Hartford Business Journal

14 Hartford Business Journal • June 15, 2020 • www.HartfordBusiness.com By Matt Pilon mpilon@hartfordbusiness.com J onathan Metcalf is a fifth-degree black belt who has taught martial arts for nearly 25 years, but the small business owner has never faced an opponent quite like COVID-19. Metcalf's Integrity Martial Arts, based on Hazard Avenue in Enfield, was among the many gyms and athletic facilities forced to close in March as the virus hit Connecticut like an unexpected assailant. Metcalf quickly applied for federal stimulus funds, and after several tries, was successful in receiving a Paycheck Protection Program loan from the U.S. Small Business Administration that has been covering his payroll since early May. He also secured a $157,000 economic injury disaster loan. In the meantime, he and his 10 em- ployees have been teaching classes remotely using Zoom, which to Met- calf's relief has kept income flowing. "We've been open, we've been making revenue, a little bit less but not a lot less," Metcalf said. "We haven't had the cash concerns that had a lot of businesses afraid." Integrity's PPP funds will be fully spent as of early July. Given how quickly students have taken to remote instruction, Metcalf says he's not worried about losing his gov- ernment-backed safety net. Online instruction has allowed him to build up a revenue cushion, and though he's not excited about taking on the injury disaster loan debt, that money could pay the bills for months. "I really do think I can make this all work," Metcalf said. Though exact numbers aren't available, there could be upwards of 18,000 Connecticut businesses depleting their PPP loans around the same time as Metcalf, and it's unclear how many firms will be as well positioned as Integrity Martial Arts when the day comes. Congress intended PPP as a bridge over an immediate and steep, but hopefully brief, downturn. If Connecti- cut companies find that customer de- mand remains diminished when their eight weeks of financing is up, the state could see another wave of layoffs and business closings, dealing an additional blow to an already fragile economy. (Originally borrowers had to spend their money within eight weeks of receiving funding in order to qualify for full loan forgiveness.) "As it expires, [the question is] 'what's going to come back?' " said Geof- frey Buswick, a managing director and analyst at S&P Global Ratings. "If businesses are coming back at a restricted level because of social distancing, how many people will be supported at the same pay level?" Despite its forecasting acumen, S&P doesn't have an answer for that yet, said Timothy Little, an S&P municipal credit analyst who covers Connecticut's ratings. "It's sort of difficult to know what 'normal' is on the other side of the curve," Little said. The impact of Connecticut busi- nesses depleting their PPP funds over the coming months will likely vary by sector, said Glendowlyn Thames, deputy commissioner of the Department of Economic and Community Development, who said she is most concerned about food-service, arts and entertainment businesses as vulnerable industries. "Nobody has a crystal ball at this point," Thames said. "This is a global humanitarian challenge we have not ex- perienced at this scale in modern times." "Once we get through phase three of the reopening going into the fall, there will be a clearer picture on where we are," she added. DECD has already started discussing how the state might help re-skill work- ers whose jobs don't return, though Thames said it's too early to give specif- ics. For any major program, much will likely hinge on federal recovery aid. So far, 565,000 Connecticut resi- dents have filed for unemployment benefits during the pandemic. Timing tough to assess Though 18,000 Connecticut em- ployers received PPP funds during the first application period in April, it's unknown how many of those loans will be completely spent in the coming weeks. There's an incomplete picture for several reasons. First, the SBA, which didn't respond to a request for com- ment for this story, isn't making that information publicly available. While the initial rules required companies to start spending their money virtually right away and within an eight-week period in order to qualify for full loan forgive- ness, some employers decided to sit on their cash and save it for later, especially if they've been temporar- ily closed as a result of Gov. Ned Lamont's shutdown orders. Other businesses have been wait- ing to spend their money with the hopes that Congress would clarify and relax PPP loan forgiveness rules, which has now happened. A law signed by President Donald Trump this month allows employ- ers, if they so choose, to spend their PPP funds over a longer period of time (24 weeks) in order to qualify for loan forgiveness. It also allows businesses to spend a smaller por- tion of the money (60% instead of 75%) on payroll vs. certain other expenses like rent and utilities. As a result of the changes, the timing of loan expirations will be FOCUS: SMALL BUSINESS Economic Uncertainty Billions of dollars in PPP loans could expire soon, setting up a stress test for CT's return to 'normal' Glendowlyn Thames, Deputy Commissioner of the Department of Economic and Community Development Jonathan Metcalf of Integrity Martial Arts, or Sensei Jon, as his students call him, demonstrates a kick during a recent virtual martial arts lesson. HBJ PHOTO | MATT PILON

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