The PPP is letting small restaurants and businesses die - Los Angeles Times

The PPP is letting small restaurants and businesses die - Los Angeles Times

The PPP is letting small restaurants and businesses die - Los Angeles Times

Posted: 18 Apr 2020 05:00 AM PDT

Restaurants are among the hardest-hit businesses during the coronavirus shutdown. The National Restaurant Assn. estimates that 3 million restaurant employees lost their jobs in March, a month in which restaurants lost about $45 billion in revenue. The industry is bleeding out.

But while the airlines enjoy a $25-billion bailout, the CARES Act — a federal stimulus package for businesses and individuals affected by the coronavirus pandemic — and its centerpiece, the Paycheck Protection Program, is the equivalent of a Band-Aid — one of the small ones that goes around your finger.

It's leaving local restaurants and other small business owners wondering: Where's the money? In the meantime, large chains like Ruth's Chris Steak House and Potbelly Sandwich Shop are allowed to suck the fund dry, having been granted multimillion-dollar loans.

The PPP is a Small Business Administration loan program designed to give small businesses financial relief. Businesses can apply for up to 250% of their monthly payroll: If your payroll is $100,000 per month, you can apply for a $250,000 loan. The loans are forgiven if 75% of the money is used to pay employees.


Sounds simple, right? In reality, it hasn't worked out that way, particularly for smaller, independent businesses.

After opening applications on April 3, the SBA announced Thursday that the $350 billion earmarked for the program is gone, stating: "The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding."

That leaves many businesses, particularly clients of large banks who prioritize their wealthy clients, in the dark. Fewer than 6% of applicants have received their PPP loans, according to the website COVID Loan Tracker, which has compiled data from 15,000 small businesses. The hospitality industry has fared poorly; despite being among the hardest hit, only 9% of loan approvals have gone to "accommodation and food services," according to the SBA.

The vast majority of the nation's 30.2 million small businesses have been left flapping in the wind. Meanwhile, the rich get richer.


According to a public filing, Potbelly Sandwich Shop, a publicly traded company with 474 locations and 6,000 employees at the end of last year, was approved for $10 million in funds. Ruth's Chris Steak House was approved for $20 million; it subverted the $10-million loan cap by applying through two subsidiaries, according to the SEC filing.

Banks, naturally, will profit. Collecting fees ranging from 1% for loans over $2 million to 5% for loans under $350,000, they stand to make billions from the PPP.

That's left independent business owners bewildered, disappointed and angry.


Andy Ricker, the owner and chef of Thai restaurant chain Pok Pok, wrote that his loan application was on hold and that he and other small business owners had been "snookered by publicly traded companies who received millions and left independent small business in the gutter as the well ran dry."

In Sonoma County, Crystal Nezgoda had a similar experience when she tried to receive money for her Honey Badger Coffee House in Rohnert Park.

"I applied for both the PPP loan and the disaster loan/grant and did not receive either one," said Nezgoda, who has since started a GoFundMe.

Sonny Zaide, owner of Purple Cloud in Chicago, criticized the generous corporate loans on Twitter, writing, "Meanwhile people like me with *actual small businesses*, ie those of us single-person operators who just want a couple thousand just so we can actually feed our families, are SOL."


I spoke to Jill James, owner of small business consultancy Sif Industries, and asked her if the PPP was providing relief for small businesses in need.

"No," she said, "this has not been an effective program to put money in the hands of small businesses."

James, through webinars and online offerings, says she's worked with hundreds of small businesses over the last three weeks, including bars and restaurants. "None of them have gotten money."

But why have loans for companies like Ruth's Chris and Potbelly gone through, when there is so much need within the independent business community?


"I've spoken to bankers across the country," James said. "One of the things the banks did first is put through larger loans."

That has left smaller borrowers shut out.

"I haven't seen anyone with an ask of less than $50,000 get funded," she said. Freelancers and sole proprietors — which include businesses like caterers and food truck owners — are in an even worse position as they weren't able to apply for funds until April 10, a week after loan applications officially opened. They "didn't really get a fighting chance at all," she said.


