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Will federal coronavirus paycheck loans actually be forgiven?

Here's what could happen to a Colorado PPP loan recipient in bankruptcy, others with layoffs or operations outside the state, and another that thrived in the pandemic -- and paid back its loan already

At the Etai's Cafe & Bar inside Denver International Airport, social distancing measures are still in order. The eatery was allowed to expand seating in its "patio." The restaurant was one of several DIA eateries run b Mission Yogurt, which received a federal Paycheck Protection loan to keep workers employed as business slowed during early coronavirus safety measures. (Provided by Mission Yogurt)
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On April 14, about a month after filing for bankruptcy, Mountain States Rosen was approved for a federal loan for an amount between $2 million and $5 million. 

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The Greeley lamb processor was among more than 105,000 small businesses in Colorado approved for the Paycheck Protection Program, which offered 100% forgiveness on the loan if employees stayed on the payroll. The federal government aimed to get money out quickly to help small businesses during the coronavirus pandemic. 

The money allowed 219 people to keep working at Mountain States Rosen, according to data released by the Small Business Administration, which oversaw the program. But two months after being approved for the loan, the company told the state that it would close and sell the Greeley plant, leaving 222 workers out of a job by Aug. 22. 

Mountain States Rosen needed the money. But will the loan be forgiven? 

Probably not, said Sarah Mercer, an attorney and lobbyist at Brownstein Hyatt Farber Schreck who works with clients on PPP loans. But it’s not because the company plans to cut jobs or was in terrible shape prior to the pandemic. She pointed to the first question on the PPP loan application. It asks whether the applicant is “involved in any kind of bankruptcy?” Answer yes and “the loan will not be approved,” the document says.

“It’s hard to know the specifics to that applicant, but there is a restriction that if you were in bankruptcy, you should not have been able to get a loan,” Mercer said.

The $660 billion PPP program, which had its deadline extended by almost six weeks to Aug. 8, because there was still $100 billion available, was an unusual government relief program since it was open to nearly every small business and offered to turn loans into grants. It rolled out so quickly that regular updates were pushed out nearly weekly for three months. Fraud has already been discovered, but so have a lot of typos, errors and inaccuracies in the SBA database of loan recipients.

MORE: 5 charts showing where federal coronavirus loans went in Colorado, which industries benefited the most

But whether PPP did its job will become evident only as businesses gain forgiveness, pay back the loan or call it quits. 

Neither Mountain States Rosen nor Converse County Bank, the Douglas, Wyoming, lender that approved the loan, responded to phone calls from The Colorado Sun. An email to Mountain States Rosen’s general inbox bounced. The lamb co-op, which is owned by 150 ranch families across the West, was approved May 14 by the bankruptcy court to use its $3.5 million PPP loan to fund necessary expenses, the legal news site JD Supra reported. 

Without the bankruptcy, Mountain States Rosen stood a good chance of 100% forgiveness. According to Teamsters Local 455, which represented about 100 workers at the packing plant, there have been no layoffs yet. 

Keeping people on the payroll was what the loan was meant to do, Mercer said.

“They might have actually taken the money because they were going to have to close and all those people are going to be laid off anyway,” she said. “But this actually allowed them to keep people on the payroll, maybe try to find other business opportunities and try to make a business plan that was going to allow them to reopen. And it just didn’t work out, unfortunately.”

The questionable

Banks began accepting PPP loan applications on April 3, one week after the president signed the $2 trillion CARES Act

With the passage of the CARES Act, there was a lot of federal money making its way into the pockets of Americans, from the $1,200 stimulus checks to an extra $600 a week in benefits for the newly unemployed.

“No one in any of the areas of our economy was prepared for what we’ve gone through and what we’re still going through,” said Mac Clouse, a finance professor at University of Denver’s Reiman School of Finance. “… All of those (stimulus funds) were just trying to push a firehose amount of water through your garden hose. Things couldn’t keep up and so you’re going to find, unfortunately, errors. You’re going to find abuses. And you may find fraud in there as well. There was just a real need to move pretty quickly.”

Reports of PPP loan fraud are showing up across the country. In Houston, a man allegedly used the PPP money to invest in cryptocurrency. A film producer in California allegedly used his $1.7 million loan to pay off personal credit card debt. A Seattle doctor was accused of fraudulently seeking $3 million in loans by using fake tax documents of “purported employees who did not, in fact, work for the businesses,” according to the U.S. Department of Justice.

