On April 10, Eric Nelson got an email that meant the difference between being open and being closed: His loan had come through.
His restaurant in Norfolk’s Ghent neighborhood, Crudo Nudo, had been shut down for weeks — though he still serves free food once a week to people in the neighborhood who are down on their luck. He’d had to cut all his staff in March, when the coronavirus shut down restaurant dining rooms. He worked solo in his kitchen serving takeout food until that, too, stopped making sense.
But a week after he applied through his local branch of Towne Bank, he got word he had been approved for a federal small-business loan called the Paycheck Protection Program, a $349 billion aid package designed to offer money to ailing businesses during a COVID-19 crisis that has left the economy in shambles.
Businesses could apply for up to 2.5 times their payroll. And if they met certain conditions — including using 75 percent of the money to pay employees, and bringing staffing to previous levels within eight weeks — they could have the whole amount of their loan forgiven.
“For us, it means we are going to reopen,” Nelson said. “I was nervous we wouldn’t get it, but we fit the profile for it. We’ve only got eight employees. We borrowed $25,000, and 75 percent of the money has to be used for payroll, so we get to bring people back. You have a two-month period to use the money, so we would have until June.”
Nelson said that at his bank, the process was pretty simple: He applied on the Thursday after applications became available, and got his good news on the following Friday.
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An uneven distribution
Not everyone was as fortunate.
The loan program, passed as part of the federal CARES Act in March, ran out of money on April 16, leaving many thousands of small Virginia businesses in the lurch as Congress prepares to vote on a $310 billion expansion of the program.
Through a heavily lobbied loophole in the law, hotels and large chain restaurants were able to qualify as small businesses as long as each location had 500 or fewer employees. This meant that Ruth’s Chris’ parent company, with revenues of $468 million, qualified for a $20 million loan. (The local franchisee in Richmond and Virginia Beach says they saw none of that money, and didn’t apply for the loan.) Japanese chain Kura Sushi racked up $6 million, and Potbelly sandwiches got $10 million. Shake Shack got its $10 million as well, then sheepishly gave it back.
What’s more, the money didn’t get distributed evenly among states. Most of it seemed to pass over areas hardest hit by the coronavirus. Nebraska, which has one of the lowest number of confirmed coronavirus cases in the country, got 81% of its eligible payroll covered, according to a report by Bloomberg. New York and California, hard hit by the virus, got more like 40%, lower than anywhere except Washington, D.C.
And Virginia met only 50% of its need, worse than all but 10 states.
Donnie Fry IV, owner of the Food Trucks of Virginia truck parked at the Smartmouth Pilot House in Virginia Beach, says he applied through Navy Federal Credit Union on the first day the loans became available. He never got word back, and worries that his business will have a hard time surviving without help.
“A loan like this for my business would allow me to stop the current bleeding,” he says. “My bills haven’t stopped and my revenue is down about 70% from projections calculated before COVID. Even when things open back up, it’s going to be near impossible to hit the ground running after being financially emaciated for months, without assistance.”
Fry wonders if he would have done better if he’d filed for the loan through a different bank.
“Towne Bank seems to be the one I should have used,” he said. “I’ve heard several people confirm they applied and got funded through them.”
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A difference among banks
Turns out, when it comes to getting a federal loan, it matters who you bank with.
Of the dozen or so businesses we surveyed, the businesses able to receive a loan through the PPP program seemed to be the ones who went through smaller, local banks.
John Brittell, owner of AFK Books and Records in Virginia Beach, said he got the news he had been approved for a $37,200 loan just in time. His store’s cash had winnowed to about $10,000, which wouldn’t have been enough to cover the payroll and bills coming due.
“Whew! This will truly be a business/job-saver (for the next eight weeks at least),” he said in an email.
He had originally expressed interest in getting a loan through Wells Fargo, because he was already a customer there. But when the mega-bank told him in an automated email that they had reached their self-imposed limit and he might want to look elsewhere, he found a local bank, BayPort Credit Union, willing to take him on as a new customer and process the loan application.
He was still getting emails from Wells Fargo as late as last Tuesday after the bank had gotten regulators’ approval to lend more. They thanked him for his patience, and told him he could apply, even as BayPort had confirmed he was already approved. By Friday, the entire $349 billion the government agreed to guarantee was gone.
