A Salon Owner’s Experience with the SBA Loan Process – Glossy
Since the CARES law was enacted on March 27, small business owners in the United States have been rushing to apply for government-funded loans from the Small Business Administration to keep their businesses afloat. But reports have shown that the loan program is “”unravelWith applicants seeing long wait times to receive funds or being told they will receive much less money than they originally requested.
As the living rooms are among companies who were particularly affected during Covid-19, Glossy spoke to salon owner Krista Depeyrot at Salon Bisoux in Alexandria, Virginia about how the application process has been for her and the 12 employees at her company.
When did you close your salon and what steps did you have to take financially?
We closed on March 19, assuming we would be closed until April 23, then [the state of Virginia] changed from April 23 to June 10. We gave everyone a letter of temporary layoff so that they could apply for unemployment insurance and not be totally left behind. Everyone is hourly commission, so the minute the business closes, there is no more income coming in.
We have had some really wonderful clients. I sent a big email about our GoFundMe [set up for the staff], and the fact that the closure has been extended until June 10. A lot of people have since bought gift certificates which is good. People want to support you and make sure you have money in the bank. I mean, we were all like, “What? I knew it would be longer than April 23, but I was surprised it was as long as June 10.
What do you think of the help offered by the government?
I truly believe that everyone is meant to have an income and not have to owe money. But I have to apply for unemployment [as a business owner] while all my staff are paid [via the PPP loan]. It really doesn’t make sense. I feel like [the government] hasn’t worked out the details yet. And the details are linked.
There is not a lot of money to borrow; that’s the other thing: there is a lump sum. So how many small businesses are going to compete for that money? It’s on a first come, first served basis.
You asked for the Payroll Protection Program – what will this relief bill do for your business?
You need to figure out what your payroll is for the past 12 months and report this as 250% of the monthly average, to come up with what your loan amount would be.
The PPP loan is specific to cover eight weeks of most salary expenses: employee health costs, rents, utilities, and mortgage interest. The formula for is 2.5 times the average amount of payroll given by 941 [forms] and payroll data. The amount is only granted if you can prove that it will be used for these expenses. In our case, it will not cover the loss of income for the business owner or their health care. This is for our personnel costs only, and the amount remitted (or which does not need to be reimbursed) decreases if you do not guarantee a salary of 75% of the normal payroll and / or if you owe to again being made redundant due to less income / business.
Some of them have been disappointing, and others have the potential to be great. The problem is, it’s supposed to include sole proprietors and business owners, but it turns out there’s one stipulation to that: if you don’t earn your business income from what ‘we call guaranteed payments, [the loan] forgiven. We are sole proprietors and we pay each other by the draw. For this reason, it is not eligible.
We have had a viable business for years. We have never been in the red; we don’t owe anyone anything but our mortgage. We have been profitable from the start. We don’t want to increase our debt burden.
I think the most important thing about this bill is that it will be forgiven if it is used to pay wages and keep people out of unemployment. The way it works for us is that it benefits our staff. We take the burden of the loan which will hopefully be forgiven. They would be paid normally. We [owners] would not be paid at all [based on our first application]. It was a bitter pill to swallow. I feel really good that I can pay my staff, but the problem is, if we’re still closed on June 30 and have to put someone on leave, the forgiveness amount starts to drop. It’s a problem because you don’t want to go into debt.
What changes have been made to the process since you applied on April 7th?
There were clarifications on the amounts considered to be compensable, on salary expenses not allowed to be included if they did not go through payroll and on our income as owner-operators which is paid as a transfer. [in which income is taxed at the individual rather than corporate level]. They also added 401K matches for employees, health care bonuses for staff, and some FICA payments from the payroll process.
The Small Business Administration released a new rule on April 14 stating that the self-employment income of general partners can be claimed as a salary cost up to $ 100,000 on a PPP application. Did you have to fill out any additional documents for this?
I just did it. there is an application [for business owners] which must be modified at each change of amount [by the applicant], explaining the amount of the monthly payroll with the formula multiplied by 2.5 to get the final loan amount. My banker is probably fed up with how many times I’ve changed the app, but the law keeps getting clearer.
Have you heard from your application? Will you receive the full amount you requested?
We put our name in our bank [United Bank] on the date the loans were first accepted. He is currently “in the queue”, so we are waiting. That was 11 days ago. We have not had an answer.
Do you know when you can expect a response? Can you expect the full amount?
I believe if we get it it would be for the full amount of $ 130,090. But I did not ask when we will know and how long it will take to get the funds. If we get it too early and it covers eight weeks of payroll and we’re not open yet (we’re supposed to open on June 11) or not fully functioning – and then we need to miss a payroll or minimize staff, the loan becomes less forgivable.