The U.S. Attorney’s Office for the District of Colorado has not publicly announced any actions in the state. But U.S. Attorney Jason Dunn provided this statement:

“The US Attorney’s office and its federal law enforcement partners are closely watching how PPP funds are allocated and utilized in Colorado, and will aggressively pursue any company or person that fraudulently obtains such funds or spends funds in a manner not permitted by law.”

Readers are reaching out to The Sun about suspicious PPP loans in their communities after searching the database of Colorado recipients

Jim Schmidt, the mayor of Crested Butte, said he was scanning the names of local companies that received loans. He honed in on the largest applicant “NATION%27S BEST HOLDINGS,” a business classified as “hardware stores” and approved for a loan between $1 million to $2 million. The money would retain 199 jobs, according to SBA data.

“199 employees,” laughed Schmidt. His town has a population of about 1,550 residents.

A rental home managed by Chris & Emily Miller pops up when searching for the Crested Butte address on the internet. The town also confirmed that there is a license for vacation rental for the same address listed under Miller Property Holdings LLC. 

Nation’s Best Holdings, without the gibberish, has the same name as one based in Dallas that helps small hardware stores. It was founded by a Chris Miller in 2019.

Answering the Dallas company’s phone number, a man who identified himself as Chris, would not answer questions about PPP loans or why the company was showing up with a Crested Butte address. 

“I’m not willing to participate,” he said, and hung up.

Schmidt said if the two companies are one and the same, it was bizarre to use the Crested Butte address for a Texas business.

“And if they’re using it as the address, are they paying Crested Butte taxes? It’s kind of like what are you hiding,” Schmidt said.

Several other companies listed in SBA data with loans of up to $10 million did not respond to requests for more information. That included MAC Acquisition in Denver, with the same address as Romano’s Macaroni Grill. It was down for two loans from different banks, each for $5 million to $10 million. One covered 500 jobs, the other 36.  

Wisconsin Illinois Senior Housing operates mostly in Wisconsin and Illinois, according to the organization’s site. It listed 500 jobs and a Denver address, plus a loan between $5 million and $10 million. The street address, however, is the same as Carriage Healthcare Companies in Lakewood. Carriage, approved for a separate PPP loan valued between $150,000 and $350,000, manages nursing facilities outside of Colorado.

Why so many loans saved 500 jobs or none, plus a $9.9 million error

There were also several typos and errors in the data provided by the SBA, which blamed mistakes on the lenders. The banks and lenders manually input the data, which led to more than 20 ways of spelling Colorado Springs

A database of Paycheck Protection Program loan recipients contained numerous typos, including 20 ways to spell — or misspell Colorado Springs. The official data was provided by the Small Business Administration, which blamed the errors and typos on local banks and lenders who manually added the loan information and approved them. (Screenshot)

Several businesses also listed 500 employees exactly — including 10 that received loans of less than $150,000. Meanwhile, 26,775 left the “jobs retained” box blank or put “0,” with 2,380 of those receiving loans of more than $150,000.  

Mercer, the Brownstein attorney, said the question was confusing; she suspects many business owners didn’t answer it.  

“The first version of the application said, ‘How many jobs are you retaining?’ and people were  like, ‘I don’t know. I’m hoping to retain all of them. That’s why I’m trying to get this money,’” Mercer said. “We won’t know how many jobs were retained until after the forgiveness applications come in because then we’ll know how many people were actually able to maintain their payroll.”

Businesses weren’t required to provide the number of employees to get the loan even though the SBA application asked for it, said Christopher Chavez, a spokesman for SBA’s Region VIII Office in Denver. But small businesses must provide that number and how much they paid employees when seeking forgiveness.

Other errors were pretty major.

Dutch’s Home Improvement in Colorado Springs received a PPP loan between $5 million and $10 million for six jobs, according to SBA data. On the low end, that would average out to $833,333 per employee for an eight-week period. On the high end, it’s more than $1.6 million.

Owner Gary Dutch called the loan amount “insane.”

“We did not get that, not even close,” said Dutch, who confirmed that all six employees still had jobs and the loan was less than $100,000.

Local SBA officials have chalked up similar glaring mistakes to “a data entry error by the lender,” said Chavez at the SBA. The official data released last week came from initial approvals, which may have been adjusted later before the loan was accepted. The PPP loan data indicates only that the loan was approved, the SBA said. The data also doesn’t mean the business accepted the loan or took the full amount.

