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Local businesses face hurdles getting federal loans

By Leo Herbstman, staff writer

Small businesses in Santa Rosa, California are being hit hard by the COVID-19 outbreak, which has forced many of them to close or modify how they do business. Although the U.S. Congress passed legislation that provided $349 billion for the Paycheck Protection Program as part of the Coronavirus Aid, Relief, and Economic Security Act to help employers to keep employees paid as well as other needs, the PPP funds were gone within 13 days, making it hard for companies to obtain loans.

The PPP provides eight weeks of forgiven loans for payroll, rent, mortgage interest and utility costs as long as at least 75 percent of the loan goes to the payroll costs and the employers keep the employees, without reducing their salary by more than 25 percent. The loan is for businesses with less than 500 employees, including nonprofits, sole proprietorships, self-employed individuals and independent contractors. The biggest problem so far has been the lack of enough money for each business and that large companies with less than 500 employees per location are also eligible for the loan.

Small business owners found out about the dry funds through bank websites that noted the fund had run out. However, Congress has passed and President Trump signed a bill according to the White House’s tweet to send an additional $310 billion to the PPP fund as part of a $484 billion package that was passed on April 23. Although no changes were made to how the PPP loans would be given out, chairman of the Senate Small Business and Entrepreneurship Committee, Florida senator Marco Rubio, said “[he] will use subpoena power” this fall to investigate if the larger businesses were eligible. Also, after hearing reports of large businesses receiving loans, Trump urged them to give the money back.

According to Sonoma and Napa County Congressional Representative Mike Thompson, who voted for both the CARES Act and the recent replenishing of the PPP, “The whole idea of the CARES Act was to provide financial opportunities and forgivable loans to small businesses, so they can keep people employed.” He added, “The legislating process is a negotiating process between House Democrats, Senate Republicans, and the [Presidential] Administration. House Democrats wanted provision we couldn’t get because of negotiations.” He said that the compromise from Senate Republicans “wasn’t good enough,” while mentioning that Senate Majority Leader Mitch McConnell’s statement about states possibly needing to declare bankruptcy is “absolutely ridiculous.”

Thompson suggests that large businesses attaining loans were one of the reasons that the first round of PPP funding ran out so quickly. “I speak to businesses everyday, folks are hurting, a lot of folks who needed money didn’t get it. Larger institutions were put in front of small ones which House Democrats were against,” he said, adding, “Banks make more profit by giving big loans to big companies.” 

According to Thompson, there were some changes made to the PPP when they replenished the programs. This included more financial institutions and $100 billion to hospitals which includes $25 billion for state and local testing. He expressed his surprise that the new PPP funding hasn’t run out, but says it will soon.

According to Mary Cervantes of the Napa-Sonoma Small Business Development Center, which is affiliated with the United States Small Business Administration, the local SBA has been “slammed.” She says, “we’ve received over 400 phone calls since the [Coronavirus] crisis started in mid-March after typically receiving only 10 a week.” She adds, “we’ve worked with clients interested in the PPP. Some clients have received [the money], not all of them, since the program ran out [of funding].”

According to Cervantes, the Napa-Sonoma SBDC works with small businesses in the Sonoma and Napa County areas to continue preparing for the upcoming effects of the virus and helps them with applications and getting eligibility information correct. She said, “the process starts with the business owners filing PPP applications on the SBA, treasury or bank website and submitting them online. Then the banks come back if they need additional information. Once the application is re-submitted, the bank decides the eligibility.” She added, “larger businesses did perhaps impact small business owners, but banks look at [the PPP] like any other loan program.”

Some local restaurants have not gotten any funding yet. Local Santa Rosa restaurant Rosso Pizzeria and WIne Bar owner Kevin Cronin says, “I applied for a PPP loan from the beginning but haven’t been successful.” Cronin says he heard there is no more money, and that he has been waitlisted. He adds that as a result of the virus he had to lay off multiple employees, some who have worked for him over a decade. Cronin called the decision to lay them off “the hardest decision of [his] life.” 

