Small business P3 loans could run out in a few days

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A customer tastes a beer before ordering a farmer to go to Harlem Public in north Manhattan. April 24, 2020

Spencer Kimball | CNBC

Just when Kal Narvilas thought his loan requests were about to be approved, his bank announced the bad news – there was no money left.

The $ 349 billion paycheck protection program, put in place to help small businesses and their employees through the economic fallout of the coronavirus pandemic, was exhausted in a matter of days. Narvilas is now left waiting for help as bills pile up while restaurant doors remain closed in the midst of a New York closure.

Narvilas had spent hours going through months of paperwork filling out P3 requests for its independent restaurants – Uptown Garrison and Saggio in north Manhattan, and Cent’Anni and Midwood Flats in Brooklyn. Although the process was tedious, he managed to file shortly after the program was launched, and his correspondence with TD Bank suggested that his requests were headed for approval, he said.

“I was about to get approved and get that money and the door was closed, which put me a little demoralized,” said Narvilas. He hopes his demands will be at the top of the TD Bank pile when the next round of federal funding arrives and the program is back on line.

Congress approved another $ 310 billion for P3 loans and $ 60 billion for disaster loans this week, but there is no doubt that will be enough to cover demand in the coming days. According to the National Federation of Independent Businesses, only 20% of the applications submitted were fully processed with money sent to borrowers. The program is scheduled to resume Monday at 10:30 a.m.ET, according to the Small Business Administration.

“We are sitting in an imaginary line hoping there is money for all of us,” said David Helbraun, founding partner of Helbraun Levey, a law firm that represents more than 1,000 clients in the New York hotel industry.

Loans are a critical lifeline for restaurants and bars, which are at the center of the economic fallout from the coronavirus pandemic. The industry lost 417,000 jobs after establishments closed to comply with social distancing rules and home support orders. This represents about 60% of the 701,000 jobs lost nationwide in March.

“They are one of the toughest people you will ever meet, and I have never seen my clients so seated on the edge of their seats and nervous,” said Helbraun. One of the biggest problems for restaurant and bar owners since the start of the foreclosure has been the confusion and uncertainty surrounding the PPP loan approval process, he said.

“Funds could run out quickly”

Lauren Lynch, one of Helbraun’s clients, applied for a loan for its three restaurants and bars in Harlem through Chase Bank after the end of the first round of financing. Lynch received an email from Chase last weekend informing her that there were 100,000 advance requests on hers. Despite the huge order book, she is optimistic about loans to her companies – Harlem Public, The Honeywell and At The Wallace.

“I think the pot has been filled enough,” said Lynch. “There has been enough control for small businesses to receive more of this money than what happened last time – I think the big banks are better prepared this time around. “

In the first round, several publicly traded restaurant chains received PPP loans, which many independent restaurant owners say violates the spirit if not the letter of the law. Ruth Steak Chris has said he will pay off a $ 20 million loan and Shake Shack has said he will pay off a $ 10 million loan after public controversy. The Small Business Administration released new guidelines on Thursday to discourage publicly traded companies from receiving money this time.

James Lee, owner of three restaurants in north Manhattan, is not as optimistic as Lynch. He filed with Fountainhead the day the loan program started and the lender acknowledged that all three of his requests had been received. About a week later, Lee received a bulk email from Fountainhead informing him that there was a spate of apps. He asked for a notification if he decided to withdraw from the queue and apply to another bank.

Lee saw the writing on the wall at Fountainhead and applied to Chase on April 16, the day federal funding was exhausted. Chase sent a mass email to Lee and other candidates on Wednesday saying that the second round of P3 “funds could run out again soon.” The bank told Lee that there was “an extremely large volume” of requests before it, and it would provide that information to him in case he wanted to try making a request to another lender.

“Applying for these loans is like trying to win concert tickets,” said Lee, owner of 181 Cabrini, Buddha Beer Bar and Buddha Taco Bar.

“Unprecedented situation”

The Consumer Bankers Association, which represents the country’s major retail banks, estimates that it will take $ 1 trillion to meet the demand for small businesses. Richard Hunt, the association’s CEO, expects the second round of funding to be completed in approximately four days, and it is if the system does not crash due to huge demand. It predicts that 1.3 million loans will go to the SBA for approval, in addition to the 1.6 million approved before the funding ends.

“This is an unprecedented situation – the demand for this product is off the charts,” said Hunt.

Small business owners who did not apply in the first round are not as likely to get funding this time due to the backlog of applications, said Hunt. He understands the frustration of small business owners, but said the banks are working as quickly as possible to process all requests.

“We have been moving heaven and earth in the past three weeks working 24 hours a day, 7 days a week to speed up the process so that people are helped during this crisis,” said Hunt.

“There is a ton of confusion”

Even if the $ 310 billion in P3 funding is enough to meet demand, restaurateurs like Lynch say loan conditions are risky and make it difficult to use money to pay rising bills.

Borrowers are entitled to have their loans canceled if they keep their employees at the same level of remuneration and use 75% of the money to cover salary costs. The remaining 25% can be used for rent, utilities or mortgage interest.

Lynch said the problem is that the federal government has also increased unemployment insurance by $ 600 per week, making it difficult to persuade staff to return. Besides the money, some people do not feel safe because of the health risks associated with coronavirus, and other staff are simply unavailable because they fled the city, he said. she declared.

Many restaurant owners would like to use more money to pay for basic bills such as rent, utilities and vendors.

“They need to relax the 75% rule and allow small business owners and restaurateurs to use this money as they wish,” said Helbraun. “What is happening now is that restaurateurs and small businesses are becoming unemployment offices,” he said.

For loans to be canceled, the money must be spent on eligible expenses over an eight-week period, which creates additional pressure. Lynch said she may not be able to meet the conditions for re-hiring staff in such a short period of time, which means that the loans would likely not be canceled and that she would end up in debt while sales were falling. This is why she did not apply for P3 loans the first time – she was not yet ready to bring in staff.

Lynch also expressed frustration that the rules remain vague and that there is not much concrete guidance from the SBA. The SBA did not immediately respond to CNBC’s request for comment on the guidelines.

“Different lawyers have opinions on how to get a pardon, and the accountants are the same,” she said. “There is a ton of confusion that needs to be ironed out. And there must be some lighter parameters on this eight week thing. “

Lynch is concerned that owners of small restaurants may stumble over loan conditions and therefore will not be eligible for the rebate. This could lead to an increasing debt burden in six months from the end of the deferral period, eventually forcing some small business owners to take shelter, she feared.

“There is going to be a whole new wave of economic spinoffs,” said Lynch.

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