{"id":90925,"date":"2021-03-24T09:00:00","date_gmt":"2021-03-24T09:00:00","guid":{"rendered":"https:\/\/www.propublica.org\/article\/how-a-federal-agency-excluded-thousands-of-viable-businesses-from-pandemic-relief#1056299"},"modified":"2021-03-24T09:00:00","modified_gmt":"2021-03-24T09:00:00","slug":"how-a-federal-agency-excluded-thousands-of-viable-businesses-from-pandemic-relief","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2021\/03\/24\/how-a-federal-agency-excluded-thousands-of-viable-businesses-from-pandemic-relief\/","title":{"rendered":"How a Federal Agency Excluded Thousands of Viable Businesses From Pandemic Relief"},"content":{"rendered":"\n

\n by Lydia DePillis<\/a> <\/p>\n \n\n \n

\n

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories<\/a> as soon as they\u2019re published.<\/p>\n\n <\/div>\n\n \n\n \n\n\n\n \n

Like every other storefront in downtown Lincoln, Nebraska, the Coffee House \u2014 a cavernous student hangout slinging espresso and decadent pastries since 1987 \u2014 saw its revenue dry up almost overnight last spring when the coronavirus pandemic made dining indoors a deadly risk. Unlike most, however, the business wouldn\u2019t have access to the massive loan fund that Congress made available for small enterprises in late March.<\/p>\n \n \n \n

The reason had nothing to do with the business itself, which had been having one of its best years ever, according to its owner, Mark Shriner. Rather, it all came down to one box on the application for the Paycheck Protection Program money, which asked whether the company or any of its owners were \u201cpresently involved in any bankruptcy.\u201d Shriner had filed for Chapter 13 in 2018 after a divorce and was still making court-ordered debt payments, so he checked \u201cyes.\u201d He was automatically rejected and lost about $25,000 in payroll and other costs that the program would have covered.<\/p>\n \n \n \n\n\n

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\u201cMy money is my store\u2019s money. When I got divorced and she was entitled to half, it\u2019s not like a company can raise money real quick,\u201d Shriner said, noting the way in which many small businesses are structured as pass-through entities that pay taxes on any profits as individual income. \u201cAll these businesses that had a tough time and are trying to make payments at the same time are getting kind of hosed.\u201d<\/p>\n \n \n \n\n\n

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Thousands of people file for Chapter 13 bankruptcy every year \u2014 282,628 did so in 2019 alone. Although it\u2019s not clear how many of them own businesses, all of those individuals were barred from the PPP program, along with the thousands of businesses currently working through a reorganization plan under Chapter 11 and the family farms that file under the lesser-known Chapter 12.<\/p>\n \n \n \n \n \n

In December, Congress allowed the Small Business Administration to give exceptions to some debtors. But so far the SBA has stuck to its position that debtors in bankruptcy aren\u2019t entitled to government aid. \u201cCurrently, the SBA is administering the law as written,\u201d SBA spokeswoman Shannon Giles emailed in response to questions.<\/p>\n \n \n \n \n \n

Although Shriner did receive the $10,000 Economic Injury Disaster Loan advance payment, which doesn\u2019t have to be repaid, the SBA turned him down for a larger Economic Injury Disaster Loan because of his personal credit. Instead, he took out two loans worth $107,000 from Square \u2014 with total fees of nearly $12,000 \u2014 to keep the lights on and the staff paid as they operated on a drastically limited basis, still down by more than half since before the pandemic.<\/p>\n \n \n \n

\u201cThe biggest consequences are that we haven\u2019t had the time to take a week and shut down and plot our way forward, come up with a to-go menu or some new things, because we\u2019re busy working the counter trying to save money,\u201d Shriner said. \u201cA lot of other businesses that got PPP have been able to hire people to help them head in a different direction, get apps made, fix their websites, that kind of thing.\u201d<\/p>\n \n \n \n

\n<\/p>\n \n \n \n

The prohibition on PPP loans going to debtors began with the SBA\u2019s original concept for the program: It extended its 7(a) loan program<\/a>, its most common credit offering for small businesses, which already bars bankrupt companies. New pandemic relief measures were basically grafted on to those rules, which reflect an agency position dating back to its beginnings in the 1950s that bankrupt companies were more likely to default.<\/p>\n \n \n \n

\u201cSBA has an institutional prejudice against people who file bankruptcy,\u201d said Ed Boltz, a North Carolina bankruptcy lawyer who serves on the board of the National Association of Consumer Bankruptcy Attorneys. \u201cThe attitude of government in a lot of things is, \u2018Bankruptcy is hard and confusing and these people are probably bad people.\u2019\u201d<\/p>\n \n \n \n