Cronin says regarding the fate of the restaurant, “There are three of us [workers] and we’re doing pretty good.” He adds that he feels “grateful” for all the clients who have helped out, including three who each gave $1,000. He says, “We’re in totally uncharted waters. Larger businesses have high class lawyers who get information to the government quickly. We didn’t have the help and applied for the PPP loan the moment we heard.”

To qualify for loans, the banks use IRS tax filings and documents provided by businesses to provide proof of necessity for the loans, and the SBA provides the loan based off of the information. However, not all businesses that get it need it. Shake Shack received $10 million in PPP loans, yet had $100 million on hand, according to CNN Business. In an open letter from CEO of Shake Shack Randy Garutti as well as Chairman and Founder of Shake Shack Danny Meyer expressed that they returned the $10 million loan. The reason they returned the loan according to them was because of their “ability to access additional capital,” but they defended taking it out, saying, “After careful consideration, USHG opted for PPP loans, taking on the risk in order to higher back laid off employees as quickly as possible.” 

Other companies such as Ruth’s Chris Steakhouse, J. Alexander’s Restaurant Chains and Hallador Energy received $20 million, $15.1 million, and $10 million respectively, according to CNN Business.

Local restaurant Mr. Pickles has been hit hard by the coronavirus, according to owner Eric Vega. He says, “Our sales dropped 25 percent from what they normally are. I had 10 staff members, but after lockdown started, staff members approached me wanting to stay home due to concerns, which left me with six staff members, and now I’m with three staff members.” His company has rebounded to about 60 percent of normal sales, which “is better than being closed,” according to Vega.

“Initially I got down on my hands and knees, and I thought I was going to close down business,” Vega says, regarding the beginning of the shutdown. After a record February, Vega was hoping for even better sales with spring and summer coming. The reason Mr. Pickles was able to stay open was due to “Doordash and [their] online systems already in place.” Mr. Pickles was able to close the dining area, let staff come back to a safer environment and offer curbside pickup. Vega said he has been working 14 hour days just to keep the business open.

As it pertains to PPP loans, Vega says, “The stimulus package was a flop. I’ve replied to banks three times, and each time they responded they were out of funds.” He further explains, “I’ve been with Wells Fargo for two decades and have all my business accounts with them. I went the first night on Friday for the application thinking I was in a good seat, but Wells Fargo didn’t have a link until next Monday morning when I was at work and didn’t have time.” He says he got home late and applied, but the bank was out of funds. Vega has gone through other banks, but has been denied, and he doesn’t think that the newest bank he just applied with will have a better outcome. 

“I had local business people come in and tried to use the program [PPP] as well, but they didn’t receive the loans,” says Vega. “I’m stressed, but I consider myself a lucky one.”

Some smaller banks are also helping to try to attain loans for small businesses. According to the Chief Operating Officer of Redwood Credit Union Cynthia Negri, they are a preferred SBA lender in PPP loans. She says, “We were able to process 1,000 loans.” This came after she said they got 1,000 applications in the first two days of the program which made them open a wait list with 1,200 loan applicants. 

Negri adds, “The SBA really struggled because of limiting guidance to financial institutions and their crashing systems through the first round of funding.” She also mentioned that RCU is hearing that the next round of PPP funding “will be gone in three days.” She is referring to the new $310 billion replenishing of the PPP, which, according to Negri, has $30 billion allocated to smaller financial institutions, $30 billion allocated to medium financial institutions and the rest to larger institutions. However, once the funds for the smaller and medium institutions run out, they can access the rest of the fund as well. Negri says regarding the new separate funds, “It depends on how many small businesses are represented by small financial institutions; $30 billion could be a lot or nothing.”

Negri also adds regarding larger businesses getting loans, “Big banks can input 500 applications in a batch, and drains the funds before smaller banks can get through loans.”

The reason for larger businesses obtaining funds from the PPP was because of the language in the CARES Act saying, “During the covered period, any business concern that employs not more than 500 employees per physical location.”

Representative Thompson said Congress is working on another relief package, mostly for state and local governments to keep funding essential staff efforts, but also mentioned there will probably be a need to add more PPP funding,

Responding to criticism from Senator McConnell about mounting national debt, Thompson says, “I am a fiscal hawk. We can’t just run up the debt, but for the time being we need to respond to the crisis.”

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