With hundreds of state companies expressing outrage at abrupt changes in the U.S. Small Business Administration’s disaster loan program, Minnesota members of Congress are promising to quickly address the problem.
“What I would say to the SBA is: ‘Come tell us what you need in order to meet the commitments we made to the American public,’ ” said U.S. Rep. Angie Craig, a Democrat from Eagan who sits on the House Committee for Small Business. “Don’t just make arbitrary decisions. ... It is embarrassing.”
The agency’s stealthy moves even upset the region’s top SBA administrator, who said he was unaware of any rule changes and frustrated by the lack of communication.
At issue is an unpublicized policy that limits the amount of money a business can borrow through the Economic Injury Disaster Loan (EIDL) program, one of two key efforts aimed at helping companies survive the coronavirus-induced recession.
Congress gave the SBA $50 billion to fund the disaster loan program, but the agency has been swamped with more than 5 million applications, leaving the agency without enough funds to cover all of the requests, according to a Star Tribune analysis of the program’s lending activity. Business owners also have obtained more than $500 billion in relief through the Paycheck Protection Program (PPP).
In recent days, business owners have been informed that instead of borrowing up to $2 million each, the SBA can provide them no more than $150,000 through the disaster loan program.
The agency also backtracked on previous commitments. Company owners who were expecting to receive hundreds of thousands of dollars through the program told the Star Tribune that they obtained a fraction of that amount.
Melanie Koerperich, who owns an employment service in the state of Virginia, said she recently received $12,600 even though her company qualified for a loan of about $450,000.
“I was like, ‘Did you forget a few zeros?’ ” said Koerperich, a member of the leadership council of the National Small Business Association, a nonpartisan advocacy group. “It was just a slap in the face.”
Basim Sabri, who owns a mall in Minneapolis that caters to the Somali-American community, was hoping to obtain the full $2 million through the program, noting his monthly revenue has dropped from more than $1 million to about $120,000 now that the vast majority of his 500 or so tenants have shut down.
“If they offer me $150,000, I will probably reject it,” said Sabri, noting that he will seek funds from banks or private investors instead. “It is very sad that the government you support all your life lets you down when you need them. They leave you stranded.”
St. Paul architect James Garrett Jr., who hoped to land an EIDL loan of about $400,000, said he will take the $150,000 if he can get it.
“There is some type of path forward, but I am frustrated that our path seems so much more complicated than some of these larger institutions that only qualify as a small business under some kind of technicality,” said Garrett, referring to publicly owned companies that obtained millions of dollars in loans through the PPP program. “It’s like the small guys are subjected to more scrutiny.”
Regional SBA Administrator Robert Scott, who oversees Minnesota and five other Midwestern states, initially scoffed at the Star Tribune’s questions about the new policy, saying the rumors could have been stirred up by “politically motivated” Democrats.
But after the Star Tribune presented Scott with accounts from several business owners, he conceded that the agency’s Office of Disaster Assistance must have changed the rules without informing top SBA officials.
“It has not been communicated to people like me who are working with small businesses,” Scott said. “You can quote me on that.”
When pressed on how the communication breakdown could have happened, Scott said, “It is our program, but it is almost like the disaster assistance program is a different agency. It’s not, but they operate kind of differently. I am not trying to make excuses.”
Scott referred questions about the new policy to Alejandro Contreras, director of preparedness, communication and coordination at the SBA’s Office of Disaster Assistance. Contreras did not respond to e-mails from the Star Tribune.
Though the SBA has been providing daily updates on the PPP, the agency has provided a single report on disaster loan activity. On April 24, the SBA reported it had provided nearly $8 billion in EIDL loans to 38,984 applicants, with an average loan size of $204,000. At that rate, the SBA could fund no more than 1.7 million applications, or about a third of all funding requests, according to the Star Tribune’s analysis.
With $50 billion from Congress, the agency can currently fund a total of about $350 billion in loans, Scott said.
On May 9, Senate Democratic Leader Chuck Schumer, D-N.Y., and two other Senate Democrats asked the agency why it changed the rules without first coming to Congress for more money.
In a letter to SBA Administrator Jovita Carranza, the senators complained about widespread “mismanagement” of the EIDL program, noting the agency had imposed the new loan limits without notifying the public.
The senators asked Carranza to reverse the policy and allow companies to borrow up to $2 million again.
They also asked the agency to reopen the application process to all small businesses.
The SBA stopped taking applications from all companies, with the exception of agricultural firms, last week.
“This program is clearly not addressing the needs that exist right now,” said Rep. Dean Phillips, a Democrat from Deephaven who has been working with Republicans to craft legislation for small-business owners. “Our job is to fix what is not working.”
Many small-business owners said they have not heard from the agency since they sent in their applications.
“I’ve called over and over again, to no avail,” said Morgan Baum, owner of a pottery studio in Hutchinson. “They say I have to wait until a loan officer reaches out to me. I’d like to know how many loan officers the SBA has hired in the last two months, because they were not prepared for this level of demand.”
Baum, who is spending the $15,200 she got through the PPP program on payroll even though her shop is closed, said she is counting on landing a $60,000 disaster loan.
“It is the difference between staying in business and going out of business, frankly,” Baum said.
Though many business owners applied for both a PPP loan and an EIDL loan, some companies prefer a disaster loan because they can spend the money on supplies or equipment, or to provide working capital to help them survive the recession. All of those uses are barred by the Paycheck Protection Program.
“For many firms, the PPP is not as helpful as the EIDL program,” said Holly Wade, director of research and policy analysis at the National Federation of Small Businesses, a nonprofit organization that represents more than 300,000 independent companies.
Victoria Meloche said she is grateful that her two retail shops in Tower, Minn., received a $69,000 disaster loan May 6.
Meloche said she has no employees and was depending on the loan to get through what promises to be a tough summer. She used some of the money to install a sneeze guard at the cash register and to buy sanitizer and masks to protect customers.
“I’m feeling better now,” said Meloche, co-owner of Ubetcha Antiques and Uffda Thrifts & Gifts. “It straightened out a lot of things that went totally haywire in the last couple of months.”