Companies with thousands of employees, past penalties from government investigations and risks of financial failure even before the coronavirus walloped the economy were among those receiving millions of dollars from a relief fund that Congress created to help small businesses through the crisis, according to a new analysis.
The Paycheck Protection Program was supposed to infuse small businesses with $349 billion in emergency loans that could help keep workers on the job and bills paid on time. But at least 75 companies that received the aid were publicly traded, the AP found, and some had market values well over $100 million.
The program was designed for companies with less than 500 employees, but restaurants and hotels were exempt from that limit if they had less than 500 employees per location.
The owners behind large restaurants chains like Potbelly, Ruth’s Chris Steak House and Taco Cabana were able to qualify despite employing thousands of workers and get the maximum $10 million in loans.
Shake Shack, after revealing it had been granted a $10 million loan in a regulatory filing on Friday, announced Sunday that it would return the money after facing public backlash.
Funding for the PPP ran out last week, but on Tuesday Democrats and Republicans in Congress reportedly reached a deal to add $310 billion in small-business loans.
Senate Minority Leader Chuck Schumer claimed that of that funding, $125 billion will be sent ‘exclusively to the unbanked, to the minorities, to the rural areas, and to all of those little mom and pop stores that don’t have a good banking connection and need the help.’
Overall, 25 percent of the public companies identified in the AP analysis as receiving PPP funds had warned investors months ago – while the economy was humming along – that their ability to remain viable was in question.
By combing through thousands of regulatory filings, the analysis identified the 75 companies as recipients of a combined $300 million in low-interest, taxpayer-backed loans.
Eight companies, or their subsidiaries, received the maximum $10 million.
The size of the typical loan nationally was $206,000, according to U.S. Small Business Administration statistics. If companies meet benchmarks such as keeping employees on payroll for eight weeks, the SBA will forgive the loans.
The public companies identified in the analysis is a fraction of the 1.6 million loans that banks approved before the program was depleted last week, but it is the most complete public accounting to date.
Lawmakers from both political parties are negotiating an additional relief package that in large part would replenish the Paycheck Protection Program.
Representatives of the SBA did not respond to a request for comment late Monday.
Last Friday, Treasury Secretary Steven Mnuchin said in a written statement that 74% of the loans were for less than $150,000, demonstrating ‘the accessibility of this program to even the smallest of small businesses.’
The review also found examples of companies that had foreign owners and that were delisted from U.S. stock exchanges, or threatened with removal, because of their poor performance. Other companies had annual losses for years.
Since launching April 3, the relief package has faced criticism about slow loan processing, unclear rules and limited funding that left many mom-and-pop businesses without help.
By design, the Paycheck Protection Program was meant to get money out quickly to as many small businesses as possible, using a formula based in part on payroll size.
Some other big companies that received loans appeared to have enough cash on hand to survive the economic downturn.
New York City-based Lindblad Expeditions Holdings, for example, a travel company with 650 workers and a branding deal with National Geographic, got a $6.6 million loan. At the end of March, the business reported having about $137 million in cash on its balance sheet.
‘When this crisis hit, we had two business planning cases: 1) substantial layoffs and furloughs or 2) receiving these funds and not impacting our employees,’ spokeswoman Audrey Chang wrote in an email. ‘Lindblad is the very rare travel company that has not imposed any layoffs, furloughs or salary reductions to date.’
Five of the companies AP identified were previously under investigation by financial and other regulators, including firms that paid penalties to resolve allegations.
Quantum Corp., a data storage company based in San Jose, California, that has a workforce of 800, paid a $1 million penalty last December over allegations that accounting errors resulted in overstated revenues. Quantum received a maximum $10 million loan.
Without that loan, ‘we would most certainly be forced to reduce headcount. We owe it to our employees – who’ve stuck with us through a long and difficult turnaround – to do everything we can to save their jobs during this crisis,’ company spokesman Bob Wientzen wrote in an email.
Broadwind Energy, a suburban Chicago maker of wind turbines that employs about 520, agreed to pay a $1 million penalty five years ago after the SEC accused it of failing to inform investors that reduced business from two major customers had caused ‘substantial declines’ in its long-term financial prospects.
Broadwind, which could not be immediately reached, received $9.5 million from the loan program.
Marrone Bio Innovations, a biopesticide company in Davis, California, that has about 50 workers, similarly agreed to pay $1.8 million in 2016 after the SEC alleged its chief operating officer had inflated financial results to hit projections that it would double revenues during its first year as a public company. Marrone received a loan worth $1.7 million.
Pam Marrone, the chief executive, said the company ‘shouldn’t be punished’ for what happened with the SEC because it has had clean audits for years now.
She described the investigation as a ‘body blow’ that cost it investors and drove its stock price under $1. She said it has had to take on $40 million in debt and is still digging itself out of the financial hole.
