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Financing

As demand for disaster loans soars, so does frustration

Banks quickly took massive numbers of applications as small businesses sought out federal help to get them through the coronavirus shutdown.
Photograph by Jonathan Maze

Small businesses, including thousands of restaurant companies, lined up with their banks in recent days as they sought their piece of $350 billion in federal loans designed to help them rehire staff and get through the coronavirus shutdown.

But the system also left hundreds of restaurant owners confused about the program and struggling to even apply for the loans. And some worry the assistance won’t be enough to survive the next couple of weeks, let alone through a shutdown expected to last at least through June.

“There’s a lot of very confusing information from different sources that didn’t align or match up,” Amanda Ballantyne, executive director of small business advocacy group The Main Street Alliance, said during a webinar Monday. “This is an existential crisis for millions of small business owners. If they don’t get cash to them immediately, we’re at risk of a multiyear recession that will throw our economy into chaos.”

Restaurants and other businesses were able to begin applying April 3 for Paycheck Protection Program loans, which were made available as part of a $2.2 trillion federal stimulus package passed last month.

The loans are considered a key component of that package for the restaurant industry because they are designed to provide operators with cash to operate at full staff for the next couple of months.

Demand for the loans, however, has been intense. On Sunday, for instance, San Francisco-based bank Wells Fargo, traditionally a major restaurant company lender, said that it had stopped accepting new applications because it was on target to distribute $10 billion in such loans—the cap placed on the company by the Federal Reserve.

“We are committed to helping our customers during these unprecedented and challenging times but are restricted in our ability to serve as many customers as we would like under the PPP,” CEO Charlie Scharf said in a statement Sunday.

Bank of America, meanwhile, quickly processed $30 billion worth of loans by Saturday morning and nearly $33 billion by Monday morning, or about 177,000 loans.

To make matters worse, technical glitches with the Small Business Association’s loan processing system over the weekend slowed the processing of applications.

Aquesta Bank, a small, eight-branch bank based in Cornelius, N.C., began taking loan applications on Friday, the day it processed its first loan. The company reallocated some staff that would have been working inside the bank to take loan applications and enter them into the U.S. Small Business Administration’s processing system. Those employees have been busy ever since.

“People were working overtime, all weekend long, late on Sunday,” CEO Jim Engel said in an interview with Restaurant Business. He said PPP loan applications were “through the roof.”

The firm has already processed $70 million worth of loans.

On Monday, the Federal Reserve said it would help backstop lending through the loan program. The Fed’s move is designed to encourage banks to make more loans. “That should help quite a bit,” Engel said.

Operators whose existing lenders are participating in the program reported a relatively easy process. But many expressed frustration with the program, and some reported major challenges finding lenders at all.

As some banks ran into their own caps on lending—or even opted not to participate altogether—that left operators searching for banks to get loans. And some operators don’t even have debt to begin with, forcing them to start from scratch.

“The idea of creating another relationship with another bank is daunting,” said Tiffany Turner, owner of Adrift Hospitality, a company that operates hotels and restaurants in Long Beach, Wash. She had relationships with two banks, one of which is not participating. The other ran into lending limits.

Turner filled out one loan application on Thursday and had to finish another on Friday.

Many banks are also focusing on their own customers, in part citing the sheer volume of applications they’re receiving. Aquesta Bank, for instance, is open to all applicants but is prioritizing existing customers and friends of existing customers, largely because it can only process so many.

“There’s a real practicality to it,” he said. “There are only so many hours in the day. Even with our reallocated resources, we’re limited to how many we can do.”

Challenges in getting funds is a major issue for small restaurant companies because many need cash now. Many operators have rent and other bills to pay, and they need to have conversations with their lenders.

That has many wondering if delays in getting the cash could force them out of business in the coming weeks.

“The dollars have to come soon,” said Davis Senseman, owner of small Minneapolis law firm Davis Law Offices. “The fact is, these businesses need cash to pay rent, and to pay themselves.”

“Days matter,” Senseman said. “Weeks matter. There’s been no direction [as to] when they can expect to see their money. They can’t have conversations with vendors, landlords, employees.”

Many operators also wonder whether the funding will be enough. The loans are designed to cover payroll, rent, utilities and other bills for the eight weeks after the funds are received. To get the loans forgiven, however, 75% of the funds have to cover payroll.

“We don’t know if we’re going to be open in eight weeks,” said Andrew Volk, who owns the Portland Hunt and Alpine Club, a cocktail bar and restaurant in Portland, Maine, along with his wife, Briana. “There’s so much uncertainty. It’s lovely to offer loans, but it’s difficult to know perhaps that I have to take on my employees, pay them, and let them go again.”

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