A federal loan program intended to rescue small businesses and workers from economic devastation during the coronavirus pandemic has shortfalls that some Maine companies say will prevent the program from saving jobs as intended.

As of Saturday, more than 8,400 Maine businesses had been approved for over $1.5 billion in loans from the Paycheck Protection Program, eight days after it started accepting applications. The loans, which don’t need to be repaid if the borrowers meet certain requirements, are intended to help businesses pay staff and overhead until they can resume normal business.

But some small-business owners worry that the loan program is too risky because borrowers are subject to strict spending rules and a tight deadline for full rehiring or retention of staff that they say is unrealistic. They said many small businesses will fail to meet the requirements and end up having to repay most of their loans, which will make the program fail to have its intended effect of saving businesses.

Plummeting revenue and fear he was putting his employees at risk of exposure forced Joe Walsh, owner of Green Clean Maine, to furlough his 35-member staff three weeks ago.

Walsh was optimistic a forgivable loan from the government would let him keep his Portland-based home cleaning company on life support until he could reopen. He was nervous about traditional borrowing, even through disaster loan programs.

“We are a small business; there is limit to the amount of debt I can take on to keep this thing going,” Walsh said.

Walsh wanted to hold off awhile and apply in May, when he would likely have a better sense of when the business could start operating again. But his financial advisers warned that funding would run out because of heavy demand, and they urged him to apply as soon as loans were available.

Under the program, loans of up to $10 million give business owners money to pay eight weeks of payroll and rent, utilities, insurance and other costs. Three-quarters of the money must be spent on payroll, and the remaining funds can go toward overhead. The program was funded with $349 billion from the federal CARES Act, passed in late March.

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The problem, Walsh said, is that in order for a loan to be forgiven, the borrower’s business must be at full staffing by eight weeks after receiving the money. He said there is too much uncertainty about how long it will take businesses to reopen and recover, and that the eight-week deadline poses a major risk to borrowers, who are already hurting financially.

“What good is that going to do us? We can’t reopen until at least the end of April,” Walsh said. “There is no way we are gong to be back to 100 percent employment by the end of eight weeks.”

If a business doesn’t spend the money or meet all the requirements, it must pay back the loan plus 1 percent interest over a two-year period.

Newly expanded unemployment benefits further complicate the situation. More than 76,000 Mainers have filed claims for unemployment benefits over the past three weeks. One in four of the state’s hospitality workers have become unemployed, as have those in the recreation and entertainment industry.

Businesses that furloughed or laid off workers as a result of the coronavirus outbreak can rehire them with loan funding, but unemployed workers soon will be receiving an extra $600 per week from the federal government. That will make unemployment benefits more lucrative for many workers than what Walsh and others can afford to pay them.

“If I put them back on payroll, I am putting them at an economic disadvantage,” Walsh said. “It is not a rational economic environment that this emergency has created. We are creating reverse economic incentives for people – it wasn’t on purpose, but it is the reality.”

Heather Sanborn, owner of Rising Tide Brewing Co. in Portland, was told to apply for a Paycheck Protection Program, or PPP, loan as soon as it became available. With most of her staff furloughed and no idea when she can reopen, Sanborn is unsure how to proceed.

“Right now, it is just sitting in a separate account – I have no idea how we are going to deal with it,” said Sanborn, who is also a Democratic state senator representing parts of Portland and Westbrook.

Restaurants, breweries and bars were the first to close or sharply limit service because of the pandemic. They will likely be the last to resume normal operations and will need flexibility to use the money when they are ready to start rehiring and preparing to reopen, Sanborn said.

“Because of the risk and public health concern, we need the flexibility to make sure the aid we are getting from PPP can be spent when it is (helpful) instead of when it makes no sense at all for our employees and our business,” she said. “To a person, every business owner I’ve talked is wrestling with this same issue.”

U.S. Sen. Susan Collins, a Maine Republican who co-authored the loan program, said in an interview that it is working as intended.

“To me, the fact that the demand has been that strong that everyone agrees we are going to run out of money shows the program is a success,” Collins said. “Does it work for every single small employer? No.”

Collins supports adding funding to the program and is willing to consider amending the application timeline.

A proposal to put another $250 billion into the program stalled in Congress last week because Democrats demanded protection for minority-owned businesses and funds for the health care system and state and local governments.

“I am trying to get this funding, and I do believe an adjustment in the application period would be appropriate,” Collins said.

But she thinks changes others are asking for, such as giving businesses flexibility to use more of the money for expenses other than payroll, is inappropriate.

“I do think it is really important that we remember that the purpose of this is to keep paychecks going to employees, and not to break the link between the employer and the employee,” she said.

Collins said she was opposed to a lump-sum boost in unemployment benefits because of the disadvantage it would create for businesses trying to hire workers back. She thinks employees will allow themselves to be rehired in order to regain health insurance and other benefits. If workers laid off because of the pandemic are offered suitable employment, they need to accept it, she said.

“I don’t believe someone should be able to receive more on unemployment than when they were working,” Collins said.

Shortfalls in the program have pushed state and national trade groups to ask for immediate reforms. HospitalityMaine, which represents restaurants and hotels, wrote to Maine’s congressional delegation asking to be able to use the money over a longer time period with more spending flexibility.

The National Restaurant Association asked for similar measures in a letter to congressional leaders last week.

“A growing number of restaurant owners are concluding PPP is not going to prevent them from permanently closing operations in local communities,” the association said.

Some businesses say any funding is welcome. Bob Smith, owner of the Sebasco Harbor Resort in Phippsburg, agrees that the program needs adjustments, but he is grateful for the assistance overall.

Smith’s revenue is down $100,000 because of cancellation refunds, and he doesn’t know when tourists will consider returning to Maine. Nor does he know how to go about hiring the almost 100 people he would need for the summer tourism season, including workers from out of state who would need to quarantine for two weeks in Maine before getting to work.

Although he agrees the program needs adjustment, Smith said it will help the resort survive.

“If I end up with some of the loan that isn’t forgiven and I have to repay a big chunk, but it keeps me alive and on a path to reopen my business, that’s a risk I’m willing to take,” he said.

Jean Ginn Marvin, owner of the Nonantum Resort in Kennebunkport, said the money will keep 22 managers on staff and fund seasonal employee hiring.

It also gives the resort breathing room to come up with new business protocols to keep food service and housekeeping safe when it is finally able to reopen.

“We need to have some time to process that and train to those new standards,” she said. “It’s a godsend for us and I couldn’t be more grateful.”

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