James herself is a small business owner. She also applied for a loan and has received nothing. "I've been waiting for eight days," she said. "And I know what I'm doing."

The waiting has been torturous. "It makes your confidence crater," she said. "It makes you extremely unsure."

It's not the only instance of small-business owners being left wondering what happened. Go Get Em Tiger, the L.A. coffee chain (that happens to also serve some A-plus food), opened in 2013 and has 128 employees. In the last four years, it expanded to nine locations from two — a perfect example, in some ways, of a young, growing business.

Co-owner Kyle Glanville said he began thinking about how to put money into the bank even before Los Angeles Mayor Eric Garcetti announced the shutdown. He started applying for whatever loans he could get his hands on, hoping to amass a comfortable financial cushion to help weather whatever was about to come.


As for the PPP loan, he said he did everything by the book. Glanville got up at 4 a.m. the day applications for PPP loans opened and started hitting refresh on the computer. At 6 a.m., he was able to get through. By 6:20 a.m., he says, he had submitted it.

When the CARES Act was signed into law March 27, he allowed himself to feel a bit of optimism.

"I truly felt like they designed a program specifically for us," he said.

Glanville contacted someone at Bank of America, GGET's lender, who assured him: "You're the first of my clients to get their work in and I imagine one of the first, period." Approval seemed like a foregone conclusion. "We did all of our diligence, we made sure all of our information is accurate," Glanville said. "We are the target company for this stimulus. Done!"


Days later, no word. A few people he knew who applied through smaller regional banks began seeing approvals. He began checking online and calling about the status of the loan — no updates, and no explanation. Meanwhile, the business, which has transitioned to pickup only, is bleeding money. "It's completely dispiriting," he said.

The money he applied for is needed more with each passing day. "We've managed to prop it up and keep some commerce going," he said. "But only by virtue of not paying rent and deferring bills that will come due at some point. It's an absolutely essential program for us."


Founders Kyle Glanville, left, and Charles Babinski at Go Get Em Tiger's Row DTLA location.

(Al Seib/Los Angeles Times)

Glanville, like James, ticked off all of the boxes. He had an existing relationship with a major bank; he applied the morning the applications went live. If it's this difficult for those experienced with the banking system, what about business owners without banking relationships or those who face language or cultural barriers?


James also emphasized the critical nature of injecting cash into a business quickly and how interminable waiting can cause irreversible damage.

"When you don't get a loan on Tuesday or Wednesday, you have to make decisions. You don't have days and weeks to wait," she said. "It's not just losing your cash; it's losing your people who are the heart and soul of your business."

What now? James said those who were not organized before have a chance to get organized now so they can apply if and when Congress opens up more money for small business owners. They also have time to choose a better funder — a regional bank, or online loan brokers like Kabbage or Fundera.

Those who already applied may be out of luck for now. "Unfortunately, as of this morning, if you don't have an SBA guarantor number, you're probably going to have to reapply," James said. "The queues we had are out the window."


Restaurants, more than any other kind of small business in this country, are symbols of promise. They're frequently opened by immigrants and first-time business owners, non-English speakers, and others simply wishing to feed others and provide for their own families. For many, restaurants and small businesses are the quintessential entrée into the dream of creating a life in America and standing on one's own two feet.

That dream is quickly dying, and our government has been particularly pitiless during this crisis. If we can bail out our bloated airlines, we can bail out our small restaurants. They need money, with few or no strings, and they need it fast. Otherwise, these beloved institutions that give our cities character and drive our economy will go away, and they won't come back.

Stimulus intended to help coronavirus-ravaged small businesses instead rewarding hedge funds, brokerages - Fox Business

Posted: 17 Apr 2020 04:42 PM PDT

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When the chief executive of a midsized bank was briefed on the status of small-business loans being made under the federal government's coronavirus stimulus plan, he nearly hit the roof.

The bank was receiving applications not just from those barely solvent mom-and-pop businesses like restaurants, salons and family-run factories shuttered amid the nationwide pandemic shutdown that the legislation was supposed to help.

