Craft Brewers Share Concerns Over Payroll Protection Program Changes

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Many craft breweries are applying for the Paycheck Protection Program (PPP), a pillar of the $2 trillion CARES Act relief package that rolled out last week, but several say they have concerns with the bumpiness of its introduction.

The Coronavirus Aid, Relief and Economic Security Act passed by both houses of Congress and signed into law by President Donald Trump on March 27. The $349 billion package for small business owners in the act “underscores the importance of small businesses to the economy and as a source of employment,” Thomas J. Curry, a partner at Boston-based law firm Nutter, McClennen and Fish, said during a webinar hosted by the firm earlier this week.

“The PPP’s immediate goal is to provide quick relief to small businesses and to encourage them to maintain employment levels during the emergency lockdown period,” Curry said.

In a whitepaper about the program, Stonehearth Capital Management said the PPP should “provide the greatest financial relief” for small businesses. The firm urged businesses to apply as early as possible to secure funding before the money runs out.

According to Curry, the program is “ambitious in size and speed.” It provides loans through banks partnering with the U.S. Small Business Administration equal to two and a half months of a company’s salary expenses, with a cap of $10 million per company. Loans can only be used for certain expenses: payrolls, rent, mortgage interest, utilities and interest on debts. Funds spent on all but debt interest would be forgiven if recipients retained their staff.

PPP loans come with an interest rate no higher than 4%, six-month deferral and a two-year term.

However, the U.S. Small Business Administration changed the terms of PPP and is now requiring 75% of the loan money to be spent on payroll, “due to likely high subscription,” the SBA wrote.

“Its terms morphed over the past week, causing a lot of confusion for everyone,” Curry explained.

Brewers are certainly frustrated with the evolution of the program, as many are unsure when they’ll be able to resume normal operations.

“They have an opportunity here to provide some certainty,” Sam Hendler, co-owner of Framingham, Massachusetts-based Jack’s Abby Craft Lagers, told Brewbound. “By making it convoluted and changing the rules at the last minute, they actually paralyze us to the point where we don’t feel like we’re in a position to bring anybody back on the payroll or return compensation to what it was before.”

Hendler filled out his application on April 2, the night before the first day they could be submitted, so that Jack’s Abby’s would be among the first in line. However, he had to make changes after the SBA changed the rules to require 75% of funding be spent on payroll. The brewery’s bank has shared Hendler’s frustrations with the uncertainty.

“They’re trying to be as transparent as possible, but a lot of the calls I’m having with the president of the bank are just like, ‘Listen, Sam, I don’t know — we don’t know how it’s going to work. We don’t know when you’re going to get approved. We don’t know when you get money in your account,’” Hendler said.

Jack’s Abby laid off much of its taproom staff three weeks ago, and Hendler, who owns the company with his two brothers, has tried to be transparent with employees about the situation.

“We’re telling them we’re going to bust our ass to make sure that this thing survives so they can get their jobs back — that’s the reality,” he said. “We’re like basically everybody in this industry. We’re in survival mode right now, and unfortunately, if you’re being honest with your staff, there’s not a ton of good news to share with them”

The Brewers Association, which represents the nation’s small and independent brewers, found in a survey that nearly 66% of brewers had laid off employees. The beer industry isn’t alone, as more than 15 million people have filed for unemployment benefits over the past three weeks, according to the U.S Department of Labor.

Mike Harting, CEO of Saint Petersburg, Florida-based 3 Daughters Brewing, said he’s happy to apply for PPP funds to pass on to employees to keep them afloat. However, he would like to see another aid package from the federal government.

“I like and appreciate this program; I hope that everybody treats it the right way and starts paying their employees to do nothing,” he said. “That’s what it’s for. Everybody just needs to buy groceries. But the feds need to come back sooner rather than later and say ‘Hey guys, now we’ll make sure that the businesses open so we’ll put these people back to work.’”

Congress has been exploring a fourth relief package. However, Senate Democrats today blocked Senate Majority Leader Mitch McConnell’s attempt to add $250 billion to the small business stimulus program. The Senate has adjourned until Monday.

Harting, Hendler and Denizens Brewing co-founder Julie Verratti have all applied for PPP loans, but share the same concerns about the future of the beer industry after the PPP-covered two and a half months have passed.

“If I just rehired everybody and paid them eight weeks just to fire them again — that in my mind is just ethically wrong,” Verratti said. “It feels traumatizing. It’s almost like emotional abuse.”

Denizens has laid off about 30 people from its staff of 40, who would normally be working in the company’s two locations: Silver Spring and Riverdale Park, Maryland. After the on-premise shutdown began on March 16, Maryland Gov. Larry Hogan signed an executive order on March 19 permitting breweries to offer home deliveries, which Denizens has been doing. Verratti said direct-to-consumer sales have given Denizes some income, but not nearly enough to match what its two taprooms would normally earn.

Verratti would rather have seen Congress suspend all commercial rent, mortgage and debt payments to help businesses during shutdowns, rather than funnel money for those purposes through the PPP.

“You have to do all three of those at once,” she said. “You can’t tell landlords they’re not allowed to collect rent when the bank is still expecting them to pay their mortgage. It doesn’t work that way.”

Another avenue for business relief could have been direct payments to businesses based on last year’s revenue in tax statements that could be paid to employees, landlords or mortgage lenders and other debts, in exchange for closing for three months, Verratti said.

“Right now, we’re not in a normal situation,” she said. “You’ve got to break all of the rules. This is a break-the-glass emergency situation.”