In Dutch’s Home Improvement’s case, Dutch recalls there was an error on his application — “It was something like $18 million, something stupid,” he said. “They put the decimal point in the wrong place.”

MORE: $1 loans? $10 million for a nail salon? Colorado’s federal coronavirus loan data has some eye-popping errors

Rules and safeguards 

A few rules were added to prevent abuse, like the bankruptcy disqualification. PPP applicants also could not have more than 500 employees, a principal place of residence outside the United States, a delinquent government loan or an owner on parole or incarcerated. The company also had to be in business on Feb. 15. 

Another rule was intended to discourage companies with other funding sources since they were “unlikely” to make a case that they needed the money (see question 31 in the PPP FAQ). The government would also audit loans greater than $2 million.

But the revised guidance didn’t dissuade all public or investor-backed companies from applying. According to analytics researcher FactSquared, 440 public companies received loans, though 69 of them returned the money. In Colorado, at least 27 acknowledged receiving a loan, and at least two returned them. 

Even the bankruptcy prohibition is now in question after a Texas judge ruled in April to allow an emergency service provider in bankruptcy to get a PPP loan to maintain current staff during the pandemic.

The thing is, loans were approved for nearly every type of business

Tax-exempt nonprofits and religious organizations could apply and many did — about 4,000 nonprofits and 1,550 religious organizations were approved in Colorado. (While religious organizations are exempt from paying property taxes, all employees must pay income taxes, according to the Internal Revenue Service.)

So did 265 private and public charter elementary and secondary schools, 1,650 physician offices, 2,271 lawyers offices and 3,839 offices of real estate agents and brokers.The vast majority of loans were less than $150,000, with 91,019 in Colorado. An additional 13,336 received loans of more than $150,000, including The Colorado Sun. Overall, Colorado businesses were approved for $10.4 billion in PPP loans.

Some recipients legally received multiple loans for more than 500 employees. That was allowed for large hotels and restaurant chains that took a massive financial hit when pandemic safety measures began and business closures were mandated in the state. As long as each location employed fewer than 500 workers, PPP was available.

Good Times Restaurants in Lakewood received three loans for a total of $11.6 million to retain 1,400 jobs. The company had reduced managers’ pay and cut some staff but after receiving the loans, it restored pay and rehired workers at its drive-thru’s and restaurants, though not all returned. 

Timberline Steaks & Grille at Denver International Airport initially warned the state Department of Labor that layoffs were looming due to the pandemic safety measures and the decline in travel. But in April, parent company Mission Yogurt received a federal Paycheck Protection Program loan and was able to rehire workers at its restaurants, including Timberline. (Mission Yogurt handout)

Mission Yogurt, which operates many of the restaurants and eateries at Denver International Airport, warned of layoffs in March as coronavirus safety measures went into place. On its website, the company calls itself “one of Colorado’s fastest growing companies,” and employs 650 people.

In April, it received a $5.5 million loan for 500 employees. 

Its eateries, including Kentucky Fried Chicken, Root Down and Etai’s Cafe & Bar, never shut down closed completely, though layoffs occurred. With the money, workers were brought back to satisfy PPP loan requirements for forgiveness, Mission Yogurt President Rod Tafoya said in an email. 

“This loan helped cover costs to stay in operation,” Tafoya wrote. “The company is still hiring. Mission has exceeded hiring the number of employees covered as part of the PPP. The company has continued to hire, but this has proven to be a challenge as many still feel unsafe.”

No need for forgiveness

Here’s an easy one: American Financing, an Aurora-based mortgage company, was among the 90-some Colorado small businesses approved for a loan between $5 million and $10 million. 

The company’s loan won’t be forgiven.

That’s because American Financing isn’t asking for forgiveness. 

It received the loan in May, used a portion of it to pay staff and then realized the mortgage-lending market was better than anyone could have anticipated in a global pandemic. Mortgage rates dropped to record lows. And the housing market, despite early orders prohibiting open houses, surged in May and June. Colorado Association of Realtors said June’s pending sales are up 30% from last year. 

American Financing in Aurora borrowed a federal Paycheck Protection loan between $5 to $10 million. But during the first months of the pandemic, business thrived so owners Damian and Gabie Maldonado returned the money and paid back what they had used. (Handout)

American Financing, which has roughly 410 employees and now expects to increase staff by 50% this year, returned the unused part of its PPP loan to the bank and paid back the rest already, said Devan Barrett, the company’s vice president of advertising and marketing.