‘People don’t realize how tough it is to be a small public company like us that’s not yet profitable,’ she said. ‘We can’t just go to investors and say, ‘OK, open up your wallets.’ ‘
The AP analysis found that about 1 in 4 of the companies had warned investors months ago that they or their auditors had significant doubts about their ability to meet financial obligations.
One was Enservco Corp., a Denver-based oil and gas industry firm. In its annual report filed last month, Enservco said it does ‘not generate adequate revenue to fund our current operations.’
Chief executive Ian Dickinson said his company wouldn’t have folded without the $1.9 million loan it received. But, he said, he welcomed the money and would’ve had to let go more employees than he already has without it.
‘Our employees are really no different than the employees of a nonpublic company,’ Dickinson said. ‘These are funds being used to keep folks on payroll and keep food on their tables.’
More than eight million restaurant workers – TWO-THIRDS of the workforce – have been laid off or furloughed due to the coronavirus pandemic
More than eight million restaurant workers – two-thirds of the workforce – have been laid off or furloughed due to the coronavirus pandemic, as the industry has suffered the most dramatic sales and job losses than any other industry since the outbreak began.
Shock figures released by the National Restaurant Association Monday show that restaurant sales have plummeted by an estimated $80 billion through March and April, after stay-at-home orders closed non-essential businesses across the US.
Workers are urging Congress to step in and grant a $240 billion recovery fund to save their businesses, as many restaurants have been left with no choice but to shut their doors for good.
At least 22 million Americans across all industries are now out of work as tough measures to control the coronavirus outbreak wiped out 13.5 percent of the workforce and 10 years of job growth.
The dire NRA statistics suggest a third of all job losses are in the restaurant industry as shelter-in-place orders in 48 states meant restaurants and bars were among the first to close their doors.
Four in ten restaurants have closed, while the remaining are grappling to stay afloat through online delivery and take-out orders permitted under shutdown rules.
Industry sales plummeted by $30 billion in March when lockdowns started, with an extra $50 billion expected to be lost in April, according to the NRA.
By the end of 2020 and based on a gradual reopening of the economy in June, restaurants will have lost a staggering $240 billion.
Workers and the industry association have warned that federal aid for laid-off Americans is not enough to ensure the industry’s survival – 61 percent of restaurant owners say federal relief programs including small business loans have done little to enable them to keep paying staff amid the crisis.
Several national chains, including Shake Shack, Potbelly Sandwiches, and Ruth’s Chris Steak House, have been granted loans of up to $10 million from the government.
But most independent and family-run restaurants have been left without a dime.
The government announced that it had run out of the $349 billion set aside for small businesses, which had been designed to enable small businesses such as restaurants to keep paying their staff.
The NRA is pleading with Congress to create a $240 billion ‘Blueprint for Recovery’ plan for the industry in Phase Four of the US’s coronavirus recovery plan.
In a letter addressed to House Speaker Nancy Pelosi, Senator Mitch McConnell, Representative Kevin McCarthy and Senator Chuck Schumer Monday, the industry is calling for adjustments to the Paycheck Protection Program (PPP), including greater flexibility on repayment due to mandated closures, and the creation of a tax credit or grant program for restaurants that adhere to safety guidelines that can cut into revenue.
‘The restaurant industry has been the hardest hit by the coronavirus mandates—suffering more sales and job losses than any other industry in the country,’ Executive Vice President of Public Affairs Sean Kennedy wrote to bipartisan congressional leaders Monday.
‘As past recoveries have proven, we will be one of the slowest to bounce back. For an industry with sales that exceed the agriculture, airline, railroad, ground transportation, and spectator sports industries combined, a restaurant relief and recovery program is desperately needed.’
He added: ‘Each of you has a favorite restaurant in your home state—one that exemplifies your culture, your cuisine, and your community. The restaurant industry epitomizes the American dream, but it is uniquely vulnerable to both the current circumstances and the future uncertainty of dining in an era of social distancing.’
Fears are also mounting for the restaurant workers still in jobs, who find themselves at increased risk of exposure to the deadly virus as they travel to and from work on public transport and deal with members of the public buying takeout.
As some states announce plans to relax lockdown rules, these frontline workers and the restaurant owners are left facing a choice between saving jobs and saving lives.
Georgia Governor Brian Kemp announced Monday that restaurants in the state can reopen dine-in service on April 27.
Concerned staff have taken to Twitter to voice their concerns, with one person saying: ‘As a restaurant worker in GA…I am scared for my life right now…’
Another employee issued a plea to the public to wear masks if they come to restaurants to pick up food.
‘Being a fast food restaurant worker is hard as is, and right now it’s even harder… PLEASE PLEASE if you need to make a trip to an essential business WEAR A MASK or some type of face covering…being an essential worker during this pandemic is hard.’
Restaurant workers are far from alone in losing their livelihoods, as unemployment skyrockets and the economy teeters on the brink of collapse.
