When Kyla Herbes was shut out of the first round of the federal Paycheck Protection Program, she was frustrated that larger businesses received millions of dollars in forgivable loans, while House of Hipsters, her vintage home decor shop in Barrington, got nothing.
Like many small business owners, the second round has been a different story for Herbes, whose $10,000 PPP loan application through BMO Harris rose to the top of the pile and was approved Tuesday.
Herbes is “breathing a sigh of relief” that she will have money to pay her landlord, but with new state guidelines offering no clear target date for reopening amid a global health crisis, the government relief may not last long.
“Even though I have $10,000 coming to me, it’s gone already,” said Herbes, 45. “It’s gone, and my business is still closed.”
Launched in April, the federal paycheck program offers businesses with fewer than 500 employees forgivable loans of up to $10 million to cover eight weeks of payroll. The Small Business Administration approved more than 1.6 million loans, worth $349 billion, in less than two weeks before the first round of funding ran out.
Many smaller businesses were initially shut out, as banks allegedly prioritized larger clients ahead of mom-and-pop stores. That led to a number of class-action lawsuits and pushback from lawmakers and small-business advocates, pressuring some “larger” small businesses like Ruth’s Chris, Shake Shack and Chicago-based Potbelly to give back their loans.
The $310 billion second round of PPP has been more inclusive, with banks and the SBA pushing out more loans to smaller businesses. The average loan size through Thursday is about $74,000, versus $206,000 in round one.
Nationally, the SBA has approved 2.5 million loans worth $185 billion nearly two weeks into the second round, which began April 27.
“In the first round, we kind of assisted those larger small businesses,” Rob Scott, administrator for the Great Lakes Region of the SBA, said during a news conference Tuesday. “Now we’re kind of getting deeper and deeper into the small business communities.”
In Illinois, the SBA approved 69,893 paycheck loans worth nearly $16 billion during the first round. Through May 1, the SBA had approved 89,735 second-round loans worth about $6.6 billion in Illinois.
The PPP loans can’t come too soon for many small businesses, with more than 1 in 5 owners saying they are two months or less from closing permanently, according to a study released Tuesday by MetLife and the U.S. Chamber of Commerce.
But as municipalities begin to relax restrictions and reopen in phases across the country, major concerns for small businesses include fewer customers, the need to protect their employees’ health and a resurgence of the COVID-19 outbreak forcing another shutdown.
Most small-business owners say it will take between three months and a year before the business climate returns to normal, according to the study.
On Tuesday, Gov. J.B. Pritzker laid out a five-phase plan to reopen Illinois that will require a vaccine, herd immunity or an effective treatment to fully lift social distance restrictions on businesses and events.
Dr. Anthony Fauci, a leading infectious disease expert on the Trump administration’s coronavirus task force, has projected it may take at least a year to create a vaccine.
Stacy Hawkins-Armstrong, 48, owner of Sha-Poppin Gourmet Popcorn in west suburban Westchester, is taking it a day at a time.
“You can’t plan ahead because you don’t know what’s ahead,” Hawkins-Armstrong said. “So taking it day by day is all we can do. “
A 20-year veteran of the popcorn game, Hawkins-Armstrong has operated her latest small storefront venture for about two years. She said business was booming, with a “massive amount” of shipping and orders for events such as birthdays, weddings, anniversaries, banquets, corporate gatherings and festivals.
Sha-Poppin was booked through September when the coronavirus pandemic hit Chicago. Then “everything canceled” and her revenue declined 60%, reduced to weekend-only curbside pickup.
During the first round of PPP funding, she was unable to even file her online application through her business bank, Chase, receiving error messages “for days.” She ended up getting a smaller $6,000 PPP loan through Seaway Self-Help Federal Credit Union before the $349 billion was depleted.
Hawkins-Armstrong filed a lawsuit seeking class-action status April 24 in Chicago federal court against Chase for allegedly cheating her out of the right to apply for a PPP loan.
“Her business is the exact business that this was meant to take care of,” said Chris Dore, a partner with Chicago-based law firm Edelson, which filed the lawsuit on behalf of Hawkins-Armstrong. “This money was just pulled out from under her feet. That is a travesty and a complete failure of the implementation of this law, that so many people like her were excluded.”
Chase spokesman Brian Hanover declined to comment on the lawsuit Thursday, but said larger clients were not prioritized.
Through May 1, Chase has approved $2.2 billion in loans for 19,500 Illinois businesses during both rounds of the PPP, at an average loan size of $113,000, Hanover said.
The issue of whether banks, which took in 1% to 5% in lender fees, had the right to steer business to larger clients, is at the core of several PPP lawsuits.
“On the SBA front, it is first-come, first served,” said SBA regional administrator Scott. “As far as the lending front, we can’t put leverage on (banks) unless we were given legal authority to do that, which we do not have through the CARES (Coronavirus Aid, Relief, and Economic Security) Act.”
While some applicants have filed lawsuits, others have simply switched banks to get funded during round two.
Melody Spann Cooper, 55, is chairman of Midway Broadcasting Corp., which owns WVON-AM 1690, a small legacy urban talk radio station in Chicago.
She applied online for a PPP loan in round one through her business bank, Bank of America. She was turned down a week later, also online, and instructed not to call the bank. Then the $349 billion funding ran out.
Outraged, she called her congressman. Then she reached out to a banker she knew at BMO Harris and applied again. The process was smoother in the second round. Midway Broadcasting was approved for a PPP loan April 27 and received the funding the following week.
“I’m not living and dying by stimulus,” Cooper said. “I want it as much as anybody else because I deserve it and of course, during times of uncertainty, as an entrepreneur, I want to make sure that I’m covered.”
Bank of America declined to comment.
Cooper was seeking “less than $100,000” to keep her 43 full- and part-time staffers on the payroll, and the advertising-supported radio station on the air for its predominantly African American audience during the health crisis.
She has already laid off four full-time administrative staffers, and has lost significant advertising revenue as retailers closed up shop during the state’s stay-at-home order.
Cooper said the PPP loan will allow her to fill the positions she had to cut. But she is also preparing for an evolution in her business model, if things don’t go back quickly, or ever, to the way they were pre-COVID-19.
That could include shifting away from spot advertising toward paid programming in a variety of forms, such as selling extended on-air interviews for clients.
“I went into COVID understanding that I was going to have to make some adjustments,” Cooper said. “I am an entrepreneur and disruption is good. Everybody has got to reimagine their business in this environment.”
House of Hipsters owner Herbes, who also runs a popular blog under the same banner, is not expecting her retail business, which she runs on her own, to snap back any time soon. She thinks it may be more likely that a flare-up of COVID-19 returns before her customers.
While the $10,000 PPP loan is helpful, it is less than Herbes expected, and at best, a short-term solution. Down the road, she is considering closing her shop and pivoting entirely toward blogging.
“I’ve got to figure out what I want to do with my business and how it’s going to look in COVID 2.0,” Herbes said. “Because COVID 1.0 sucks.”
