Small businesses face ‘Kafkaesque’ process to claim critical loans

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Applying for the federal loan that could determine whether Scott Stephens’s two Phoenix restaurants survive the COVID-19 economic crisis quickly devolved into a Kafkaesque experience.

Stephens, who co-owns Beckett’s Table and Southern Rail with his wife and another couple, had already applied for an Economic Injury Disaster Loan through the U.S. Small Business Administration when Congress created the Paycheck Protection Program. 

The Paycheck Protection Program, which Congress enacted through the CARES Act in March, gives businesses loans to cover two months’ worth of payroll at an interest rate of just 1% – interest on the disaster loans is 2.5% – and full forgiveness for businesses that spend at least 75% of the money on payroll.

The disaster relief loan application was a simple process, though Stephens still has no idea if or when he’ll get the money he sought. Things got far more difficult when he applied for the paycheck protection loans. 

“To say it’s arduous and challenging would be an understatement,” he said.

The complications began immediately when Stephens tried to apply through Bank of America, where his businesses do their banking. 

Bank of America restricted paycheck protection loans to customers who already had previously taken out business loans, a criterion that shut out Beckett’s Table and Southern Rail. So he tried to apply instead through a community bank, which turned him away because he wasn’t already a customer.

Stephens was able to go back to Bank of America after it scrapped the loan requirement that stymied him before. But that process has proven exceedingly difficult, he said, requiring the use of a third-party document portal with no instructions on how to use it. He uploaded 11 documents, but got no confirmation that Bank of America actually received them. An email from the bank warned him that information about his application won’t be available through its financial or contact centers.

“You’re kind of out in this no man’s land, in a way, the ether of the internet, hoping that the things that you’re loading (are) actually being loaded,” he said. 

Stephens estimated he’s spent at least 30 hours working on the applications.

The fate of his restaurants quite literally hangs in the balance. If they get approved for funding through both programs, they’ll be in decent shape, Stephens said. If they only get one, he said, they can work their way through it. 

The two restaurants laid off about 90% of his 60-plus employees in one fell swoop after Phoenix Mayor Kate Gallego on March 17 ordered restaurants to suspend in-person dining to curb the spread of COVID-19. The restaurants have shifted to takeout, but have lost about 80% of their business.

In five days last week, Southern Rail did $6,100 worth of business, Stephens said. Before the coronavirus outbreak, that would’ve been a slow Friday night in March, during the restaurant’s busy season. 

The two restaurants now operate with a total of eight employees, a figure that includes three of the co-owners. Stephens said the quartet of restaurateurs is hoping to begin delivery service to go along with their take-out business. And they’d love to rehire all the employees they laid off. 

“The first thing (we’ll do) is bring back the staff,” he said. 

Like Stephens, Kim Van Der Veen is looking to SBA for a lifeline. 

Van Der Veen owns Burgeon Group, a company that creates interactive learning spaces for public libraries across the U.S. and Canada, and recently did a major installation at Phoenix’s Burton Barr Public Library. That library, like most others in the country, is now closed. And with municipal governments now facing the inevitable budget shortfalls that come with economic downturns, Van Der Veen expects much of the Burgeon Group’s business to dry up.

The company has shifted to making personal protective equipment for local hospitals, though many can’t afford much because the health care industry is feeling the economic pinch, as well. 

Burgeon Group has already burned through four weeks’ worth of cash reserves, and Van Der Veen said it only has another four weeks’ worth left. In order to keep its 15 employees on the payroll and to keep its Phoenix office, where the company’s inventory and tools are stored, the Burgeon Group needs the $125,000 it sought through the Paycheck Protection Program.

Without that money, Van Der Veen said the Burgeon Group likely won’t survive more than three months.

“The SBA loan means everything to us,” she said.

Like Stephens’s restaurants, Burgeon Group was turned away by Bank of America, where it has banked for 13 years, because it didn’t have any outstanding business loans with the bank. 

Instead, Van Der Veen said she turned to Arizona Federal Credit Union, where Burgeon Group was also a customer. In the interim, the forms she needed to fill out changed, creating more work as she applied with a second institution.

“There’s a lot of unknowns and a lot of extra stress for something that was supposed to be something helpful for our small business,” Van Der Veen said.

Christy Moore is still waiting to hear back from the SBA on the disaster relief loan she applied for last month.

Moore and her husband own Social Spin Laundromat, a chain of “purpose-driven” laundromats that connects its customers with services such as health care, counseling, literacy programs and voter registration. It hires people with physical and intellectual disabilities, and has four employees. On Wednesdays, Social Spin does free laundry for needy customers, a service that’s largely used by people who are experiencing homelessness.

Social Spin had a grand opening for its second store, in Mesa, on Feb. 29. 

“I was feeling really good. I thought that, for the first time since we opened the business, I might be able to start taking a salary after our initial few weeks of being open and seeing some increased revenue,” Moore said. “Then the pandemic hit.”

Social Spin has two major revenue streams, Moore said. One is a wash-and-fold service, which was largely dependent on commercial business from nonprofit organizations. Many of those clients have closed their doors, and much of that business has dried up as a result. Social Spin’s other revenue stream is coin volume from customers who come in to do their personal laundry. Moore said that side of the business has dropped by upwards of 60% percent.

Moore said she and her husband are committed to keeping Social Spin open. But if they don’t get the paycheck protection loan they applied for, that will make things difficult.

“We’re at risk of having to make some really difficult decisions. We’re in a long-term commitment for our newest location. We might have to assess the vitality of both those locations,” she said of her laundromats in Mesa and Phoenix. “But we’ve already made a lot of sacrifices to be here and I think we’re just going to keep making those same sacrifices.”

The CARES Act, the federal law that created the Paycheck Protection Program, requires the SBA to provide the loans within three days of approval. But business owners have been left in limbo, wondering when and if their applications will be approved. 

Some applicants have another concern regarding the Paycheck Protection Program: The $349 billion program is first come, first serve, leaving many worried that they’ll miss out. 

“It’s a race to get the funding because not enough has been allocated,” Van Der Veen said.

Many business owners are hoping Congress will approve another infusion of cash into the program. President Trump’s treasury secretary, Steven Mnuchin, has asked Congress to approve $250 billion in new funding, and Senate Majority Leader Mitch McConnell said he’ll work with his Democratic counterpart, Chuck Schumer, to inject more money into the program.

Stephens said he’d like to see another change: The program defines a small business as one with fewer than 500 employees. Pitting his restaurant operation and its 50 or 60 employees against companies with 450 people on the payroll isn’t fair, he said. A separate program aimed specifically at companies with 50 or fewer workers would give them the help they need, he said.