“Due to the economic uncertainty facing our business and the world during this pandemic, we decided to take a PPP loan to protect our company and keep all of our employees on the payroll, which was exactly the intent of the CARES Act,” Barrett said in an email. “Since that time, and with more clarity on our business stability and economic outlook, we have paid back 100% of those funds, retained 100% of our workforce and subsequently, have even provided dozens of new job opportunities for the community.”

PPP loans required applicants to certify that they needed the loan due to “current economic uncertainty.” But who could have known what the impact of the coronavirus would be? Congress passed the $2 trillion CARES Act to get money to small businesses fast — and with few safeguards built in to prevent fraud and abuse.

“The goal was to get a lot of money out the door very quickly, to help businesses keep going as much as they can and also keep people employed,” said Koger Propst, CEO of ANB Bank and the bank’s holding company Sturm Financial Group in Denver. “I’m not very sympathetic to the people (now) going back and looking at businesses and saying, ‘Well you shouldn’t have gotten this.’ Because if you wanted to limit it, then put more underwriting. But there was no underwriting.”

The loans are backed by the federal government. As long as applicants certified they needed the money and showed documents of existing payrolls, banks approved the loans. Banks were expected to “Know your customer,” but did not have to request personal guarantees or ask for collateral in the event a borrower couldn’t pay back the loan. The bank had to take the business at its word.

“It’s still been a wonderful lifeline for a lot of businesses and I just hope we don’t lose that,” Propst said. “When it’s put out that fast, there will be problems. But this has made a difference for a lot of small businesses and their employees.”

The unforgiven

While the government’s guidance for 100% forgiveness is still not crystal clear, there is one agreed-on rule of thumb: Rehire and pay employees even if there was nothing for them to do but stay home. 

For any employee laid off since Feb. 15, or whose wages or hours shrunk more than 25%, that same amount is subtracted from loan forgiveness. The loan amount is reduced proportionally to any reduction in pay or job cuts. A worksheet to help calculate forgiveness is on the federal forgiveness application.

Loan forgiveness for fast-growing Mile High Labs, a Broomfield extractor of CBD, is up in the air. The company received a PPP loan between $2 million and $5 million in early May. But it had shed jobs earlier in the year, including in March and April, according to a laid-off worker who spoke on the condition of anonymity. For 100% forgiveness, the company can still qualify if it rehires laid-off staff or replacements by Dec. 31 (a date that was originally set at June 30). The company, which on its website said it employed 180 people last year, did not respond to requests for comment.

However, any company could lay everyone off and keep the money. But then the loan becomes just a loan, albeit one with a very low interest rate of 1%. Loans must be paid back within two years if the loan was made before June 5, or up to five years for loans made after June 5.

At a massive greenhouse in Grand Junction, EcoGen Laboratories grows hemp for seeds and CBD Isolate. The company received a federal Paycheck Protection Program loan between $2 million to $5 million to save 163 jobs. (EcoGen handout)

EcoGen Laboratories, a hemp and CBD manufacturer in Grand Junction, may be under similar economic pressures as Mile High Labs. But its PPP loan of $2 million to $5 million for 163 jobs, has a good shot at forgiveness, though the company does not want to speculate. 

Since getting the money in early April, EcoGen kept its employees for the minimum eight weeks, which is now an optional 24 weeks. On July 1, it laid off 101 employees.

The money helped the company retain its employees for longer than they might have otherwise been able to, Andrei McQuillan, EcoGen Laboratories chief marketing officer, wrote in an email. After rapid growth, the company is now “right sizing” with recent staffing changes to “reflect the volatility in (the) price taking place across the board in the hemp genetics and hemp-derived products space.

“Notably,” McQuillan added, “EcoGen still employs nearly 100 people and will evaluate reopening positions as necessary to support further growth when the time is right.”

The key will be what happens with forgiveness. Lenders are expected to review payroll and other expenses to see how borrowers used the loan and whether the number of employees match up to Feb. 15.

Only then will the public learn how many of Colorado’s $10.4 billion worth of PPP loans convert to grants.  

“In the end, in order to get the loan forgiveness the business will need to show their lender that they paid their employees during the eight-week or 24-week period,” said Chavez, with the SBA. “That process will ultimately provide loan accountability.”

This story was updated at 5 p.m. on July 17 to clarify that ministers and clergy members are exempt from some taxes but must pay taxes on their income.

MORE: See a list of Colorado companies that received federal Paycheck Protection Program loans.

Rising Sun