The Hilton Head Island Packet
April 22, 2020
On the first day that funds for the initial $349 billion Paycheck Protection Program became available, Ramona Fautini, owner of Common Ground coffee shop in Beaufort, applied “almost immediately” through her bank.
That was over two weeks ago, and her application remains in line with hundreds of others.
Many small business owners like Fautini have one question: what happened to my application?
“The whole process was supposed to be easy for small businesses. I filled everything out and waited,” she said. “Mine was never approved.”
After waiting a week for the loan to go through her local bank, Coastal States Bank, Fautini tried Wells Fargo in hopes things might move faster. But Wells Fargo stopped accepting new applications three days after the loan program began due to a deluge of applications.
Coastal States Bank told her that her application is currently “in queue,” she said.
“We had a lot of folks that didn’t get through because we hit our capacity limitation,” said Stephen Stone, president and CEO of the bank. “With a limited amount of funds and everybody trying to get it at once, it put institutions in a very difficult position.”
Stone said CSB — which has a presence on Hilton Head Island and in Bluffton, Savannah and the Atlanta metro area — was able to grant “north of $100 million” in loans to businesses during the hectic two-week period.
Fautini is frustrated that of the more than $3.8 billion that went out to S.C. businesses, she wasn’t included.
Nationally, Congress and the White House have been taking heat because of the large companies that received PPP loans. Among them was Ruth’s Chris Steak House, a 150-location chain that received $20 million from the small business loan program.
Potbelly’s 400-location sandwich shop chain was granted $10 million.
Shake Shack, a burger chain based in New York City with 275 locations worldwide, subsequently returned its $10 million PPP loan.
Common Ground has one location and five employees, only two full time.
“I don’t know what happens behind the scenes,” said Fautini. “I have no idea what the process is.”
WHAT IS THE PROCESS?
The problem that led to a small business program leaving thousands of small businesses out is not what happened behind the scenes.
Everything happened in plain view.
“None of this is against the rules. [Banks] followed the guidelines,” said Frank Knapp Jr., president and CEO of the S.C. Small Business Chamber of Commerce.
“The guidelines simply turned over the process completely to the private sector. Without any guardrails,” he said.
The Small Business Administration fully guaranteed PPP loans to banks across the country. The loans were created to act as lifelines to workers, and required business to spend at least 75 percent of the money on payroll and the rest on payments such as rent or mortgages.
Small businesses could apply for the loans through their local banks, and the banks would approve them to help the businesses survive the coronavirus pandemic. But the $349 billion pot was to be awarded on a “first-come, first-serve” basis, according to U.S. Treasury Department’s rules.
The problem was the massive number of businesses that needed help.
Once PPP went into effect on April 3, the dam of applications broke in South Carolina and across the country. The SBA declined to provide figures on how many applications the program had received.
Banks were simply overwhelmed.
“We had bankers working well into the night past 1 and 2 a.m. and then starting at 5 and 6 a.m. for almost two weeks,” said Stone of CSB. “They were working through the weekend, through Easter weekend” and ultimately until the funding was gone.
With locations in Georgia, the Carolinas, and Virginia, South State Bank “received more than 10,000 inquiries” about receiving PPP loans and were able to grant “more than half of that,” according to John Boretti, South State’s president of the Beaufort region. He said in a statement that the loans totaled nearly $900 million in small business loans.
Pinnacle Financial Partners has markets in five southern states, including South Carolina, and received approximately 12,000 applications and were able to grant approximately 6,000, according to spokesperson Joe Bass.
‘BUILDING A PLANE AND FLYING IT AT THE SAME TIME’
CSB and Pinnacle confirmed to the Island Packet and Beaufort Gazette that, as was the case at many banks, they did not turn any new applicants away but did prioritize existing customers when processing loans requests.
Some small business owners, whose original bank may not have been providing PPP loans, would have to try their luck at other institutions.
These other banks had to make the difficult choice of either accepting everyone they could or accelerating the loan applications they were able to process with the dwindling pot of money as they were “racing against every other bank,” according to Bass.
Some of the blame lies with the SBA which, Stone said, could have given much more guidance. He said the agency did not inform banks of final regulations for loan document approval until 24 hours before the PPP was to go into effect.
“If there was ever an instance of building a plane and flying it at the same time, this was it,” said Stone.
‘NOT A VERY FAIR PROCESS’
There are approximately 400,000 small businesses in South Carolina that have less than 500 employees, according to Knapp.
When the SBA stopped accepting loan applications April 16, nearly 23,000 had been approved in South Carolina, agency data shows.
“We have a lot of need out there. We have a lot of demand for some kind of federal money to help them survive. The process turned out to be not a very fair process,” said Knapp.
An analysis from Bloomberg News shows the total funding from the SBA was not evenly distributed. States such as Nebraska and North Dakota received a larger share in proportion to the number of businesses that were eligible for the loans. South Carolina is 31st on that list among all states.
Additionally, there is the issue of what qualified as a small business.
The PPP, as first designed in the $2.2 trillion CARES Act, was only for businesses with fewer than 500 employees. The Washington Post reports that after an intense lobbying campaign from the restaurant and hotel industries, specific locations and subsidiaries were added under the small business definition, even if they were part of a national or international chain.
At least 75 publicly traded companies received PPP loans, according to the Associated Press.
Greg White, S.C. district director of the SBA, told the Island Packet and Beaufort Gazette that the agency could not reveal the identity of loan recipients in the state.
The largest restaurant group on Hilton Head Island, the Southeastern Restaurant Entertainment Group, used to employ more than 800 workers and applied for PPP, according to Alan Wolf, president of SERG.
When asked by the Island Packet and Beaufort Gazette if SERG’s loan was granted, Wolf said “no comment.”
THE SECOND WAVE
The Senate approve a bill for more coronavirus aid, which provides an additional $320 billion for the lapsed PPP.
Of the new funding for the program, $60 billion would be reserved for lending by small and medium-sized financial institutions.
U.S. Rep. Joe Cunningham, a Democrat who represents South Carolina’s 1st District, urged more oversight and regulation in the new wave of funding in a letter to Congressional leaders on Monday.
In that letter, the Lowcountry congressman recommended specifically setting aside funds for employers of less than 500 workers and “detailed reporting” of which companies are receiving PPP loans.
The House is expected to pass the bill Thursday, and President Trump has indicated he will sign it. It is unclear if any new regulations have been tacked on to the new PPP funding.
CSB, Pinnacle, and South State banks all told the Island Packet and Beaufort Gazette that they would be able to fast track loan applications from those small businesses that didn’t make the initial cut, whenever the next round of funding arrives.
For now, all small business owners like Fautini can do is wait.
“Hopefully in the next round of stimulus, we’re considered,” she said. And she’d rather remain hopeful that complain.
“I didn’t want this to sound like sour grapes,” she said. “I wanted to get the word out for the people who need ([these loans). For the people who were overlooked.”
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