Small businesses left out of government aid plan

Small businesses left out of government aid plan

Federal aid for small businesses ran dry last week, leaving many business owners who spent the last two weeks navigating a byzantine application process with no guarantee of assistance.

Under last month’s Cares Act, Congress allocated $349 billion to the Paycheck Protection Program and an additional $10 billion to distribute $10,000 Economic Injury Disaster Loans. The disaster loans can be used to pay rent and other expenses, and business owners must use 75% of their paycheck protections loans to keep employees on payroll.

The Small Business Administration announced last Thursday that it had run out of funding for both programs. Local small business owners said although they were counting on the paycheck protection loans to help pay their employees, neither program covered one of their most critical expenses: rent.

Brooke Rodd, who owns two boutiques on Ocean Park Boulevard, said the Small Business Administration disaster and paycheck protection loans she applied for last month won’t be enough to keep her out of debt.

If she receives them, Rodd said she will only be able to put about $17,000 toward the $50,000 in rent she estimates she will owe her landlords after the pandemic is over. Santa Monica put a moratorium on residential and commercial evictions during the pandemic, but tenants must make up any unpaid rent in six months.

“I understand the government’s plan is to put money back in the pockets of Americans so they help support our economy. That helps my employees, which is great, but they’re already collecting unemployment,” Rodd said. “It’s not helping small business owners, who are coming out of this with massive debt and no way to pay it.”

Even before the money ran out, small businesses owners ran into obstacles maneuvering through their applications that their banks made more convoluted.

Lana Negrete, the co-owner of Santa Monica Music Center, a musical instrument store that also offers music lessons, said banks either refused to help her apply for a loan or forced her to provide information that goes beyond what the SBA needs to disburse loans.

When paycheck protection loans became available, Negrete went to Santa Monica Music Center’s typical bank, US Bank, which told her it wasn’t ready to administer paycheck protection loans. Three other banks she tried told her she couldn’t obtain a loan without a checking account.

She went back to US Bank, which said it was ready to take applications, but only from individual business owners. (Negrete co-owns the business with her father, who founded it 49 years ago.) The bank also required her to provide information about her personal income and savings accounts.

When she tried to ask for help, she was told that bank representatives were not allowed to answer questions about paycheck protection loans and was directed to a hotline with a 72-hour waiting period.

“Banks have been given the freedom to make eligibility requirements and add layers of questions and paperwork that have nothing to do with securing the loan,” Negrete said. “Getting banks involved has created more hurdles than if we went to the SBA directly.”

Negrete eventually filed an application, but US Bank notified her Thursday it had been unable to process the application before federal funds ran out.

The only aid Negrete has been able to secure has come from a GoFundMe campaign, which she used to pay several employees. Some customers have bought online music lessons and rented instruments, she added.

“When something like this happens, we put our faith in the government, and they are not here for us,” she said.

In addition to selling musical instruments and lessons, Santa Monica Music Center supplies instruments to the Santa Monica-Malibu Unified School District and provides free lessons to low-income students through the Santa Monica Education Foundation.

Negrete said the center was taking in new business from UCLA and the Los Angeles Unified School District before the pandemic, but may have to close without another federal aid package that can be used to pay rent. She estimates that she will have to pay $42,000 in back rent six months after the stay at home orders are lifted.

“If we close, we’ll have to collect on all the SMMUSD instruments to pay our debts to the bank,” she said. “It’s so surreal. We were on the upswing … and this is just going to destroy us.”

Amy Robertson, co-owner of TREATS Frozen Yogurt and Dessert Bar on Ocean Park Boulevard, also said she doesn’t know how she will make up back rent within six months.

“I’m so happy that Santa Monica created a moratorium on evictions. If they hadn’t done that, we would’ve had to look at each other and lock up our doors and walk away,” she said. “But how the heck am I ever going to make up that money?”

Robertson said she didn’t receive any federal aid before CARES Act funding ran out last week. According to a report the SBA released Tuesday, half of the $247.5 billion in paycheck protection loans that were approved went to businesses requesting more than $1 million. Fifteen percent of the funding went toward borrowers asking for $150,000 or less, who made up 70% of all loan applicants.

“From what I’m hearing for small business owners, I haven’t heard of anybody who’s getting relief,” she said. “It feels like we’re back at the financial crisis, where only big companies are getting relief.”

Rodd said the government must provide rent assistance or forgiveness to small businesses or their landlords. Under a recent addition to Santa Monica’s evictions moratorium, a landlord may not evict a tenant who did not pay rent during the pandemic if the government already compensated the landlord for the unpaid rent.

Otherwise, Rodd said, only large companies will be able to survive.

“There has been nothing yet that’s geared toward saving Main Street,” she said. “Small businesses are what make our communities unique. I don’t want to live in a world of Chili’s and TJ Maxxes.”

madeleine@smdp.com