SBA Grants Unused Because Businesses are Fearful of the Rules

Mish

Many companies with approved SBA loans will not touch the money. They are fearful of the rules.

"It's chaos," said one lawyers as Small Businesses That Got Aid Fear the Rules Too Much to Spend It

Consider the plight of George Evageliou, the founder of a custom woodworking company. Last month the SBA awarded him with a $192,000 loan 

Under the rules, he has 8 weeks to spend the money. For the loan to be forgiven, he has to pay salaries. But his business is closed.

 Evageliou, and other businesses are fearful of paying workers money to do nothing. 

The government has “made this so hard to use, it starts to feel like a lose-lose situation," said Evageliou.

 Owners also say they are afraid of running afoul of the program’s rules, which are complicated, ambiguous and still evolving. Accountants, lawyers and lenders are struggling to understand the nuances and offering clients tentative guidance.

“It’s chaos,” said Howard M. Berkower, a New York lawyer who advises corporate clients. “It’s impossible for businesses to have any degree of comfort that they’re following the rules when the rules are still being written.”

Clarification From the SBA

“As long as they’re using the funding for the operating expenses of the business, our interpretation — and we think it’s clear — is yes, you can use it as effectively a working capital loan,” said John Asbury, the chief executive of Atlantic Union Bankshares, a community lender in Richmond, Va.

But officials at Treasury and the S.B.A. won’t confirm that interpretation. Asked repeatedly if companies can simply hold on to the money for now because paying employees doesn’t make sense to them, an S.B.A. spokeswoman would say only that the funds must be used for purposes “consistent with the Paycheck Protection Program.”

Coyote Ugly

The owners of bar chain Coyote Ugly received a grant ranging from $40,000 to $120,000. The workers were more than a bit upset when they were all furloughed.

But what's the point? That money would all have been exhausted in a few weeks or less.  and bars are still closed. 

Hundreds of thousands of dollars remain deposited in Coyote Ugly’s bank accounts, unused.

Fraud

Is paying workers for doing nothing fraud? 

No one seems to know, and besides, what good would it have done anyay?

Small Business Guarantees Are a Bucket of Moral Fraud

On April 9, 2020 I wrote Small Business Guarantees Are a Bucket of Moral Fraud

That idea did not take too long to prove. 

Also recall Stimulus Checks Delayed To Get Trump's Signature On Them.

And as long as it is OK to pay workers for doing nothing, we may as well start Trump's New Idea: Pay Drillers Billions to Leave Oil in the Ground.

And when the loans run out and the rent is due. what then?

Mish

Comments (56)
No. 1-18
tokidoki
tokidoki

Finally, as I said before, another thing that both parties agree on.

So far both agree on the following:

  1. Killing small businesses is good business.
  2. Foreign countries are BAD.
  3. Big businesses are awesome.

Rent was yesterday by the way and so far, crickets. Whatever happened to those rental strikes, etc.

pvguy
pvguy

Yes it is OK to pay workers to do nothing.

"The FLSA doesn’t actually define what work is, but it does explain that “there need be no exertion” involved and that employers may even “hire a man to do nothing, or to do nothing but wait for something to happen.”

There was a case that went to court where the employer required a receptionist to eat lunch at her desk, but didn't want to pay her because usually no one called. Since the employer required her to be at her desk, he had to pay her her time.

So that one is covered.

wootendw
wootendw

"And when the loans run out and the rent is due. what then?"

And decent food is difficult to obtain.

That's when the public will finally stop supporting the shutdown - which will be about a month before they also realize that the virus is not that deadly.

Half the people probably have it already. That includes those shut down and a lot of those who call beach-goers and people like me, 'covidiots'.

Lawyermoody
Lawyermoody

Too many mixed motives here. Govt thought it had some kind of obligation because it required the public to obey stay at home orders. Free people with a First Amendment Right of Free Assembly thought they had to obey an obviously unconstitutional order. Two wrong thoughts are not adding up to the correct outcome.

