occur with the [Small Business Administration], the accountants understand the data element of it that drives the loan amount and the forgiveness amount, the attorneys understand the legal elements of what we're attesting to — you need to be talking to all three," he says.


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