Brian Scheinblum, owner of a boutique hotel and restaurant in Florida’s South Beach, filed his application for some of the government’s $350bn in small business rescue funds as soon as his bank began accepting them on April 6.
This weekend, he is one of the hundreds of thousands of small business owners across America anxiously watching as Congress haggles over extending a rescue scheme that left him empty-handed while giving millions to bigger businesses.
“Any time there’s a programme like this . . . there’s going to be some people that take advantage,” says Mr Scheinblum who employs 90 between South Beach’s Majestic Hotel and a restaurant on the same property.
“There are some people who said, ‘look, I’m going to take this money because I can get it’. Others, they are doing it for the right reason. Under these circumstances, I don’t blame anyone.”
As negotiations over a $250bn extension to the Paycheck Protection Program (PPP) continue into the weekend, businesses have been caught in the crossfire of a rescue scheme that has been dogged by delays, technical hitches and controversy over who is eligible.
On Friday it emerged that burger chain Shake Shack was among the scheme’s beneficiaries, as was Ruth’s Chris Steakhouse, which got $20m with help from JPMorgan Chase, America’s biggest bank.
“I’m upset because when I came to this country from Colombia I picked a big bank like Chase because I trusted their brand and now they have let me down,” said Andres Diaz, co-owner of Latin American restaurant and dance club Her Name Was Carmen in SoHo, New York. Mr Diaz said that on April 7, his banker told him Chase had run out of funds within minutes of the programme opening.
“I don’t have a problem with Shake Shack, but they have plenty of ways to tap liquidity. I don’t,” he added. Shake Shack did not reply to requests for comment.
Chase said it could not comment on individual cases, but added that the bank did not run out of funds on April 3, the day it opened the scheme. In a memo to clients on Saturday, business banking head Jennifer Roberts said she understood “that it’s been frustrating not to have been funded or to know where your application is in the process”.
Alicia Galante, a real estate broker in Fort Myers who approached three or four banks unsuccessfully for support as an independent contractor, said the fact that large companies could apply left the PPP open to abuse.
“What’s to stop any company from beefing up their payroll during this time, especially to the execs, that amount gets forgiven and the balance becomes a (low cost) loan?” she said.
Ms Galante’s attempts to apply were frustrated by requests for documents she did not have. “It’s very sad because the poor little business guy who put his life into a business isn’t going to make it,” she said, adding that contractors like her “pay taxes like everyone else too”.
Mr Scheinblum is more concerned about how his application was handled and how the scheme was designed than he is about losing out while bigger businesses got multimillion-dollar cheques.
His restaurant and hotel have been shuttered since late March, in line with local social distancing rules. The PPP scheme requires him to rehire workers and spend most of any money he receives paying them.
“So I have to give people a pay cheque, but I haven’t actually got any work for them because they can’t work, how does that help anybody?” Mr Scheinblum said, adding that he spends much more on property than on staff since real estate is so expensive in Miami.
The hotelier says that for more than a week, all he got from his bank was bulk messages saying it had received a lot of applications and was processing them.
On Thursday, he was asked for more information. He supplied it quickly. About an hour later, after the Small Business Administration announced that the programme’s $349bn had been exhausted, Mr Schleinblum got a bulk message saying “that the funds had run out”.
“I’m very disappointed,” he said, adding that he thought he had to apply through HSBC since they handled his payroll and companies had to provide details of their payroll as part of their applications for the rescue loans. HSBC did not reply to requests for comment.
Peter Norman, chief executive of Seattle medical equipment provider Bellevue Healthcare, spent the first 10 days of the PPP on a fruitless attempt to get a loan from Wells Fargo, who he has banked with for more than 20 years.
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A business contact then recommended Mr Norman approach a small community bank that he had never heard of. He approached them at 5pm on Monday evening, got approved for his loan on Tuesday morning, and got his money the following night.
“It’s important for people to know that they were not alone [being locked out by big banks], in that this process was not a fair or inclusive process at all,” said Mr Norman. “I don’t understand how some tiny bank put through an application for me that quickly, and my primary bank that has billions and billions of dollars of resources couldn’t. ”
In her memo on Saturday, Ms Roberts detailed the “extraordinarily manual and complex” process to set up the scheme, and said that even with 2,000 people working in 24-hour shifts Chase was left with “hundreds of thousands” of clients in the queue after the funding ran dry.
A senior executive at a large US bank said companies like his were hamstrung by compliance protocols that would make it impossible for them to process applications in the timeframe described by Mr Norman. That also prompted them to restrict their schemes to existing borrowers, disenfranchising other smaller businesses in the process.
One fintech offering the loans, Ready Capital, told the Financial Times that it was able to help more businesses because the group “does not face the same KYC (Know Your Customer) restrictions” as banks.
Larger companies such as Mr Norman’s, which has 200 employees, were particularly disadvantaged at Wells since the bank initially directed all of its resources to businesses with less than 50 staff and non-profits. Mr Norman said no one told him that when he applied. “The way that Wells Fargo has handled the communication in this process has made me realise that I need to find a different banking partner in the near future,” he said. “Preferably a small bank”.
Wells said it “moved as quickly as possible” to offer loans to “as many eligible borrowers” as it could. “We stand ready to submit additional applications as soon as additional funding is made available.”
Amnon Cohen, who runs Nevada-based real estate financing firm Lever Capital Partners, said he applied for an emergency loan from the SBA for himself and handled more than 30 applications from clients, family and friends for emergency loans or PPP ones.
“Most of them got letters saying, sorry, the funds have all been depleted,” he said, adding that bankers he spoke to said their companies were “prioritising their large borrowing base . . . as opposed to people who have one to ten employees”.
Data from the SBA shows that almost 45 per cent of the $349bn went to companies who were borrowing more than $1m. Just 17 per cent went to those applying for loans of less than $150k, the level that includes businesses whose monthly wage bill is up to $60,000. On a volume basis, those small businesses accounted for 74 per cent of the funds’ recipients.
Ben Waxman, who has repurposed his American Roots clothing company to make PPE gear, counts himself as one of the lucky smaller businesses. He says his small bank “worked tirelessly” on his application” and the money has already hit his account.
Bruce Couch, who runs a group that offers high-end presentation resources to mostly tech companies, was fortunate as well. He applied through Summit Bank, a Eugene, Oregon community lender, which he said was “amazingly proactive” and the money hit his account last week.
“It buys us several months . . . that’s a huge deal,” he said of the money’s impact on his business, which has had virtually all of its work cancelled until August. Mr Couch’s company the Bodie Group, directly employs him and his wife, and has about 12 contractors, who are applying for support in their own right.
Edward Shanaphy, who runs a tennis school in Florida, also got his application over the line at the eleventh hour. He said the money would help him prepare for socially distanced tennis classes this summer, when fewer children per court will mean he needs more coaches per child.
Those stories with happy endings are in the minority. JPMorgan Chase said it had “hundreds of thousands” of clients who were still hoping for PPP loans. Bank of America and Wells last week said they had 370,000 applications for the scheme. Since the SBA awarded money to 1.66m applicants from 4,975 banks and fintechs, it is likely that BofA and Wells also have hundreds of thousands of clients who did not make the cut.
The senior bank executive said that, based on his bank’s pipeline, unmet demand for the scheme far exceeded the $349bn already approved. “Our customers are really pissed off,” he added. “We know that.”
Additional reporting by James Fontanella-Khan