MATHGAME
MATHGAME

Free people with a First Amendment Right of Free Speech do not necessarily have the right to yell FIRE! in a packed movie theatre.

Free people with a First Amendment Right of Free Assembly do not necessarily have the right to assemble wherever they please in the middle of a rapidly spreading pandemic.

I'm not a lawyer so take it up with those who are ...

davebarnes2
davebarnes2

Some people took the "don't touch the tar baby" story to heart.

Jojo
Jojo

Story in a similar vein:

MAY 1, 2020 / 4:16 AM
For small business loan program, forgiveness may be the hardest part

WASHINGTON (Reuters) - The U.S. government’s $660 billion small business rescue program has stumbled on missing paperwork, technology failure, and the misdirection of funds to big corporations. Now, it is lurching toward another hurdle: forgiving those hastily arranged loans.
....

Mr. Purple
Mr. Purple

The federal government response to this catastrophe has been so perfectly incompetent that a national tax revolution is 100% justified. WTF are we paying for?

Jdog1
Jdog1

It is not that business is fearful of the rules, it is that the American people are fearful of their government.
When the government fears the people, you have freedom, when the people fear government, you have tyranny.

Sechel
Sechel

The program was hastily dreamed up. Trump refuses oversight which should be grounds for impeachment in my view(again) and if there's public outrage over a particular recipient Trump shames the companies publicly...afterwards. Making Harvard return the money was ridiculous. They followed the rules, it was for the students per the rules Congress laid out. There were far more egregious examples.

The big banks are calling up their best customers so established relationships are at the front of the line. This should have been easily anticipated.

Yea I'd call this a shit-show.

Greenmountain
Greenmountain

I sit on the Board of a small company and we did get a loan, and are using it, while not fully understanding the rules. So for us it really helps. We are a small grocer and open. However to keep employees had to increase salaries - not sure how that will work for the long term but for the short term with the loan paying the salaries it is ok.
And a lot of increased costs to address Covid-19 health issues. I think being in a small state helped us get the loan.

lol
lol

After a dozen years of "recovery"."... a "booming' economy.hundreds of trillions printed..virtually everything in the US(literally)is bankrupt or completely insolvent,every state is broke,federal govt flat ass broke,corporations broke.....after a dozen (12) years of longest (lol)"economic expansion" in history!!!!

Carl_R
Carl_R

The details of the rules aren't complete clear, but the general rules are, and the spirit of the law is. You have to consider the PPP in light of the excess unemployment money. First the government makes it so if I lay someone off they earn 3x their normal salary. Then they give me money to give to them at their regular salary. It is much, much cheaper for the government if they have me pay the the employees for doing no work instead of having them end up on unemployment.

With that it mind, the intent is clear. The PPP loan is actually not a "gift" to small business at all, it's a form of payment to employees that flows through the small business. Does the business get any benefit from it? Yes, a little. First, they can spend up to 25% of it on themselves, for rent, utilities. and mortgage payments. Second, any revenue they get during the 8 weeks is theirs to keep, with no payroll expenses. If there is no revenue at all,that doesn't help a lot, but they still get the benefit of the money for rent, etc.

What am I doing? My employees have been getting 50% paychecks, approximately, and I haven't laid anyone off. I told them that for the next 8 weeks they will get full paychecks, whether they work 3 hours a week or 15 hours a week or whatever. I computed their average pay for last year, and they will get paid the max of what they earn this year or their average pay last year. My headcount will be the same as last year. Since I am following the spirit of the law, and so far as I can tell, the letter of it, I expect the portion of the loan that applies to payroll to be completely forgiven. I own my own building, and have no mortgage, so the other 25% that is intended to benefit the small business itself will not benefit me much at all. It will pay my utilities, and that's it.

So, if i get so little from it, why did I bother? I did it to help my employees. Having them get full pay for nothing will help them get through this. Laying them off, they would earn a lot more, but only until the benefits run out. After 8 weeks, we'll go back to paying them for the actual hours, obviously, and those will most likely be less than a year ago, but for at least a little while, they will have full checks. Then, at the end of the 8 weeks, I will pay will need to pay back the remaining 20%, since I don't have rents, etc to use it on, with and interest rate of 1%.

