Small-business owners in the Bay Area are waiting in despair after a $349 billion federal loan program was exhausted in two weeks. With hundreds of thousands of businesses nationwide still seeking relief, a second round of funding is likely coming. In the meantime, companies are struggling to survive.
Renee DeWeese Moran, co-owner of Performing Academy, a children’s arts center with three East Bay locations, applied for up to $50,000 through the Paycheck Protection Program and received nothing.
“The biggest frustration about the Paycheck Protection loans was that I felt like it wasn’t truthful. This was pitched to me and the world at large as something that was going to save small business, but that is not the case,” she said.
Numerous business owners reported unclear instructions, lack of communication from banks and government officials, and inadequate funding that swiftly ran out. A lawsuit was filed Sunday in the Central District of California against four major banks — Bank of America, JPMorgan Chase, U.S. Bank and Wells Fargo — alleging favoritism toward larger loan applicants. The banks denied favoritism or declined to comment on litigation.
The loan program, established through the $2 trillion Cares Act, ran out of funds by the middle of the month. In the first round, California businesses were approved for $33 billion, the highest amount of funding among states. The funds are allocated across 112,967 businesses receiving an average of $300,000 per loan, according to the Treasury Department.
The Senate voted Tuesday to add an additional $310 billion for the program, “with $30 billion reserved for community-based lenders, small banks and credit unions and $30 billion for mid-sized banks and credit unions,” according to Democratic leaders. The House is expected to vote Thursday, and President Trump has indicated his support for the measure.
To increase odds of approval for a loan, Moran applied to Wells Fargo and First Bank — banks she’s been in business with for years. If she got approved at one, she would cancel the other, she said. But the federal aid ran out before she could plan her next move, with Moran getting emails from both banks saying they were waiting for the next round of funding. Moran’s dance studio is closed but has been holding virtual classes, and has cut all staff wages by 25%. Moran has 21 employees.
The loan program is earmarked for companies with fewer than 500 employees, but exemptions for franchisees and some hospitality and food companies meant some big chains sought and received funds. New York’s Shake Shack, which has 7,600 employees and $600 million in revenue, got $10 million from the program. After facing public backlash, Shake Shack said it would return the loan.
“It’s frustrating to see (bigger) small businesses, franchises, coming forward and getting the funding meant for us,” Moran said.
The news was upsetting for Dan Braun, CEO of Camp Navarro in Mendocino County’s Anderson Valley. He’s applied for up to $200,000 in loans through Bank of America, which is waiting on the new round of funding. Braun had to lay off almost all his staff — 45 workers during peak season — with the exception of two key employees. He applied for the loan hoping to hire all of them back.
“I’m frustrated with where the money has gone,” he said. “Hopefully the government and banks do their best. Small businesses are the heart and soul of our economy. There are millions of small businesses out there that are equally worthy of these loans.”
Caitlin Meade, co-owner and co-founder of Native Co., which operates two downtown San Francisco restaurants, said she received no help from her bank, Chase, and ended up getting no aid.
“The application process was such a mess and so stressful,” she said. With one location closed and one only serving takeout, Native Co. had to lay off 15 of 20 employees and reduced hours for the remaining workers.
Chase said more than 300,000 clients applied for loans and the bank had over 2,000 employees processing loans, and not all applications were processed before funds ran out.
The size and speed of the program was unprecedented, which made it a daunting challenge for the government, said Gerri Detweiler, education director at Nav, a financial marketplace with offices in San Mateo and Salt Lake City that matches borrowers with lenders.
Small-business loans typically have a “couple hundred pages” of guidelines and documents, she said. The program tried to summarize all of that in a two-page application.
Some guidelines came out after application deadlines, adding to the confusion, such as policies for self-employed individuals. Owners working with independent contractors were also told later that those contractors shouldn’t be included in the application.
“It wasn’t enough money to meet demand,” she said. “It was done super fast.” Detweiler said she was optimistic that a likely second round of funding will be smoother.
“We have much better guidance now,” she said. Detweiler recommends that any business owners who haven’t applied to do so now in anticipation of a second round of funding.
The loans have a 1% interest rate with no payments due for six months, but the goal is for the loans to be forgiven, she said. To qualify for forgiveness, businesses must allocate at least 75% of the funds for payroll, and the remaining 25% can be used for rent, mortgages, utilities and other expenses. The forgiveness period is for expenditures over the first eight weeks.
In the race to get funding, small-business owners dealt with banks imposing their own eligibility requirements, which excluded some of their own customers who didn’t have business accounts or lines of credit with them.
Loans were processed on a first-come, first-served basis, and gave an advantage to those that applied early, such as J.B. Tile & Stone, a Redwood City company that supplies home construction projects.
Connie Brown, CFO of the company, spent hours researching the payroll loan program and applied when it opened on April 3. On April 13, she received the full amount she requested: $489,245.
“For us this is seriously a lifeline,” she said. “I don’t know how we would have survived without it.”
J.B. Tile & Stone will be able to retain all 37 employees and continue paying them, despite having to shut down on March 25 after Bay Area counties tightened restrictions and stopped most housing construction. Brown said she had a positive experience with her bank, JPMorgan Chase, and a Chase business relationship manager helped her file some documents.
Brown said the company, which she owns with her husband, could lose around $400,000 a month in revenue during the shutdown. For now, her workers have protection.
“Some of my guys were considering unemployment, but they couldn’t get into the system,” she said. “They weren’t even taking phone calls.”
“I feel extremely blessed,” she said. “It’s hard to find employees. We have a great team. We need them.”
Shwanika Narayan and Roland Li are San Francisco Chronicle staff writers. Email: [email protected], [email protected] Twitter: @shwanika, @rolandlisf
