Loans For Small Businesses During Pandemic – Here’s How the Small Business Loan Program Went Wrong in Just 4 Weeks Not-so-small companies like Shake Shack and organizations like the LA Lakers were able to get loans designed for struggling small businesses. What happened?
Signage on a storefront in Gross Point Woods, Michigan. The Paycheck Protection Program, which aims to help small businesses weather the coronavirus crisis, has run into problems. Paul Sancia/AP hide caption
Loans For Small Businesses During Pandemic
Signage on a storefront in Gross Point Woods, Michigan. The Paycheck Protection Program, which aims to help small businesses weather the coronavirus crisis, has run into problems.
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Trish Pugh started a trucking company in Ohio with her husband in 2015. Even for a small business, that’s not enough — they had two drivers, including her husband, until they laid off one due to the coronavirus crisis.
And so her company applied for a loan under the first round of the $349 billion Paycheck Protection Program created by the federal government to bail out small businesses.
First, there was confusion between her, her banker, and the Small Business Administration as to which forms needed to be submitted. And then, as soon as she did, she soon discovered that she had run out of money.
“I click on this website and it says I need to reapply when more funds become available. I was devastated,” she said.
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Not only did the first PPP money bank run out after 13 days, self-employed people like Pugh could only apply after a week.
“Basically, we’re getting ready to lose everything, which is very sad because we did it all ourselves to begin with,” Pugh said as she prepared to file for the second phase of the $321 billion program. “Now that we need help, we can’t get help.”
Pugh has since revealed that she ended up with a loan of just over $10,000. She’ll help, but she’s not sure how long her business will last.
Frustrations like Pugh’s have been common since the small business bailout began. But her experience was only a small part of the problems that plagued the PPP in the first round when the program ran out of money, as well as the shaky start to the second round. Here is the list:
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The PPP was created to allow any company with fewer than 500 employees to receive loans. However, several larger businesses operating with fewer employees in different locations on a franchise model have also applied for and received loans. Shake Shack, for example, employs about 8,000 people in 189 U.S. restaurants, but only about 45 people in each.
So the chain applied for and received a $10 million loan from the SBA, causing a public outcry, especially after evidence emerged that many small restaurants that needed the money could not get loans. Shake Shack quickly returned the money. The company, which has $104 million in cash and liquid assets, said it secured other loans to cover the money that was supposed to come from the SBA.
Similarly, the Ruth’s Chris Steak House chain, which has about 5,700 employees, received a total of $20 million and also gave it back.
There were other organizations that weren’t exactly what most people would call a small business. So is the Los Angeles Lakers basketball team, the eighth most valuable sports team in the world, worth $3.7 billion, according to Forbes.
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But the Lakers applied for and received a $4.6 million small business loan. Once again, after reports, the Lakers decided to bring him back.
“As soon as we learned that the program funds were exhausted, we repaid the loan so that the financial support would go to those most in need,” the group said in a statement.
Shortly after public outrage at large and established businesses escalated into a roar, the SBA announced it would pay more attention to PPP loan applications over $2 million.
Even though tens of thousands of small businesses were excluded from the program, banks have earned more than $10 billion in fees, according to an analysis of financial reports.
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SBA-guaranteed loans carry very little risk, and banks were willing to lend larger amounts, which entailed higher fees.
Big companies, as we now know, took out loans. Now it turns out that companies didn’t have to struggle to get credit.
Chembio Diagnostics, a Long Island, New York-based company that tests for infectious diseases, has received nearly $3 million from the program.
It was just the kind of cash injection the company needed to grow. “To be able to increase our production capacity, we thought it would be very helpful to have that additional dollar amount or loan,” said Gail Page, a Chembio board member and former acting CEO.
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The problem is that the program was not designed to help companies grow. It was aimed at saving small businesses, noophytes and the self-employed struggling to get a paycheck or pay benefits and utilities.
Business owners who were lucky enough to receive funding say the money kept their business afloat. However, some owners also said that PPP rules do not allow them to use the money as they see fit.
Among their biggest demands: 75% of the amount forgiven for loans must be spent on payroll. The rest can be spent on only 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 or no work for their employees.
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“I understand that it basically encourages us to put 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 the local government doesn’t allow to operate like it used to, you have to take that into account.”
To further complicate matters, some businesses and financial professionals do not know whether loans should be repaid or forgiven. They were awaiting further details from the SBA on how the forgiveness would work.
“In a way, they really put these small businesses in a very compromising position because they might end up in a situation where they go out and spend dollars to put people back on the payroll, which ultimately won’t be forgiven in the end. ” said Don. Stevens, managing director of private banking at accounting firm CohnReznick.
It is important that businesses understand all of this soon. Forgiveness calculations will be based on how businesses spend their money within eight weeks of receiving it. The program began April 3, leaving about four weeks before the first businesses must report their spending to the SBA.
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And just when you think it couldn’t get any worse, the site crashed on the first day it reopened for its second round of funding on April 27. as business owners, their plans for the future and how their business has moved away from current affairs.
We then compile this information into our annual Small Business Trends report to help us paint a picture of America’s small businesses. Here are our current small business trends for 2023:
What inspires Americans to become business owners and motivates them to “take the leap”? Our report shows that business owners initially started business because they were “willing to be their own boss” (28%) and were generally dissatisfied with corporate America (23%). These incentives show that more and more people are ready to leave the corporate lifestyle and take control of their careers.
Many were inspired to become business owners to pursue their passions (13%). In contrast, others reported that they were motivated to start a business because they were laid off (10%) and were not ready to retire (10%).
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Fewer entrepreneurs switched to running a small business because an opportunity presented itself (9%), were inspired by a new business idea (4%), or experienced a life event such as a divorce or death (2%).
Millennials are considered by many to be very entrepreneurial. But the gap between millennial business owners and previous generations is still wide. According to our research, Baby Boomers (39.63%) and Generation X (47.20%) make up the majority of small business owners. Millennials made up nearly 13% (12.92%) of our survey sample.
While the generational gap between business owners remains significant, the number of millennial business owners increased by six percent compared to last year’s Small Business Trends survey, showing promising growth. And we may see more millennials enter the business scene in the coming years. According to Bloomberg, the average age to start a business is 35.
On the other hand, the number of baby boomer business owners decreased slightly compared to last year (-5.95%). A large retirement may explain this decline, as an estimated 28.6 million Baby Boomers left the labor market and retired in