As two major federal programs dedicated to helping small businesses dried up on Thursday, many Colorado entrepreneurs weren’t sure what had happened to the help they were told was on the way.
Bob Starekow, who runs Silverheels Bar & Grill and Kemosabe Sushi & Sake in Frisco, applied to both the Paycheck Protection Program and the Economic Injury Disaster Loan, hoping for federal aid to offset payroll, rent and other costs during shutdowns from COVID-19, the disease caused by the new coronavirus.
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His bank asked for more documents early Thursday and he sent them in. But by late Thursday, he had not heard whether he’d made the cut to benefit from the $2 trillion federal stimulus package.
“I’m sure everybody’s in the same position as I am facing — everything from defaults on their leases to losing all their employees,” said Starekow, a restaurateur for more than 40 years who wound up laying off 37 of his 44 employees so they could apply for unemployment. “I’m not angry about this. It’s just a level of frustration that we’re all dealing with.”
Well, he may be a little bit angry after noticing that the publicly-traded Ruth’s Chris Steak House said it received $20 million in paycheck loans from JPMorgan Chase & Co., according to a Wall Street Journal story. The chain had 5,740 employees on Dec. 29.
Around noon Thursday, the paycheck program had approved loans for 1,661,397 small businesses nationwide and maxed out of the $349 billion available. And the $10 billion disaster loan program stopped accepting new applications around the same time.
Both programs are being overseen by the U.S. Small Business Administration, although the paycheck loans were handled by local banks.
The paycheck loans, intended to help businesses with no more than 500 employees, will provide $7.4 billion for 41,635 businesses in Colorado, as of the latest data released Friday by the SBA.
This was an update from Monday’s total of 28,469 Colorado small businesses approved for $5.8 billion in paycheck loans. The Colorado Sun received a PPP loan.
These loans were especially attractive because if a business spends 75% of the loan on payroll within the first eight weeks of the loan getting funded, the federal government will forgive the loan completely. The program was sapped of funds in less than 14 days.
Several Colorado banks said they saw their busiest two weeks ever. ANB Bank loaned $246.7 million to 1,641 customers — that was more than 20% of the bank’s existing loans. FirstBank put a pause on paycheck loans last week after receiving 15,000 applications for $2 billion in the first 72 hours. In three decades in business, FirstBank had processed just one-third of that amount, or $600 million.
But other lenders, like Canvas Credit Union, which only gained access to the SBA portal on Wednesday, processed zero.
“Unfortunately, without the guidance we needed, we were not able to make any of these loans,” Canvas President and CEO Todd Marksberry said, adding that the credit union now is working with its customers on deferment options.
The EIDL disaster loan also maxed out
The lesser-known EIDL loan also closed its portal on Thursday because it, too, had reached its limit, confirmed Christopher Chavez, spokesman for the SBA office that oversees Colorado.
That program was filled with confusion. It started with the promise of $2 million loans at a 3.75% interest, and then added an up-to $10,000 grant paid out within three days. But then the grants were whittled down to $1,000 per employee and the loan was capped at $15,000 last week. On Monday, however, the $15,000 limit was lifted.
But by then, there were other limits because of how little money was left, Chavez said.
Chavez said after someone applies, an application number is sent to the borrower and the loan is then reviewed by a loan officer. The borrower is then asked to create an account in the SBA portal to review the loan amount they qualified for and then sign the documents before the money is transferred to their bank account.
But many small businesses that shared their experience with The Colorado Sun said all they received was an EIDL application number and no further communication from the SBA.
Chavez’s main advice is that if you’ve applied for a disaster loan, don’t reapply. That will cause more delays. If Congress allocates more money for either program, business owners that have already applied will keep their spot in the queue.
“I can say in 30-plus years of working at SBA, they have never run out of disaster funding because this is a program that people understand,” Chavez said. “So I assume they’ll find the money to keep the program going.”
There’s a move in Congress to get more funding for small businesses. But so far, efforts have not moved out of the Senate.
