To understand just how hard it could be to recover from a COVID-19 recession, consider the case of Jim Harrer.
Last week, the owner of kickboxing gyms in Kent and Federal Way learned he’d qualified for a $107,000 loan under the Payroll Protection Program — one of the last to do so before the U.S. Small Business Administration announced that the $349 billion program was out of funds.
But like many other business owners who scrambled to get the loans, Harrer isn’t sure he’ll be able to use the money.
The loans, of up to 2.5 times a company’s monthly payroll, are meant to encourage businesses to retain or rehire staff while they wait for their state economies to reopen, which in Washington could start next month. If Harrer uses most of the loan to rehire his 15 furloughed employees within eight weeks (he can spend some on rent and other expenses) he won’t have to pay it back.
The problem? Harrer has no idea when gyms and other businesses that rely on dense, group-based activities will actually be allowed to open. He worries that it might not be until July or even later that he can welcome back members – which means by the time he’s ready to rehire staff, the loan won’t be forgivable.
In that case, Harrer says, he may just use the loan funds to “pay off the loan and pretend it never happened.”
Harrer isn’t the only one with mixed feelings about a government rescue strategy that is sending hundreds of billions of dollars to small businesses, including nearly $5 billion in Washington state.
The Marqueen Hotel, a stately, 59-unit property near downtown Seattle, also applied for a Payroll Protection Program loan to help recover from a roughly 80% loss in business.
But, like Harrer, hotel executives don’t know when they’ll be able to reopen or how quickly guests will return. That makes it difficult to know when to ramp up operations and how fast to rehire furloughed staff, says Matt Hagerman, senior vice president at Seattle-based Columbia Hospitality, which manages the Marqueen and other local hotels. The worry, says Hagerman, is that “you could ramp up and then have to ramp back down.”
What both Harrer and Hagerman are struggling with, policymakers and economists say, is the mismatch between the crisis the government is trying to fix and the tools it is trying to use.
Partly, it’s mismatch of scale. Early on, both Congress and the White House vastly underestimated how deeply COVID-19 would disrupt the economy.
The first relief package, enacted March 6, included just $7 billion for the Small Business Administration. “And what you’ve seen, week after week after week, is a replay of the scene from ‘Jaws,’ where the guy says, ‘We’re going to need a bigger boat,’” says U.S. Rep. Derek Kilmer, D-Gig Harbor, who has proposed changes to the loan program.
Congress did get a bigger boat. The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), enacted March 27, included $349 billion in forgivable loans for small business to encourage them to rehire laid-off workers or, better still, not lay them off in the first place.
But as all that money has been doled out, it has become clear that the challenges facing small business will require more than eight weeks of payroll to fix. Not only are government-ordered shutdowns likely to stretch out past eight weeks, but the recovery, when it eventually starts, won’t be like anything policy experts — or businesses — have ever seen.
Where most economic recoveries are fueled by revived consumer demand and business investment — which often can be accelerated by government stimulus — the pace of this recovery will be governed largely by the coronavirus.
by Paul Roberts, Seattle Times | Read more:
Image: Greg Gilbert/The Seattle Times
Last week, the owner of kickboxing gyms in Kent and Federal Way learned he’d qualified for a $107,000 loan under the Payroll Protection Program — one of the last to do so before the U.S. Small Business Administration announced that the $349 billion program was out of funds.
But like many other business owners who scrambled to get the loans, Harrer isn’t sure he’ll be able to use the money.
The loans, of up to 2.5 times a company’s monthly payroll, are meant to encourage businesses to retain or rehire staff while they wait for their state economies to reopen, which in Washington could start next month. If Harrer uses most of the loan to rehire his 15 furloughed employees within eight weeks (he can spend some on rent and other expenses) he won’t have to pay it back.The problem? Harrer has no idea when gyms and other businesses that rely on dense, group-based activities will actually be allowed to open. He worries that it might not be until July or even later that he can welcome back members – which means by the time he’s ready to rehire staff, the loan won’t be forgivable.
In that case, Harrer says, he may just use the loan funds to “pay off the loan and pretend it never happened.”
Harrer isn’t the only one with mixed feelings about a government rescue strategy that is sending hundreds of billions of dollars to small businesses, including nearly $5 billion in Washington state.
The Marqueen Hotel, a stately, 59-unit property near downtown Seattle, also applied for a Payroll Protection Program loan to help recover from a roughly 80% loss in business.
But, like Harrer, hotel executives don’t know when they’ll be able to reopen or how quickly guests will return. That makes it difficult to know when to ramp up operations and how fast to rehire furloughed staff, says Matt Hagerman, senior vice president at Seattle-based Columbia Hospitality, which manages the Marqueen and other local hotels. The worry, says Hagerman, is that “you could ramp up and then have to ramp back down.”
What both Harrer and Hagerman are struggling with, policymakers and economists say, is the mismatch between the crisis the government is trying to fix and the tools it is trying to use.
Partly, it’s mismatch of scale. Early on, both Congress and the White House vastly underestimated how deeply COVID-19 would disrupt the economy.
The first relief package, enacted March 6, included just $7 billion for the Small Business Administration. “And what you’ve seen, week after week after week, is a replay of the scene from ‘Jaws,’ where the guy says, ‘We’re going to need a bigger boat,’” says U.S. Rep. Derek Kilmer, D-Gig Harbor, who has proposed changes to the loan program.
Congress did get a bigger boat. The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), enacted March 27, included $349 billion in forgivable loans for small business to encourage them to rehire laid-off workers or, better still, not lay them off in the first place.
But as all that money has been doled out, it has become clear that the challenges facing small business will require more than eight weeks of payroll to fix. Not only are government-ordered shutdowns likely to stretch out past eight weeks, but the recovery, when it eventually starts, won’t be like anything policy experts — or businesses — have ever seen.
Where most economic recoveries are fueled by revived consumer demand and business investment — which often can be accelerated by government stimulus — the pace of this recovery will be governed largely by the coronavirus.
by Paul Roberts, Seattle Times | Read more:
Image: Greg Gilbert/The Seattle Times