Bloomberg News has reported that Wells Fargo had only secured $120 million in loans for its customers before the money ran out.
Kevin Jamison, owner of Commune and Prosperity Kitchen restaurants in Norfolk and Virginia Beach, also tried to get a loan through Wells Fargo, where he’s a customer.
After Wells Fargo told him there’d be a delay in filing applications, Jamison called bank after bank, but couldn’t find one that would let him file an application if he didn’t already have a business account. Finally, the community bank down the street came through.
“Old Point in the Vibe District said they’d take applications from people that weren’t their clients. They said, ‘Let’s work together and get it done.’ They were on top of it, they were always in touch, and I wasn’t even one of their customers. They had no real incentive to work with me or help me out.”
Hampton-based Old Point National Bank had 594 loans worth $91 million approved by the SBA, 81% of all the applications it received.
But Jamison had lost too many days, and he didn’t get his approval in time. On the day the money ran out, he got another message from Wells Fargo.
“They said they were now ready to process my application,” Jamison said.
Other local banks were much more successful.
Atlantic Union Bank, based in Richmond, said it received more than 9,000 applications and got approval for about 6,500 of them, worth $1.4 billion. Of those, 857 were Hampton Roads business customers who will get $156.7 million. The bank is still taking applications from its existing customers if Congress approves the proposed $310 billion in additional funding.
Towne Bank, which has its headquarters in Suffolk, also had a high success rate.
“I never would have thought we could have made a billion dollars worth of loans in 13 days,” said Towne Bank President and CEO J. Morgan Davis.
Towne Bank, the largest in Hampton Roads by market share, approved about 5,000 loans — 4,000 of which for less than $350,000 each.
Davis said the vast majority of those who applied for a loan through his bank — 97% — got one. He said he expected the money would be in bank accounts no later than Monday.
“It’s worn our team out,” he said. Staff worked Easter weekend, night and day, he said — often logging 100-hour work weeks as bankers worked directly with customers to go through the process.
Unlike Atlantic Union Bank, Towne Bank isn’t taking any more applications until more funds are dedicated to the program, because Davis isn’t sure the same documentation will be used the second time around. But he did say the bank would aim to give priority to the couple hundred applicants who weren’t able to get a loan initially if the application is the same.
Davis expects the money will go even faster next time — if there is a next time — because the large nationwide banks have had time to build up a better-defined system for handling all of the applications.
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Loans not a perfect pill
But now that loans are beginning to make it to people’s bank accounts, some are already considering giving it back. Davis said he heard from one such customer the past weekend who was wrestling with whether it was worth it to call back employees, who could potentially earn more in unemployment for the time being, to instead work for less in a business that can’t open until at least June 10.
Elizabeth Baumann, president of the Virginia Beach Restaurant Association, says that the way the PPP loans are designed makes their conditions especially hard to meet for restaurants. Restaurants in Virginia have lost up to 78% of their staff during the coronavirus crisis, according to a survey by the National Restaurant Association.
Many restaurants might not even be able to fully open by the time the period of the loan ends, says Baumann, making full staffing difficult. And that’s assuming the businesses will be able to hire their workers back, especially when they won’t be making much money in tips.
Virginia’s unemployment system had previously offered a maximum of $378 a week in benefits, but the federal government has said it will pay laid off and furloughed workers, including independent contractors, an additional $600 a week because of the effects of COVID-19.
“So employees that were previously making $15 or $16 an hour just got a huge raise (during unemployment),” Baumann said. “Some restaurants that have reached out to former employees, they said, ‘No, let’s stay on unemployment.’ It’ll be a challenge when we go back to hiring.”
National restaurant groups have called for changes to the loan program, including relaxing the amount of the money businesses have to spend on payroll to 50%, and extending the time frame to use the money until the end of the year.
Businesses must spend their PPP loan money within eight weeks or lose it — a time frame Baumann fears is far too short to be useful to restaurants with closed dining rooms.
“We need that loan to pay our taxes, rent, insurance, bills, but we’re mandated to stay closed until June 10,” Baumann said. “And we only get 8 weeks to get our payroll back up to the normal level. I don’t know how to do that.”
Matthew Korfhage, 757-446-2318, matthew.korfhage@pilotonline.com
Kimberly Pierceall, 757-550-1903, kimberly.pierceall@pilotonline.com
