Trish Pugh started a trucking business in Ohio with her husband in 2015. Even for a small business, it’s small – they had two drivers, including her husband, until they let go of one. cause of the coronavirus crisis.
And so, his company applied for a loan under the $ 349 billion first round of the Paycheck Protection Program, which the federal government put in place to save small businesses.
It didn’t go well.
First, there was confusion between her, her banker, and the Small Business Administration over the forms needed to apply. And then, once she did, she soon found out that she had missed the money.
“I click on this website and it tells me I have to reapply when more funds are available. I was devastated,” she said.
Not only did that first pot of PPP money run out in 13 days, freelancers like Pugh were only able to apply for a week. after the program opened. This puts them far behind other companies in the first come, first served program.
“We’re basically preparing to lose everything, and it’s really sad because we did it on our own at the start,” Pugh said as she prepared to apply for the second round of the program, which features funding of $ 321 billion. “Now that we need help, we cannot get help.”
Pugh has since informed NPR that she ended up getting a loan of just over $ 10,000. It will help her, but she doesn’t know how long it will keep her business running.
Frustrations like Pugh’s have been common since the launch of the Small Business Rescue Program. But his experience was only part of the problems that plagued the PPP in the first round when the program ran out of money and also the faltering start of the second round. Here is a list:
Some not-so-small businesses, like Shake Shack, have obtained loans
The PPP was created to allow any business with less than 500 employees to obtain loans. But several large companies that operate with fewer employees in separate locations, under a franchise model, have also applied for and received loans. Shake Shack, for example, employs nearly 8,000 people at its 189 US restaurants, but only about 45 at each site.
So the chain applied for and got a $ 10million loan from the SBA, causing public outcry, especially after building up evidence that many small restaurants in need of the cash were unable to obtain. loans. Shake Shack quickly returned the money. The company, which has $ 104 million in cash and cash flow, said he obtained other loans to cover the money allegedly coming from the SBA.
The LA Lakers also got a loan
Then there were other organizations that are not quite what most people would call a small business. As the Los Angeles Lakers basketball team, the eighth most valuable sports team in the world, valued at an estimated $ 3.7 billion, according to Forbes.
But the Lakers applied and received a $ 4.6 million small business loan. Once again, after media coverage, the Lakers decided to return it.
“Once we found out that the program funds had run out, we repaid the loan so that financial support was directed to those who need it most,” the team said in a statement.
Shortly after public outrage over well-known large corporations escalated, the SBA announced it would take a closer look at PPP loan applications over $ 2 million.
Banks raised $ 10 billion, just in fees
Another big beneficiary of the small business loan program: the banks.
Even though tens of thousands of small businesses were excluded from the program, banks have incurred more than $ 10 billion in fees, according to an NPR analysis of financial records.
SBA guaranteed loans carry very little risk and banks were happy to hand out larger loan amounts, resulting in higher fees.
Much of the money was spent on successful businesses, not struggling
Big business, as we now know, got loans. Now, it looks like businesses haven’t had to struggle to get a loan either.
Chembio diagnosis, a Long Island, NY-based company that manufactures infectious disease tests, has secured nearly $ 3 million from the program.
It was exactly the kind of cash injection the business needed to grow. “In order for us to be able to increase our manufacturing capabilities, we thought having this additional amount or loan would be very helpful,” said Gail Page, Chembio board member and former interim CEO.
The problem is, the program was not designed to help businesses grow. It was meant to save small businesses, nonprofits, and the self-employed who struggled to make their payroll or pay for benefits and utilities.
Some small businesses say loans have too many chains
Business owners lucky enough to get the financing said the money kept their businesses afloat. However, some owners also said The PPP rules do not allow them to use the money in the way they consider best.
Among their biggest complaints: 75% of the amount given back on loans must be spent on payroll. The rest can only be spent on a few categories: rent, mortgage interest, or utilities.
But with many businesses unable to reopen, owners are wondering how to spend so much on wages when they have little to no work for their employees.
“I understand in principle that this encourages us to get people back to work,” said Christian Piatt, co-owner of Brew Drinkery in Granbury, Texas. “But in practice, when you have a retail storefront that is not licensed by local authorities to operate as we did before, there should be some consideration to take that into account.”
Will the loans have to be repaid or will they be canceled?
To further complicate all of this, some businesses and finance professionals are unsure whether loans will need to be repaid or canceled. They were waiting for more details from the SBA on how forgiveness works.
“In some ways they really put these small businesses in a very compromising position because they could end up in a situation where they would spend money to get people back on the payroll which ultimately will not be forgiven. the end, ”said Don Stevens, managing partner of private client services at the accounting firm CohnReznick.
It is important that businesses understand all of this quickly. Forgiveness calculations will be based on how businesses spend their money within eight weeks of receiving it. The program opened on April 3, so there are about four weeks left before the first companies have to report their expenses to the SBA.
And just when you think things couldn’t be worse the site has crashed the first day of the reopening of the second round of financing, April 27.
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