If people didn't realize that the point of the PPP was for them to pay the employees for no work, they didn't read it very well. That is exactly the point, and the reason it is good for government to pay the employees, using the small business as a conduit, is that it is cheaper than unemployment, by far.

Sechel
Sechel

The more I think about it the more I think the best solution would have been to permit companies to idle employees and have the government write more checks to workers. Many would have been rehired later once we-open and in the meantime they spend the money which keeps the economy going. The solution is way too complex with money to companies, rent freezes etc Feels like a huge Rube Goldberg experiment to me.

Rbm
Rbm

What i dont understand is why give out forgivable loans with cloudy rules etc. why didnt they just have them go on unemployment like everyone else. Where the rules are in place. Then help employers out once they reopened.

Self-employed 1
Self-employed 1

I really believe that it is up to the business to create a legitimate solution to this problem. Instead of dropping the ball and losing the funds. You should just transfer the payroll monies needed for your employees when they return. If it sits in the account untouched it will appear to be not needed.
It is perfectly legitimate and I believe that the government perhaps thought that the businesses would use their wits to figure it out. If not then, I'm believing that it will work. Be sure to only use it when employees return. For the time being they can apply for unemployment. If you are thinking about them not wanting to return because unemployment benefits may be more, put a little raise in for the return perhaps 8 weeks worth.
That way you won't be penalized for not using the funds and your employees will be paid on their return.
Makes sense?😊

dontcare1955
dontcare1955

WOW! If the business does not intend on using it for paying employees, utilities, etc, then the business should not have applied for it. Use the money strictly to pay the employees. Especially if they are working! And all is forgiven. That simple.

Herkie
Herkie

They are right to be afraid. Everyone knows I just moved from Oregon to Florida, back in early March I used Spectrum.com to transfer my service for phone, TV, and internet from the old address to the new, and mailed the equipment back to Charter Spectrum because they had closed the offices for that function, for the duration of Covid you have to mail them in by FedEx, and it is free to you, but you have no other option. And you also have to go to FedEx because they have special shipping packs with preprinted labels.

Well I am now at one month since closing on the house today and yesterday the property manager at the old place sent an email DEMANDING I contact Spectrum and close out my old account because the new tenants can't start their own Charter services till I do.

Since they withheld (stole) about 600 bucks of my deposit I politely (well not exactly politely) invited them to please go instert that rental unit rectally and have sex with it. I did transfer my service a month before moving I set it up and I did all I can and am supposed to do. Sending me a nasty email because Charter did not do it's part is NOT going to help.

Nevertheless I did call Charter Spectrum at 611 and waited on hold for about 95 minutes only to be told by the reprasetitive I was at the wrong place and could not be transfered, I had to dial 877 xyz-ious and so pissed but still under control I did that. Had to be done though as it appears I am being billed for two accounts.

HOURS!!!!! Later I finally spoke with Ashley who was cool and helpful, it was past 10 p.m. by then and I was really hot under the collar. No service industry can survive with customer services that bad. But till I can find an alternative I can afford I am stuck. And that is why all of us should be afraid to take bailouts and borrow to get through. You will still be held to all the rules and old standards even when the companies and agencies of government are simply not performing to the minimum standards of diligence. Like United Airlines telling people they are stuck with worthless vouchers instead of cash refunds for flights THEY cancelled. TFB yo did not call in to request one in the time alloted. Never mind the 7 plus hour hold times they force upon us knowing 98% of callers will hang up long before that, or phone batteries will have long since died.

That is but one example. I have the veteran's admin for my healthcare. But pretty much the moment Covid was recognized as a pandemic they closed their doors, shut down, stopped seeing patients. I have to ask you what good is a HEALTHCARE system if it shuts down the moment people start getting sick? I am left basically without healthcare till this is all over.


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