NEW YORK (AP) – Billions of dollars offered by Congress as a lifeline for small businesses trying to survive the pandemic are about to stay on the table when a major government program stops accepting credit applications.
Entrepreneurs and interest groups complain that the money in the Paycheck Protection program was not fully used because the program created obstacles that prevented countless small businesses from signing up. For those seeking loans, the ever-changing application process proved to be a useless exercise.
“For a start, it was a flawed structure,” said John Arensmeyer, CEO of Small Business Majority, an advocacy group. It preferred established companies. It is designed to give money to people with strong banking relationships. ”
The program’s shortcomings also made it more difficult for minority companies to obtain loans, according to a report by the Center for Responsible Lending, a research group.
The loans were intended to give companies destroyed by government-ordered closings money to pay for staff and survive. The money was earmarked for small businesses such as restaurants, retailers and salons who are desperately trying to survive as the US economy reopens in fits and starts.
As of Friday evening, the Small Business Administration had approved more than 4.7 million loans worth nearly $ 518 billion. Small businesses that also include medical offices, dry cleaners, and manufacturers obtained money that ultimately saved jobs and lowered unemployment from a whopping 14.7% in April to still unbearably 13.3% in May.
But more than $ 140 billion in loan money was not claimed from the $ 659 billion allocated by Congress. It is up to Congress to decide what to do with leftover funds, an SBA spokeswoman said.
Some banks rejected companies that did not have multiple accounts. Sole proprietors and freelancers had to wait a week before signing up, and many felt they couldn’t provide the kind of documents the government and banks required.
The main appeal of the program was the promise that loans would be forgiven, but there was a lot of confusion about the requirements that owners had to meet in order to get that forgiveness.
Those requirements and information about the program were constantly changing: Between March 31 and June 15, the SBA made 35 changes to the program rules and FAQs, according to a report from the Government Accountability Office released last week. It was only on May 22, seven weeks after the start of the program, that the SBA and the Ministry of Finance released initial instructions and applications for loan waiver.
“It has been a moving target all the time,” said Arensmeyer.
In the dark and struggling with the effect of shutdowns, many owners said, “no thanks.”
Gabriella Borrero, co-owner of The Vault, a recording studio in Boonton, New Jersey, said she was uncomfortable with the possibility that the company, which had been closed for three months, could be taxed on a loan if it couldn’t forgive to get . And she couldn’t determine in advance how much money, if any, was to be repaid.
“We decided to just do it ourselves and save it by diving into our savings,” she said. “I’d rather not have the looming thought, ‘Are we going to be forgiven or come back to bite us?'”
For many small business owners, a major drawback was the original requirement of the law that companies must use loan money within eight weeks, with a spending deadline of June 30. That gave businesses like restaurants two unwanted choices: immediately recall fired employees and risk having to fire them again after eight weeks, or wait to use the money and then have to pay back part of the loan.
“We knew it was a problem a week after the legislation was signed when we looked at the shutdown orders,” said Karen Kerrigan, CEO of the Small Business & Entrepreneurship Council, an advocacy group. At the time, it was clear that businesses would be closed for longer than initially thought, and the impact of the virus would be felt after June 30, she said.
It was not until June 3, less than four weeks before the deadline, that the Senate gave final permission to extend the timeframe to 24 weeks.
The law also required companies to spend 75% of their loan money on payroll to get forgiveness. But some companies, such as closed restaurants, needed money for the rent and reopening costs. They were also concerned that they were stuck with a loan. Congress only lowered the pay obligation to 60% in June.
“It was too late for many companies,” said Todd McCracken, CEO of the National Small Business Association. He summarized the program as ‘poorly designed from the start’.
The program did not take into account the large differences between small businesses. Many hire freelancers or independent contractors, rather than employees, and under the program, that employee compensation could not be included in the calculation of loan amounts. Even when these owners were able to get loans, they were of little help.
“It seemed to be structured by people who may not know how small businesses are run,” said Frank Groff, co-owner of the Portland White House, a bed and breakfast in Portland, Oregon. The B&B employees, including cleaning services and landscapers, are independent contractors. Groff received $ 12,000, but it only covered two salaries of managers. The B&B remained open during the outbreak, but turnover fell by almost 75%.
Also at a disadvantage: sole proprietorships without employees, freelancers and brand new companies.
One-man business Michael Gips started his security advice at the end of 2019, had no income and therefore did not have the required tax return that showed his business income. The first bank to which he submitted an application has never assessed his application. He then filed an application with an online bank and provided documents showing that he was making money in early 2020.
“My application was rejected due to insufficient evidence of salary payments,” said Gips. On Monday he waited for a third request.
Tiffany Joy Murchison, who owns a New York-based ad agency, filed her application on April 3, the day the program began. The bank rejected the application because the account had not been open long enough and then took three weeks to resolve the problem.
It took another three weeks for Murchison to find out that her application had been rejected because “it turned out we didn’t need that amount.” As the deadline approached, she tried to collect paperwork that would approve a loan, but she was scared she was running out of time.
Many companies have received the message that the program is not for them.
When Akosua Ayim looked at the requirements, the CEO of Equal Space realized that her co-working space in Newark, New Jersey, probably wouldn’t get much help. All of its employees are independent contractors. But what convinced her not to apply was news that companies like NBA restaurant chain Shake Shack and Los Angeles Lakers could easily get millions in the first round of funding. Although the companies said they were returning the money and the government said it would monitor loans in excess of $ 2 million, Ayim had already given up.
“After that information, we then decided to focus on grants,” Ayim said. Equal Space has applied for federal, state, and local grants and has so far received funding from two organizations.
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