Colorado Sens. Michael Bennet and Cory Gardner said they support more funding for small businesses. “We believe that we share the common goals of keeping thousands of small businesses across Colorado and the nation with the ability to retain as many workers as they can, our hospitals and health care providers equipped with what they need, and state and local governments and tribes with the ability to respond during this pandemic,” they said in a joint statement on Thursday.
Curse of the mud season
But what’s been really confusing and frustrating for Colorado’s mountain town businesses, like the Silverheels Bar & Grill in Frisco, is that April is mud season or shoulder season. Many restaurants and small businesses temporarily let go of employees and then rehire them in June for the summer.
But to get the paycheck loan forgiven, the business must hire back employees and use 75% of the loan to pay workers within the first eight weeks.
“They want you to spend it in the offseason,” Starekow said. “So you hire all your staff back, as many as you can, and you spend as much of it as possible. And then you’re at the end of your rope when the summer season starts. And you’ve already spent all the money on payroll on people you didn’t need.”
And while Gov. Jared Polis’ stay-at-home order ends April 26, that could be moved further in the future. Plus, life won’t get back to what it was.
Restaurants, bars and stores will likely have to abide by some sort of social-distancing measures, such as removing tables to maintain a safe social distance and limiting the number of customers indoors.
“We’ll basically be opening with a patio with a dining room where every other table is used,” he said. “ And of course that can’t pay normal rent.”
Most small business advisers had encouraged clients with seasonal workers to apply anyway because the money was meant to help workers stay employed and stay off of unemployment (which also gained a boost in the federal stimulus package with an additional $600 a week paid to those who lost their job or had reduced hours due to COVID-19 impacts).
“I do think there are a number of companies who have employees sitting at home and still on payroll, and I think in the government’s mind, that’s OK,” said Andrew Comer, a partner at Fortis Law Partners in Denver. “They’re not on unemployment, for one, and they don’t have to go through the rehiring process. The idea is that this will help the economy to start up again in June, or whenever it is, without having all these people applying for their jobs.”
Seasonal workers, unfortunately, aren’t “well cared for in this law,” he added. That’s why he recommended that his clients apply for the paycheck loan.
“It’s kind of a bird-in-the-hand situation. Get your application in and who knows when it will fund,” Comer said. “But you’ll get some free money and if it’s not free money, it’s really cheap money at a 1% interest rate. So the worst case scenario is that it’s a very, very cheap loan.”
Banks stick with rules
Banks were allowed some leeway in their decision to fund paycheck loans, such as prioritizing existing customers first. But the banking industry is very conservative. It needs rules. And rules for the paycheck loans weren’t released to banks until the night before the program began on April 3. The SBA even continued to release new guidance this week.
“My understanding is that regulators have urged bankers to be as flexible as they can,” said Amanda Averch, a spokeswoman for the Colorado Bankers Association. “Banks are absolutely risk averse because they’re in charge of protecting people’s finances, their treasure. They take that job very, very seriously. … That concept of ‘Just do it and ask forgiveness later’ is not a modus operandi for banks.”
The paycheck program started with 1,800 SBA-approved lenders. More were added by Thursday with numbers reaching 4,975, according to the SBA. In Colorado, 84 of the 131 banks in the state were SBA lenders prior to April 3, Averch said.
Many banks waited a few days before accepting applications. And when they did launch, they limited it to existing customers first, mostly because one federal requirement was still “Know your customer,” which meant the banks had to know whom they were lending money to.
Alpine Bank, one of the largest banks serving Western Colorado, processed just under 2,600 applications for a total of $261 million. While the national paycheck loan average was $250,000, Alpine’s was closer to $100,000, which “if you do the math on that, that’s the kind of a business that employs four to five people,” said Glen Jammaron, president of Alpine Banks of Colorado.
He didn’t think banks could have postponed funding a loan in order to give a seasonal business a later start date to ramp up to full staff.
“The SBA program required that we fund the loans within 10 days and the customer has eight weeks to distribute the money to their employees. There was no real seasonality allowance, based on the SBA program,” Jammaron said. “My understanding is the program does not allow for the bank to provide any more flexibility than the program itself is, which is once you get the money, you got eight weeks.”
This story was updated at 4:49 p.m. on April 17, 2020 with the total number of approved Colorado businesses and the final loan amount.