Businessman granted forgiveness from COVID loan

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By Alfredo Santana

Contributing Writer

HIGHLAND PARK — Restaurant owner Dennis Hernandez recently got good news from the Small Business Administration.

A loan of nearly $63,000 he obtained through the coronavirus Payment Protection Program that helped him keep his restaurant, Antigua Bread, open following the first COVID-19 wave of infections in May 2020, had been forgiven.

Hernandez said the loan allowed him to pay staff wages when mandated shutdowns and shelter in place orders brought business to a halt and helped him pivot to providing home delivery orders.

“The first loan really threw us a lifeline,” Hernandez said. “We would not have survived if it wasn’t for the first [PPP] loan.”

The loan enabled Hernandez to build an outdoor wooden shed with rubber tables in his parking lot behind the restaurant at 5703 N. Figueroa St.

The outdoor dining structure cost him about $15,000 from a second PPP loan that let him use 40% of the disbursement to cover supply expenses, structural improvements and protective equipment purchases to sanitize the shop and equip 12 workers with face masks, gloves and other safety equipment.

Hernandez also shelled out $3,000 for a new commercial water boiler.

A second Antigua Bread location in El Sereno, also staffed with 12 employees, also received a PPP loan to pay for wages while sales fell amid spikes of infections that stretched through January 2021.

The PPP loans, created by the CARES Act’s $2 trillion financial plan to stave off the pandemic’s economic impact, offered forgivable loans to applicants seeking to use the funds to retain workers and invest on permitted expenses. Small businesses qualified for more than $798 billion in COVID-19 relief assistance.

As the program stopped receiving petitions May 31, the Small Business Administration shifted to close the program faster and created a plan that would allow loan recipients to apply for forgiveness directly into an SBA portal if the banks opted in.

PPP recipients now have 10 months to apply for forgiveness after they run out of funds between eight and 24 weeks, or can be penalized with paying the loan back at 1% in two to five years.

Ron Galati, a lender relations officer with the SBA Orange County/Inland Empire District office, said the agency “is in the final steps of funding all the relief funds that were approved,” and encouraged PPP recipients to follow forgiveness rules.

“Ten months after the covered period, the lender will ask you to start making loan payments,” Galati said. “Why make payments if you can have [your loan] forgiven?”

As the program stands, PPP recipients should submit a 3508s form for a $50,000 loan or less, 3508EZ for a loan or $50,000 or more up to $2 million, or a 3508 for more complex cases that include inability to bring staff back with required weekly breakdowns of paid employees.

Once the forms are submitted, the bank or financial lender reviews them for accuracy and then forwards them to the SBA, which renders a decision within 60 days.

A special notice 5000-2007 is required to document the purchase and sale of the business by another party, Galati said.

During the first PPP round, borrowers had to spend 75% or more of the loan on paying wages and retaining staff in an eight-week period, leaving a limited amount to cover rent, utilities and even pending mortgages.

Smaller businesses criticized the initial format, saying it benefitted large corporations and companies with deep pockets.

Congress changed the rules for the second PPP round. It dropped the minimum wage expenditure to 60%, and gave more flexibility to owners using the remaining 40% to make rent, facility improvement, transportation of goods, upgrades of business software and technology, repairs to damages caused in the 2020 civil disturbances, employee benefits and purchases of personal protective equipment.

PPP loans were made to help businesses retain full-time employees, except in cases where the employee refused to return to work and the owner made a “good faith” effort to rehire them. In those cases, employers must consult the SBA website, www.SBA.gov, for guidance and clarification, Galati said.

About 93% of all PPP loans are $150,000 or less, and at least 60% of the total awarded were loans worth less than $50,000. More than 50% of petitions to forgive PPP loans have been approved.

Borrowers with loans between $50,000 and $2 million should document all expenses to be eligible for forgiveness. Also, a maximum of 25% in weekly or hourly salary reduction is allowed to qualify, Galati said.

Shannon Jones, a business mentor with the nonprofit SCORE and an expert in operational management and analytics, said the organization offers a myriad of support programs to benefit entrepreneurs “from start to dissolution.” She encouraged owners and operators to reach out if they seek assistance in filing PPP forgiveness forms.

“Keep in mind SCORE advice. PPP forgiveness can be complicated,” Galati said.

Back at Antigua Bread, Hernandez confirmed that business operations have returned to pre-pandemic levels, sales of dishes rose as indoor eating restrictions were lifted  June 15, and he added five teenagers to the staff to aid with demand as indoor service resumed.

In all, Hernandez said the two Antigua Bread locations received nearly $200,000 in PPP and COVID-19 relief funds, including about $40,000 in 2020 documented income loss compared to 2019.

At the outset of the crisis, Hernandez also applied for and obtained a $150,000 loan repayable at 3.75% interest in 30 years through the Economic Injury Disaster Loan program, to meet expenses due to temporary loss of revenues and to be better prepared for uncertainties brought by coronavirus variants that could prompt more lockdowns.

“With everything that’s going on, we wanted to have a safety net,” Hernandez said. “We didn’t want to find ourselves with only $2,000 in the bank. We decided to take the loan and risk because of the uncertainty.”

Now that business has bounced back, Hernandez has convinced three of his cooks to work 60 hours a week while demand stabilizes and prices of meats and other goods level as supply chains and production find a new equilibrium.

To cope with the new economic reality, he raised salaries to $17.25 an hour, and said he is in talks with his neighbor, the owner of La Cazuela restaurant, to add a private security guard and improve safety at outdoor dining areas.

Hernandez has dropped the home delivery service, but may bring it back next summer with additional staff after a planned increase in prices to pair production costs with a 5% inflation rate later this year. At the height of the business lockdowns in 2020, delivery orders logged $50 to $70 each, purchases that caught Hernandez by surprise.

“I was never in need of employees like everybody else, because I took care of them,” he said. “Even my neighbor had problems hiring and rehiring more staff. They fired all and had a hard time bringing them back.

“I like creating jobs and treat employees with dignity and respect.”

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