Almost immediately, this position was challenged in courts across the country. In Hidalgo County, Texas, for example, an emergency medical transportation company in bankruptcy sued after it was denied a PPP loan. A bankruptcy judge issued a temporary injunction against the SBA, saying it was in the public interest during the pandemic to make sure the company\u2019s trucks and helicopters could keep ferrying patients to hospitals. In June, the 5th U.S. Circuit Court of Appeals vacated<\/a> that decision, saying the judge had exceeded his authority.<\/p>\n \n \n \n \n \n

Meanwhile, the SBA hastily published a rule<\/a> explicitly barring companies in bankruptcy from participating in its pandemic relief program. \u201cThe Administrator, in consultation with the Secretary, determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,\u201d the rule read. \u201cIn addition, the Bankruptcy Code does not require any person to make a loan or a financial accommodation to a debtor in bankruptcy.\u201d<\/p>\n \n \n \n

Around the same time, a Florida radiology center also serving COVID-19 patients received a PPP loan, even though it was reorganizing under Chapter 11 bankruptcy. When it filed for approval with its bankruptcy court to take on the additional debt, the SBA objected again<\/a>. The bankruptcy court found<\/a> in favor of the radiologists in June, writing that \u201cit is plain Congress did not intend to exclude chapter 11 debtors from the Paycheck Protection Program.\u201d In December, however, the 11th Circuit overturned the lower court and sided<\/a> with the government.<\/p>\n \n \n \n

Maury Udell, the radiology company\u2019s lawyer, said he plans to appeal to the Supreme Court. The PPP is more of a grant than a loan, he argues, since all companies had to do in order for the money to be forgiven is spend most of it on payroll. Bankrupt companies are arguably more likely to do so, given that they\u2019re on court-ordered plans for how they must manage their expenses. Besides, the program did not require that companies demonstrate their ability to repay \u2014 plenty of businesses on very shaky footing applied for and received funding, sometimes filing for bankruptcy later.<\/p>\n \n \n \n

\u201cThe SBA\u2019s argument for not allowing Chapter 11 debtors is that the risk of nonpayment is high,\u201d Udell said. \u201cThat\u2019s not a factor in whether you were approved. It\u2019s just as high as anyone else, because there\u2019s no other underwriting guidelines.\u201d<\/p>\n \n \n \n

Frustration with the SBA\u2019s position mounted through the fall until December, when Congress passed a fresh round of $900 billion in pandemic-related relief, along with the regular budget. It included $285 billion for a second draw of PPP loans, and a bit of potential relief for debtors: an amendment to the U.S. Bankruptcy Code that allows PPP loans to businesses that have filed for bankruptcy under Chapters 12, 13 and Subchapter V, a new category<\/a> for small businesses established in 2019. (Chapter 11 debtors were left out.)<\/p>\n \n \n \n

However, there was a catch: In order to trigger the exemption, the SBA would have to write a letter to the Executive Office of the U.S. Trustee, an division of the Justice Department that oversees U.S. bankruptcy courts, alerting it to the change. So far it has not done so, even as Congress has extended the deadline for PPP applications to May 31, with $103 billion in authorized funds yet to be expended.<\/p>\n \n \n \n

President Joe Biden\u2019s choice to run the SBA, Isabella Guzman, was confirmed<\/a> on March 16. The SBA would give no indication of whether she plans to change course. Spokespeople for senators on the committees of jurisdiction either had no comment or said they were looking into the issue.<\/p>\n \n \n \n \n \n

Last week, as his hope of getting a PPP loan waned, Mark Shriner set up a GoFundMe page<\/a> to try to keep his doors open. More than $21,000 has flowed in. Meanwhile, he also learned about the Restaurant Revitalization Program established by the $1.9 trillion American Rescue Plan. So far, since it\u2019s a straightforward grant rather than a loan, it doesn\u2019t seem to prohibit applications from companies \u2014 or company owners like him \u2014 who\u2019ve filed for bankruptcy. But he\u2019s not counting on anything, since aid programs have been so disappointing.<\/p>\n \n \n \n \n \n

It\u2019s a difficult contrast, he said, when he looks around town and sees all the federal money that helped people who didn\u2019t always need it.<\/p>\n \n \n \n

\u201cI\u2019m not a wealthy person at all, but I have many millionaire friends who own businesses, insurance firms, architecture firms,\u201d Shriner said. \u201cThese millionaires got money and money and money and money from the government, and they\u2019re all driving on the golf course. It is tough when I think about it.\u201d<\/p>\n \n \n

This post was originally published on Articles and Investigations - ProPublica<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

by Lydia DePillis <\/p>\n

ProPublica is a nonprofit newsroom that…<\/p>\n","protected":false},"author":2254,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11458],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/90925"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/2254"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=90925"}],"version-history":[{"count":3,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/90925\/revisions"}],"predecessor-version":[{"id":93087,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/90925\/revisions\/93087"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=90925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=90925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=90925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}