Some Chicago businesses locked out of PPP as big chains funded

Like lots of small businesses, Shiny Strands, a three-store rural Chicago lice removal salon, has struggled during the coronavirus pandemic.

Social distancing, it appears, is a treatment for lice invasions.

So Shiny Strands got a $45,000 payroll defense loan through JPMorgan Chase bank, wishing to keep its staff members on staff and its doors at least partly open throughout the coronavirus shutdown.

Instead, the business did not receive approval prior to the $349 billion federal Paycheck Defense Program ran out of money last week, leaving Shiny Strands dealing with a 70%reduction in capital.

“To not get any federal government help was very terrible,” stated Carol Chambers, 51, co-owner of Shiny Strands. “Coronavirus and the stay-in-place order is eliminating our organisation.”

From a classic house design store in Barrington to a Chicago divorce attorney, Chicago-area small business owners who lost out on the initial round of financing under the $2.2 trillion federal coronavirus relief package have been left in monetary limbo, growing progressively disappointed as they wait on Congress to designate more money.

Federal lawmakers reached a tentative agreement for an extra $310 billion in financing for the paycheck program, part of a $484 billion coronavirus relief bill passed Tuesday by the Senate, but there are indications even that sum might not suffice.

Michael Minnis, an accounting teacher at University of Chicago’s Cubicle School of Service, has actually published research study computing it will take about $720 billion to assist all small businesses that may request a loan, leaving a possible financing gap of as much as $60 billion.

“Ideally the number is actually less than what we’re saying and this next round might get much of the way there,” Minnis said.

There also is growing concern– declared in at least a handful of claims– that banks prioritized loans for bigger services, shuffling smaller business to the bottom of the application pile.

The federal paycheck program used companies with less than 500 workers forgivable loans of approximately $10 million to cover eight weeks of payroll. The Small company Administration authorized more than 1.6 million loans, worth $349 billion, in less than two weeks before the funding went out Thursday.

In Illinois, the SBA authorized 69,893 income loans worth almost $16 billion.

A study released Monday by the nonprofit National Federation of Independent Company showed just 20%of applicants have actually been authorized and funded, leaving 80%of small companies unsure of their status.

The Associated Press discovered at least 75 companies that received help were openly traded, and some had market price of more than $100 million.

The SBA said in a statement Friday that 74%of the loans were for less than $150,000, “demonstrating the availability of this program to even the smallest of small companies.”

But a number of high-profile loans to prominent companies have actually emerged, fueling reaction that “larger” small business customers took top priority over smaller companies or those with less access to capital.

Potbelly and Shake Shack each received the optimum $10 million loans, while the moms and dad of Ruth’s Chris Steak House got $20 million for two subsidiaries. The restaurant chains, each with thousands of employees and hundreds of millions of dollars in yearly revenue, certified since the program counted only the number of employees per dining establishment.

On Monday, New York-based Shake Shack said it was returning the $10 million PPP loan it got after acquiring alternative funding through an equity transaction.

Chicago-based Potbelly, which grew from a single shop on Lincoln Avenue in 1977 to an across the country chain with about 440 restaurants, did not react to multiple requests for comment.

Potbelly, Shake Shack and Ruth’s Chris all received their PPP loans through JPMorgan Chase.

Two suits seeking class action status were submitted today in California federal court alleging Chase “front-loaded” applications for the biggest loans to get larger origination costs, and hidden from small business owners they were “reshuffling the applications” to receive optimal revenues. Wells Fargo and Bank of America were also among those sued.

Chase representative Brian Hanover declined to talk about the lawsuits Tuesday, but said “larger customers were not prioritized.”

Hanover stated Chase processed about 18,000 loans for its “smallest” service clients and about 8,500 loans for larger small businesses. The bank said 80%of its paycheck security loans went to companies with less than $5 million in annual revenue.

Chase had around 40,000 totally processed applications worth $7.3 billion “in the line and all set to be sent to the SBA,” if additional funding for the income program is approved, Jennifer Roberts, CEO of Chase Business Banking, stated in an online post Monday.

BMO Harris approved $4.4 billion in loans to nearly 10,700 debtors before the first round of PPP financing was tired. Services that submitted applications in the first round will stay in the line and do not require to send another application, bank spokesperson Kathleen Szot said Tuesday.

Szot said over half of the loans approved by BMO Harris were for less than $100,000

“The bank did not focus on loan applications based upon the size of the loan,” Szot stated.

Kyla Herbes, 45, who runs a vintage home decoration store in Barrington and a popular blog site under the very same banner, Home of Hipsters, made an application for a $40,000 income loan through her service bank, BMO Harris, on April 7.

On April 14, she was told the loan was “tentatively authorized” and heading to underwriting for processing. The funding ran out 2 days later and she has yet to hear back from the bank.

Herbes produced $100,000 in income in 2015 through sponsorships on her seven-year-old blog site, and $50,000 in sales at her store, which she opened in April 2019 and works on her own. Both profits streams have ground to a halt during the COVID-19 health crisis.

She is deferring lease for her store and drawing down household cost savings to foot the bill. While she is in a position to receive an income loan in the 2nd round of funding, Herbes is upset that bigger business got cash in the preliminary. And she is doubtful that it will be any different this time.

“I’m thinking they’re putting a lot of financing into a damaged system,” Herbes said. “We’ll be fortunate if we have some scraps at the end of all of this.”

Matt Kirsh, 56, a divorce lawyer from Lombard who released a small three-lawyer Chicago company in 2012, gotten a $100,000 paycheck loan through Chase, where he has banked for more than 15 years.

With courts closed during the stay-at-home order, earnings has primarily dried up. “I am going through the money I have in my account,” Kirsh stated.

Kirsh said he was “ignored by Chase” throughout the application procedure, and without the income loan, will soon need to consider furloughs or income cuts for his staff, which likewise includes a full-time legal assistant and one part-time staff member. He stated the loan application was filed on April 7, per his bank’s directions.

He got an email on April 19 that Chase was evaluating his application– 3 days after the funding was depleted.

“It sort of upset me because it seemed like the big money people were getting their loans processed quicker,” Kirsh stated. “I think there were 2 lines, and I’m in the wrong line.”

Service was growing last year at Shiny Strands, which produced $550,000 in income from its beauty salons in Naperville, Glen Ellyn and Barrington. Considering that the state’s stay-at-home order was executed in March, lice elimination treatments and money circulation have actually declined precipitously.

There was some great news Tuesday, when Chambers learned Shiny Strands had actually received $10,000 from the SBA’s Economic Injury Disaster Loan, another diminished COVID-19 emergency relief fund.

“That was a pleasant surprise,” Chambers stated. “However we still require the PPP for our staff members.”