Other Sources of Help

 Joeleen Medina did everything she was supposed to do when she applied for a loan from the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) designed to help businesses get through the COVID-19 crisis.

She had gathered all the required documents before she applied when the funding was first released in early April. She sent in her documents on time. Everything was in order.

“I was so confident, I was so excited,” said Medina, who along with her husband Miguel, owns the Truman House Tavern in San Fernando.

But like many other small-business owners across the country, she didn’t get any money from the program and was left feeling alienated in a process that has left many businesses like hers falling through the cracks for funding. According to the SBA, only three percent of the 3.9 million small businesses in California received money from the first round of PPP funding.

Part of the CARES Act, the PPP allocated $349 billion in emergency funds, and was intended to provide loans up to two and a half times the total of a business owner’s monthly payroll. The program was launched on April 3 and ran out of money two weeks later.

A second round of funding is getting underway this week amid fears of small-business owners that they’ll be left out in the cold again.

For Medina and others who applied for the loans through the nation’s biggest banks, they ended up feeling frustrated with the process.

“I couldn’t get hold of a single human being,” said Medina, who applied through Chase and has been with that bank for 15 years.

The bigger banks have been accused of favoring large companies over small businesses in processing the PPP applications because the higher the amount of the loan the more the banks make in processing fees.

Separate class-action lawsuits have been filed in Los Angeles federal court claiming that four large banks — JPMorgan, Bank of America, Wells Fargo and US Bank — rigged the process. The lawsuits claim that instead of processing the loans on a first-come, first-served basis, the banks processed the biggest loan amounts first leaving small businesses high and dry.

Bank officials have either denied the allegations, declined to comment or said they are working hard to assist small businesses further in the second round of funding.

The process involving the first round of funding was further criticized because several large corporations also applied and received large sums of money. The uproar has been so strong that some of the companies such as Ruth’s Chris Steak House and Shake Shack returned the money. The US Treasury Department issued an order last week directing publicly traded companies to return funds they received from the program by May 7 if they can’t prove they were eligible for a loan.

For Tony Estrada, who owns CrossFit 90 group training gym in San Fernando with his daughter Priscilla, the process of competing for the federal PPP funds has been frustrating and confusing. When the funds were first released on April 3, Estrada was not ready with his required documents to accompany his application, but when he had them all together more than a week later the funding had dried up.

Estrada is not alone. According to financial officials, many business owners lacked the legal documents required when the funding was first released.

With all his documents together now, he’s ready to apply in this next round of PPP funding. It’s all very nerve-wracking and stressful.

“Literally, the first thing I do in the mornings is to go online to my account and see if they are accepting,” Estrada said.

According to local financial officials, to succeed this time around business owners must have all their required legal documents gathered when they apply so they can be assured there are no problems with their applications.

The second round of PPP funding, released on Monday, April 27, provides an additional $320 billion in funding for small businesses. But many small business owners are nervous about whether they will get any funding from this new round, and confused as to whether they need to submit a new application if they submitted one for the first round.

In a statement, Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza said that approved lenders should process loan applications previously submitted by eligible borrowers who did not get any money from the first round. Other new applicants could also apply.

But applicants must have the proper documents, such as IRS Form 941 (employer’s  quarterly federal tax return) and Form W-3 (wage and tax statements), to submit upfront when they fill out their applications.

“People are sending me printouts from QuickBooks that show the payroll totals — I can’t use that,” said Tamara Gurney, president and CEO of Mission Valley Bank, a small bank based in Sun Valley. “I need a legal document (such as Form 941 or W-3).”

Gurney said the SBA is worried about fraud in this program so it is looking for a full “head count” of employees working at a company, including names and amount of money paid to them. PPP covers business expenses for eight weeks including payroll, mortgage interest payments, rent and lease payments and utilities.

Gurney said her bank is only accepting PPP applications for existing clients because paperwork requirements for new accounts are excessive, and her small bank doesn’t have the resources to comply efficiently.

The second round of funding has set aside $60 billion in funding specifically reserved for smaller banks and community banks to lend.

In the first round of funding, small and medium-sized banks were found to be more nimble in processing applications than were the large banks. Gurney said that if a business owner doesn’t have a relationship with one of these smaller banks, they can go to the dropdown menu on the SBA website https://sba.gov to find approved lenders for the program. Some of these are micro-lenders and non-bank FinTech companies such as Kabbage that provide an alternative to a regular bank.

Thomas Ohlgren, CPA and Partner, Tax and Accounting Services at Squar Milner LLP in Encino, said PPP is a good program for applicants who qualify and who use it correctly. Lenders will forgive the PPP loan if a business spends 100 percent of the funds on payroll, mortgage interest, rent and utilities in the eight weeks after receiving the loan. At least 75 percent of the funds must be spent on payroll.

“It’s a fantastic opportunity right now to take advantage of what most people would only dream of — forgivable money given to you from the government,” Ohlgren said.

Gurney cautioned, however, that if one owns a business that has been totally shut down due to lockdown orders they may still be shut down eight weeks from when they get the loan, resulting in them needing to lay off employees again. They may consider just letting their employees stay on unemployment.

The federal government has added for workers $600 extra per week in unemployment for up to four months on top of state unemployment benefits.

There are other avenues that small businesses can explore if they still don’t get PPP money from the next round. The SBA is offering its Economic Injury Disaster Loan Advance (EIDL) of up to $10,000. The loan does not have to be repaid.

Cross Fit 90’s Estrada recently received $5,000 from the EIDL program and Medina of the Truman House Tavern has also applied for EIDL money that she is confident she will receive. EIDL money comes quickly, Squar Milner’s Ohlgren said. 

Ohlgren added that the SBA is a good source of funding overall whether it be through traditional or COVID-19 related loans. The SBA offers preferable rates and a preferable term on loans, some spreading payments over 30 years and he urged they be considered first before going to a traditional private lending institution, he said.

For right now, as they wait out the COVID-19 lockdown in California, Medina and Estrada are doing what they can to pay the bills. Estrada is offering online streaming of workouts to connect with his company’s members and Medina is offering takeout cocktail service at the tavern a few hours a few nights each week.

“We’re trying to pay existing bills,” Medina said.

For more information, visit https://www.sba.gov.