Some CT businesses, but not all, receiving stimulus loans in second round this week
Patrick O’Neil runs a sandwich and coffee shop in Bethel, and like many restaurateurs damaged in the coronavirus’ economic typhoon, he’s trying to grab a lifeline offered by federal government.
Yet O’Neil, along with many other small business owners in Connecticut and across the nation, has so far been shut out of the emergency aid offered by the Paycheck Protection Program, a forgivable loan program run by the Small Business Administration.
The loan program was established with nearly $350 billion from the massive stimulus legislation known as the CARES Act and blew through the its funding in its first chaotic 14 days. It was replenished with an additional $310 billion last week. How long those funds will last is unclear.
In the initial round, O’Neil was not approved for a loan through his small, local bank — one of hundreds of financial institutions the SBA authorized to issue PPP loans. The second round of lending began on Monday, but as of Friday, O’Neil had not heard from his bank about his application.
That’s frustrating, he said, because some of his customers, who he is serving only through carryout, have told them their PPP loan applications have been approved.
“I just feel that I’m the laughingstock,” O’Neil said.
Under the Paycheck Protection Program, a business with fewer than 500 employees can borrow up to 250% of its 2019 average monthly payroll costs as a two-year, 1% note, with repayment deferred for a period of six months. The low interest rate and deferral period is attractive, but the program’s real appeal is that a PPP loan is a “loan” in name only. For the first eight weeks after the loan is granted, any amount the business spends on payroll costs, rent, mortgage interest and utilities will be forgiven by the lender on a tax-free basis.
The loans are capped at $10 million, but the SBA says the average loan amount has been about $200,000.
Tony Sheridan, president of the Chamber of Commerce of Eastern Connecticut, said “quite a few” of his members have received PPP loans “and quite a few have not.”
The rollout of first round of the PPP loans was bumpy. The second round, begun this week, less so. But there are still problems.
Some small businesses say banks still give preference to the businesses they know, those to whom they have lent money before, leaving the “underbanked” at a disadvantage. Technical glitches, although not as bad as those in the first round, continue to bedevil the system.
Legislation establishing the second round of PPP loans allowed community development banks to offer the new SBA loans and set up a special $60 billion fund exclusively for these lenders, which make loans to the smallest of businesses. But the SBA has not yet established regulations that would allow these institutions to approve any PPP loans.
“The Paycheck Protection Program… provides for the Small Business Administration to expand the corps of PPP lenders to include community development financial institutions like CEDF,” noted the Meriden-based Community Economic Development Fund on its web site. “We are investigating the requirements with the SBA and are hopeful of becoming a PPP lender soon. At present, CEDF is not authorized to accept PPP loans. Please watch this page for further announcements on this subject.”
More than 18,000 Connecticut businesses in the first round received PPP loans amounting to about $4 billion and Gov. Ned Lamont said he expects at least 12,000 more to obtain loans in the second round. But there is currently no data on who or how many have been granted. As more companies begin to reopen, the lasting effects of the coronavirus will likely mean many more months of hardship. For some small businesses, it could be years of bad times.
Sheridan said there was “a lot of frustration” when the small business community learned that publicly traded companies, including Shake Shack and Ruth’s Chris Steak House, had received big loans in the first round. “That has been a real peeve among people,” he said, even as most of these companies say they are giving the money back.
Meanwhile, the demand for PPP loans has lawmakers in Washington D.C. considering a third round of funding for the program.
Lawmakers could replenish PPP funds through another stimulus deal that is the subject of a partisan political fight right now. The first round of the program –which supported more than 1.6 million loans–kicked off on April 3 and lasted two weeks days. The second round, which faced a backlog of an about 1.7 million applications – including O’Neil’s – could run out of money any day now.
But Eric Gjede, vice president of government affairs for the Connecticut Business & Industry Association, said talk of more money for the Paycheck Protection Program may be premature. “Obviously, we need to wait a bit and see what the additional challenges are when businesses reopen,” he said.
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