Flowing into his system were applications from businesses no one would consider small, or even barely solvent: Midsized hedge funds, brokerage businesses, small law firms, all outfits that are making money, much of it through fee income, and many operating remotely almost as if nothing had changed.


How could this be? What the banker discovered was that with less than 500 employees, financial firms and other high-end businesses are technically qualified for low-interest federally guaranteed loans under the broad parameters of the government's Payroll Protection Program (PPP).

And many were sending applications to his bank for the cash, as much as $10 million in the form of a forgivable loan, even if these weren't the types of small businesses Washington was looking to aid.

Even worse, the hedge funds and brokerage businesses were in effect taking money that should be earmarked for businesses that can barely survive in a time of social distancing and quarantines.

These companies have been forced to lay off workers just to make rent, while many banks were prioritizing loans on a first-come, first-served basis and giving priority to their best customers. That means hedge funds and financial firms with deep pockets and significant banking relationships could be getting the money ahead of the local coffee shop.


"Unlike the local coffee shop, hedge funds and brokerage firms are still earning fee income from their clients," said the banker, a well-known fixture in the financial business, who spoke on the condition that neither he nor his firm would be identified. "And now they're taking money away from people who need it the most."

The banker says he spoke to FOX Business because he is concerned about the inequality gap involving the pandemic stimulus and the social unrest it could create. He said the spending being directed at Wall Street through various Federal Reserve programs as well as the hedge fund loophole in the loan program dwarfs the stimulus designed for Main Street businesses.

And he said it will lead to a widening class divide when the quarantines are over unless the federal government acts and acts fast. If small businesses don't have access to the stimulus funds, they will increase layoffs — many of these employees are minorities and all of them working-class Americans — or face bankruptcy, as is happening today.

Wall Street, meanwhile, has been thriving, with the Dow Jones Industrial Average recovering a chunk of its losses since the pandemic began, the result of unprecedented actions by the Federal Reserve.

"What's going to happen is a class divide we haven't seen in years," the banker told FOX Business. "Remember Occupy Wall Street?" he asked, referring to the sometimes violent protest movement after the 2008 financial collapse and bank bailouts. "These protests will be bigger and more violent because the economic problems are worse and the disparity of the money is favoring Wall Street even more."

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FOX Business reached out to a Treasury Department spokesman on the issue of whether hedge funds and brokerage shops should be tapping into the PPP loan program. The spokesman didn't answer telephone calls and emails seeking comment.

But officials at the nation's big banks did. In a series of interviews, speaking on a not-for-attribution basis, officials at several large New York City-based banks say they are also concerned about the potential for class warfare because of the uneven nature of the Wall Street-vs.-Main Street bailouts.

Even worse, they're powerless to do anything because the Treasury Department is setting the rules that don't distinguish between hedge funds and flower shops that they have no input in developing. "If a hedge fund applies for a PPP loan and qualifies, we have no choice but to make the loan," said one official at a major New York City financial institution.

The banker who alerted FOX Business to the hedge fund loan matter says he's taking a different approach. "I'm telling my people not to make these loans," he said. "Because the pitchforks are coming, and I don't want to be responsible."


It wasn't so long ago that the Trump administration's economic policies of low taxes and less regulation were heralded for creating conditions that led to historically low unemployment, rising wages and a massive stock market rally.

But that was before the coronavirus hit, forcing a near nationwide quarantine and a near-collapse of the $20 trillion U.S. economy.

Small businesses, such as restaurants, coffee shops, butchers, any business that depends on foot traffic, were among those companies most vulnerable to the measures designed to limit the spread of the virus.

And they were maybe the most important part of the economy, accounting for nearly 50 percent of the American workforce.


As the U.S. headed for a possible depression, the response from the government was a massive, albeit hastily designed, set of stimulus programs. The Federal Reserve has pumped an estimated $10 trillion of stimulus through money-printing, slashing interest rates and buying various risky securities in the market, which has had the effect of propping up trading revenues among investment banks, hedge funds, brokerages and private equity houses.

