New loans and new hope
Region’s faltering businesses stake survival on latest round of $284B federal payroll program to ride out the pandemic
The pandemic took a huge bite out sales for many businesses, especially for hotel operators such as Kalyan Hospitality, the Henrico County-based company that owns 21 hotels in Virginia and other states with more properties in development.
“We have had downturns before, but not like this — nowhere near like this,” said Nick Patel, the CEO of Kalyan Hospitality, which owns five hotels in the Richmond region. “We have some leisure travel still going on, but that has not replaced the [lost] business travel,” since the pandemic started last year.
Last year, the company’s hotels were among thousands of businesses in Virginia that applied for and received loans under the federal government’s Paycheck Protection Program, a multibillion dollar lending program passed by Congress to help businesses keep operating during the pandemic. The money was aimed mainly at helping businesses keep employees on their payrolls.
Now, Kalyan Hospitality and potentially thousands of other businesses in Virginia are applying for a new round of PPP loans, which are becoming available to businesses through banks and other lenders starting this week.
Last year, hospitality and food service businesses that were hit hard by the COVID-19 pandemic
were eligible for loans covering up to 2½ months of payroll expenses. Patel said he was able to keep most of his 500 workers, “but we did have a percentage of our staff that was furloughed, because we just did not have the [customer] volume.”
In the newest round of PPP loans, the amount that hospitality businesses can get has been expanded to 3½ months of payroll coverage.
“Hopefully, that will get us through the majority of the vaccinations and the opening up of the economy again,” Patel said.
The latest round of PPP loans will amount to $284 billion nationwide under a coronavirus relief bill that Congress approved in late December. Two previous rounds were given out last year from April to August, for a total of 5.2 million loans worth $525 billion.
“This is a powerful program,” said John C. Asbury, CEO of Richmond-based Atlantic Union Bank and of Atlantic Union Bankshares Corp., the bank’s parent company.
Atlantic Union Bank processed 11,964 loans through the PPP program last year, making the bank the second-largest lender in Virginia during last year’s lending rounds.
“In our opinion, if you qualify for this, we can’t think of any reason why you would not apply for this,” Asbury said.
The bank is estimating that about 60% to 65% of the previous borrowers will return for another round of loans.
The fact that hospitality businesses and restaurants can borrow 3½ months’ worth of payroll this time is “a big deal,” especially for the Richmond area, Asbury said. “We have so many restaurants that have been impacted.”
That’s a big deal for Dave Chantrell, the owner of a Melting Pot restaurant franchise in Henrico County and in Louisville, Ky.
The restaurant had to shut down for part of last year. It has since reopened but at a lower capacity for customers.
“We had to furlough a number of our employees,” Chantrell said. “Pretty much just the management team was able to stay on.”
Chantrell said he was unable to get a loan through his primary lender last year, but he eventually got one through Atlantic Union Bank, which enabled the business to start bringing back some employees.
He hopes that a loan covering more than three months of payroll expense will keep his restaurant business going until the pandemic starts to diminish.
“It is going to be hard for the restaurant industry to recover until the public is comfortable with what is happening with the virus, whether that is decreased incidents of the virus or increased vaccinations,” he said.
The new round of loans also is important for recreational businesses that depend on large crowds, such as Tang & Biscuit Shuffleboard Social Club in the Scott’s Addition district of Richmond.
“The entire premise [of the business] was based on large social gatherings,” said David Gallagher, coowner of the game center that opened inside a renovated 18,000-squarefoot warehouse in 2018. “The very mission statement is all about bringing people together, and that whole concept has been devastated.”
Tang & Biscuit closed temporarily last year, furloughing most of its staff, and it spent thousands of dollars reconfiguring its operations to allow for social distancing. Among other things, five of its shuffleboard courts were removed, and the business added a remote food ordering system, Gallagher said.
While it has now reopened, Tang & Biscuit is still hosting only a fraction of the 300 to 500 customers it could serve at any one time before the pandemic. A PPP loan last year helped the business hold on long enough to make the needed changes and reopen, Gallagher said.
Now the business is applying for another PPP loan. “Hopefully, that will bring us through to the end of this thing,” Gallagher said.
Virginia Community Capital, a nonprofit community development financial institution based in Richmond, is preparing to start processing loans within the next couple of days or by early next week, said Wayne Waldrop, president of lending and community innovation for the organization.
A survey conducted by VCC late last week showed that about 50% of the borrowers it had last year will return for another round of loans.
“What we have seen is smaller businesses seem to be definitely in need, and service-related businesses are definitely in need,” Waldrop said.
“We have had a few customers that have navigated [the pandemic] quite well and they won’t be eligible this time, and that is good for them. That is a good sign,” Waldrop said. “But definitely the smaller and service businesses — the restaurants and gyms and salons — those folks need support.”
Businesses that did not get a PPP loan last year can apply for a loan of up to $10 million in the newest round if they have fewer
than 500 employees.
Businesses that got loans last year also can apply for another loan of up to $2 million, but only if they have fewer than
300 employees and if they can show that they suffered at least a 25% decline in revenue in any calendar quarter in 2020 when compared with the same period of 2019.
The loans will have fiveyear terms and carry an interest rate of 1%. The loans are forgivable, but businesses need to use at least 60% of the funds for payroll expenses.
Businesses can use the rest of the money for other costs such as employee health benefits, mortgage interest, rent and utilities.
In this round of loans, businesses also can use the money to cover COVID-19 prevention costs such as personal protective equipment for employees or ventilation work designed to help prevent the spread of the
Businesses also can use the money to cover the costs of any damages they might have suffered during riots last year.
“If you are down on West Broad Street [in Richmond] and your windows were smashed in, that is going to be an eligible covered expense,” Asbury said.
The pace at
which the funds for loans will be exhausted this time around is uncertain.
Some financial experts think the loan program will not be exhausted as quickly this time, in part because many businesses have been able to re-open since last summer.
“It is kind of hard to anticipate the demand with the qualifier of a 25% decline in revenue,” said Scott Zickefoose, a senior director for Henrico County-based accounting firm Keiter. “Fortunately, a lot of people I amspeaking with did not qualify for that,” because their business results did improve over the course of last year as businesses were able to re-open.
“My expectation is that it should not move as quickly as the first round,” Zickefoose said.
The types of organizations that can qualify for loans also has been expanded in the latest round. For instance, housing cooperatives and certain media businesses are eligible this time, Zickefoose said.
Also included this time are 501(c)(6) organizations, which would include groups such as chambers of commerce. They can get loans as long as they are not engaged in lobbying, and so can “destination marketing organizations,” which would include tourism groups.
Business advisers, banks and other financial firms also are awaiting more guidelines from the federal government on what is expected to be a simplified process for businesses to apply for loan forgiveness if they borrowed less than $150,000, said Doug Jones, a managing director and fractional chief financial officer for clients of Fahrenheit Advisors, a Richmond-based consulting firm.
Last year’s loan process was fraught with logistical issues because of the unprecedented scale of the program.
“Our hope is that it is going to be easier on the application side this time, because the banks already have their portals up” for people to apply, Jones said. “Last time, they had to invent the wheel while the car was moving. This time, it should be easier.”