At least 22 million Americans have been thrown out of work in four weeks, wiping out 13.5 percent of the US workforce and 10 years of job growth.
There were 5.2 million new claims for unemployment benefits filed in the week ending April 11, according to the latest Labor Department figures released on Thursday.
The staggering number of first-time claims was on top of the 16.8 million applications filed since the virus took hold in mid-March.
Economists say the unemployment rate could reach as high as 20 percent in April, which would be the highest rate since the Great Depression of the 1930s.
While accurate records didn’t begin until 1948, economists say the unemployment rate rose to 25 percent in 1933.
The latest figures released on Thursday mean that about 13.5 percent of the workforce have filed for unemployment in four weeks.
In comparison, unemployment never topped 10 percent during the Great Recession between 2007 to 2009. The latest jobless claim figures show the coronavirus has now wiped out nearly 10 years of job growth since the Great Recession.
Unemployment from the coronavirus collectively constitute the largest and fastest string of job losses in records dating to 1948.
‘It’s a slap in the face’: Small business owners vent fury that big chains pocket millions while they are left waiting
Small business owners across the country are infuriated that big companies received so much precious financial aid while they were left out in the cold.
‘When I hear that these big chains are getting millions of dollars, it’s like a slap in our face,’ said Ram Mehta, owner of In-Fretta Pizza outside Dallas, in an interview with DailyMail.com. ‘It’s not fair.’
Mehta said he had applied for the PPP in early April and never heard back before the funds were exhausted.
Meanwhile, he is keeping his entire staff on using his personal savings, and donating free pizza and pasta to anyone who says they’re out of work and can’t afford to eat — no questions asked. ‘In Dallas, a lot of people are struggling,’ he said.
Melissa Braber, who owns a pet supply store in Philadelphia, told DailyMail.com that she needed just $5,700 to try to keep her three employees on payroll during the crisis – but was denied funding through the PPP because the funds were exhausted so quickly.
‘It’s a shame those companies took advantage of the loan because businesses like mine really need it to withstand this crisis,’ she said of publicly traded companies that snapped up millions in federal aid.
Braber is borrowing money from a family member to try to get her small business through the crisis, and hoping more federal aid will be available soon.
John Lawless, the co-owner of an optometric office employing six people in Chester County, Pennsylvania, is also still waiting for federal aid.
‘We have continued to pay all employees at your full rate despite not having any income or assistance from the government,’ Lawless told DailMail.com.
‘We’re shocked at the greed of large corporations to take away money that is vital to the small businesses that are critical to restart the economy,’ he added.
In San Francisco, Ramin Broumand has operated a car service since 2005, employing 44 people and mostly ferrying tourists and business travelers to and from the city’s hotels.
Despite a longstanding relationship with Bank of America, Broumand tells DailyMail.com that he has heard nothing back on his federal aid application.
‘We have been closed since March and I have no idea if we can reopen. It is definitely not possible without a loan, doing business in San Francisco was challenging enough without having this added to our misery,’ he said.
‘The whole process has been a complete nightmare and no one seems to know what is going on or have any answers,’ said Heather Noel, an eyelash artist who operates a sole proprietorship in Southern California.
Noel said that she has turned to a Facebook group of frustrated business owners for support and advice, where thousands gathered to vent their fury.
‘It is truly disgraceful that these large publicly traded businesses are receiving funds when they were meant for small businesses,’ she told DailyMail.com. ‘So many of us can’t pay our rent to keep our shops while we are in the shutdown.’
In Chicago, Jeffrey Smith, the proprietor of boutique furniture retailer Haute Living, applied for the PPP as soon as the application process opened.
Weeks later, he has heard nothing back despite an impeccable credit history and strong relationship with his bank, PNC, he said.
‘I am still paying all of my employees while we have very little work. I wonder if the same may be said for Potbelly or Ruth’s Chris?’ he told DailyMail.com.
Zachary Davis, a Santa Cruz, California businessman who runs two artisanal ice cream shops, a beachside café and a taco bar with partner Kendra Baker, also expressed his frustration.
Before a shelter-in-place order in mid-March, Davis and his partner expected to pay off in May a $250,000 federal loan they used 10 years ago to open their original shop.
‘Now it’s just all turned upside down,’ said Davis, who had to lay off 70 workers.
Davis and Baker submitted a Paycheck Protection Program application on April 2 – but are still waiting.
‘If you´re a little guy, chances are you´re going to the back of the line,’ Davis said.
Karen Kerrigan, president of the advocacy group Small Business & Entrepreneurship Council, said the PPP program is flawed and has obsolete rules.
‘Some of these rules and provisions disproportionately hurt the chances of the smallest of businesses accessing this capital, or not getting sufficient and proportionate relief to help salvage their businesses,’ she said.
SOURCE: Daily Mail – Keith Griffth, Associated Press