By comparison, the federal government has passed a single $2 trillion spending plan to help individuals through payroll tax credits and free money, while Main Street businesses could apply for billions of dollars in forgivable loans.

Dig deeper into the Main Street relief efforts and the inequality becomes even more glaring: As traders are feasting off of low borrowing costs thanks to the Fed, mom-and-pop businesses are facing reams of bureaucratic red tape to get a piece of a relatively small chunk of money, the $350 billion set aside for the payroll protection program.

The loans are forgivable if the business doesn't lay off its workers, but layoffs are often inevitable because the government checks only go so far and many didn't get the money before it ran out earlier this week.

The relatively small size of the business loan program meant that banks had to prioritize lending to either their best customers or those who showed up first. Hedge funds and other financial businesses often get preferential treatment because they use banking services more than say a local hairdresser, bankers concede.

It's unclear how hedge funds and independent brokerages and other high-end businesses applied for the loans. Hedge funds, for their part, are investment pools that cater to so-called qualified investors, or the wealthy. They are exempt from most regulatory restrictions and can take extra risk in the markets.

Most of the $3.2 trillion industry is dominated by global players who employ more than the program's employee limit of 500.

That said, there are ways even big hedge funds are benefiting from the PPP loans. Bankers tell FOXBusiness that many hedge funds are minority investors in lucrative small firms that could -- and have -- qualified for the loans.

Congress is now hammering out the details of another $250 billion in federal money earmarked for low-interest small business loans, but based on the demand for the first leg of the program, this money will not be enough to meet demand, bankers say.

Meanwhile lawmakers have also shown little interest in fixing rules that could focus funds on traditional small businesses, the bankers concede.


Meanwhile, FOX Business has learned banks are bracing for legal liabilities because they are associated with a plan that is riddled with red tape, relatively small in size and so broadly written that hedge funds can get the money before genuinely small businesses.

And they say the class warfare situation could be even more acute than what they faced in the aftermath of the 2008 bailouts -- the Occupy Wall Street movement and a large-scale regulatory crackdown as Fed stimulus pushed up stock prices but Main Street businesses were mired in the worst of the Great Recession.

Recall, the 2008 financial crisis jolted the U.S. economy, but it largely remained open for business. The pandemic has caused much of the U.S. economy to shut down. The bailouts have benefited market speculators, while small businesses are fighting for crumbs.

And many of those crumbs are falling into what some on Wall Street have been arguing are the wrong hands. Bankers tell FOX Business that everyone from LLCs owning yachts that employ chefs and other personnel to small law firms are applying for the money in addition to financial firms.

Most are doing so as they make money -- and quietly, not looking to draw attention to their efforts. But former Trump Communications Director Anthony Scaramucci, the managing partner of SkyBridge Capital, a so-called fund-of-funds that invests client money into hedge funds, doesn't see a problem with financial firms receiving low-interest loans.


Scaramucci recently told Bloomberg he thinks hedge funds getting loans "might make sense." In another interview, Scaramucci told MSNBC, "Just because the business has a name, private equity or hedge fund manager, doesn't necessarily mean that they're loaded with rich people" who are their employees.

Scaramucci didn't return telephone calls and text messages asking whether Skybridge has applied for PPP funds, but he makes a good point: Many people who would be considered middle-class work for financial firms in various capacities and could be harmed by the pandemic shutdown if their business closes.

And the market volatility that has zig-zagged stock and commodity prices could put many mid-sized hedge funds out of business.

But bankers tell FOX Business that hedge funds and financial firms do not face the same dire economic circumstances as traditional small businesses. Financial firms can easily work remotely; their biggest overhead isn't a building, but humans who can trade from home as easily as in the office. And even while the Main Street economy is shuttered, Wall Street is open 24-7. That allows these firms to make money on fees for trading client accounts.

"The rules written by Treasury were so broad that anyone can qualify," said a banker who spoke on the condition of anonymity. "All they had to do is tell us to lend to people who weren't making money. Instead, they just threw money at the problem and not enough at Main Street."



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