Amid the coronavirus pandemic San Antonians have sacrificed a lot to protect each other from infection. Stay-at-home orders, shutdowns, and bans on gatherings have been put in place to prevent the spread of the virus. But it has come at a cost. We are a working class town. San Antonians need to work if we are to provide for those we are protecting now.
The burden of getting San Antonio back to work falls largely on our business community, especially small businesses. While Gov. Greg Abbott announced a phased reopening in Texas starting Friday, many small business owners are weighing the risks of reopening too quickly against the need to survive. While there are resources to help small businesses stay afloat, the challenges to obtain help from these programs are destroying their effectiveness.
Three programs are particularly important for San Antonio small businesses: the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDLs), and Military Reservist Economic Injury Loans (MREIDLs).
The PPP loan is designed to help employers keep their employees working. Recipients can obtain fully forgivable loans equal to 10 weeks of their average monthly salary payments, if the proceeds are used for qualified expenses. But the program’s rollout has been chaotic and initial funds were quickly depleted. Additionally, the PPP has a massive gap. Independent contractors and sole practitioners may apply for PPP funds for themselves, but only if they are still operating as their own business entity. Employers may not use payments to contractors as part of their average salary calculation. Nor may sole practitioners apply if they have ceased operation. The PPP is falling short in many ways, but, at a time when many workers need the security of employment, the PPP penalizes many employers who provide exactly what the program was created to promote.
EIDLs are easy to apply for through the Small Business Administration and allow flexibility in how the loan proceeds are used and offer larger loans. They are the long-term plan to help businesses, but provide short-term help in the form of grants up to $10,000. Unfortunately, initial funds were also quickly depleted for this program. Now that funds have been replenished, applications that were submitted but not approved will be reviewed and may receive funding, but the SBA is not accepting new applications.
For San Antonio, billed as Military City, USA, MREIDLs are more important than elsewhere. MREIDLs provide assistance to businesses who lose a key employee who is recalled for active duty in the military reserves, provided the employer commits to rehire that employee into a similar position after their active duty service ends. It is unclear if MREIDLs can be used in conjunction with the PPP or EIDLs, without potentially violating the conditions of those programs. Worse, because the other programs are insufficiently funded and too unpredictable for planning purposes, employers cannot know if they’ll be able to rehire covered employees. Employers that support military service, including many veteran owned employers, are being forced to risk federal penalties if they want help preserving jobs for Reservists called up during a national crisis.
Many San Antonio small businesses are still waiting for PPP and EIDL funds while national chains with a local presence have maximized their eligibility for these programs, even when they did not need the money. In fact, publicly traded companies such as Shake Shack and Potbelly have returned their PPP funds after public outcry. Some small businesses, including my law firm, have begun receiving funds after Congress authorized additional stimulus funds for small businesses. However, many of our clients have not been so fortunate. This highlights one of the flaws of the federal disaster relief effort: larger companies that don’t necessarily need the money to stay open have benefited while businesses that are struggling to survive are still waiting for relief.
Prior to the CARES Act, disaster relief programs through the SBA required businesses to demonstrate that they lacked other sources of funding. CARES dropped that requirement. At the same time, CARES loosened the requirements for businesses to qualify only when they had less than 500 employees. As a result, national chains that franchised or used other ways to create subsidiaries were able to claim that they had less than 500 employees and base their eligibility for the amount of funds to be based on higher-paid, corporate-level employees. Those businesses qualified for the largest loans and grants, even though their net worth allowed them access to credit from sources outside the CARES disaster relief programs.
Not only large borrowers managed to game the CARES programs. Lenders, too, appear to be part of the problem. CARES did not specify a priority system for how loans should be processed. While some banks may have tried to process applications for the PPP in the order they were received, their own customers were likely prioritized because much of the required paperwork was already on file. Other lenders may have simply prioritized the largest requests for funding. One San Antonio company, Zamora-Orduna Realty Group LLC, is among the first firms in the United States to sue its lender, BBVA USA, for allegedly prioritizing larger borrowers in order to earn more on their larger loans.
Unsurprisingly, the initial funds allocated for the PPP and SBA programs were exhausted almost immediately by large, corporate beneficiaries. Meanwhile, true small businesses, whose employees and owners were most at risk of losing their livelihoods, were shut out completely or received reduced funding. The government has failed them. They have bills to pay. They have the most to lose if they can’t earn the money they need.
Business owners can help themselves and their employees. CARES has been refunded, so if a business owner has not already applied for COVID-19 relief funds, they should do so immediately. Business owners should try applying through their current bank for PPP funds or through companies that can process loans through multiple lenders. Opening a business account requires much of the same documentation required to apply for the PPP, which can reduce delay, while services accessing multiple sources of credit may have a better chance of finding a new lender.
Ultimately, however, small businesses need a program that prioritizes them. Congress and the Trump Administration did well to establish COVID-19 relief programs focused on small businesses. They have to do even better. Congress should reform CARES to bar forgiveness of PPP loans for businesses that have substantial access to other credit and reinstate the requirement that EIDL recipients must seek outside credit before applying. Lenders should use a “first come, first served” policy for applications that are complete and correct. Most importantly, Congress and the president need to prioritize small business before Wall Street, airlines, or other major business entities. Small businesses are bearing the brunt of the economic damage caused by this health crisis, and they deserve real relief.