By Mary O’KEEFE

The Small Business Administration disaster loan and Paycheck Protection Program [PPP] through the CARES Act voted in by the Senate and House, and signed by President Donald Trump, was at first welcome news to small businesses but as it rolled out, for many mom and pop businesses the prospects did not look rosy.
This week according to reports, larger businesses received the first round of the PPP funds from the federal government. These funds are similar to a grant rather than a loan and do not have to be repaid if the majority of the funding is used for payroll to keep employees at work at their same pre-COVID-19 hours.
Reportedly, Ruth’s Chris Steak House, Ruth’s Hospitality Group, received a total of $20 million [two $10 million grants]. Shake Shack received $10 million. In a letter on the website LinkedIn, Danny Meyer, CEO, Union Square Hospitality Group, founder/chairman of Shake Shack, and Randy Garutti, CEO of Shake Shack, explained their reasoning as to why they applied for the PPP. They stated they were concerned for their over 6,000 employees and found that a stipulation placed into the CARES Act allowed large restaurant chains to be considered eligible for an SBA PPP loan if there were fewer than 500 employees per location.
“That meant that Shake Shack – with roughly 45 employees per restaurant – could and should apply to protect as many of our employees’ jobs as possible,” wrote Garutti.
The company applied and stated the “PPP came with no user manual and it was extremely confusing.”
Other businesses also received loans of $10 million including other restaurant chains and construction companies.
Unfortunately, the funding for PPP ran out within about 14 days, leaving many small businesses wondering if there were any options available to them.
“While Congress provided $350 billion for the Paycheck Protection Program to assist small and medium businesses, it’s clear that more is needed, and I am pleased to see the agreement reached [Wednesday] provides $310 billion in additional funding for PPP. I have heard from many businesses in my area who have been frustrated by the difficulty of getting the help they need and finding a lender who will work with them, and I’m concerned that funds to keep people on payroll aren’t reaching businesses who need them the most,” said Rep. Adam Schiff. “I am committed to working with small businesses, the SBA, large and small banks and credit unions, and others in Congress to make sure we do that. That is why I have also cosponsored legislation to provide another $900 billion in assistance, in addition to reforms to help more businesses access the help quickly.”
So now, with the new funding and planned better oversight, the PPP and SBA loans/grants are up and running again and small mom and pop shops will be given a second chance to apply and to get funded … but there was more than one business bump in the PPP road and that bump was in the form of banks.
In a world where all small businesses are created equal, the small business owner would go into a bank or credit union, get help with the application and get funding; however, that does not appear to be the real world. Many reported that unless they had a relationship with a bank they could not get any support. By relationship, for many that meant they had taken out some type of loan in the past. Some credit unions were able to work with the SBA, but some were not.
Many small businesses began to question how banks decided who they would accept applications from and, in turn, who would be funded.
It is important to note that SBA uses banks and approved financial institutions to fund the loans/grants it approved.
This week several of those small businesses, including local businesses, that questioned how the decisions were made to provide funding filed lawsuits against banks in an effort to get answers.
The Stalwart Law Group in Los Angeles has filed a lawsuit for their clients that include local businesses Tutti Fruitti in Montrose, One Stop Automotive and the Law Offices of Irina Sarkisyan, both in Glendale. Other plaintiffs include another law firm, a construction company, an optometry business, a cyber defense group, a promotions company and a restaurant group.
The cases that were filed on April 19 are part of a proposed class action suit that listed defendants JP Morgan Chase Bank, U.S. Bancorp, U.S. Bank, Bank of America and Wells Fargo.
The complaint states that the banks demonstrated unfair business practices, fraudulent business practices, unlawful business practices and false advertising.
“We would like to know what happened, why these people didn’t get funded,” said Ji-In Lee Houck, one of the attorneys who filed the suit.
She added that some of her clients had a good working relationship with their bank but still couldn’t get help. Those businesses did not ask for a large amount of money, and it seemed that those who didn’t have a large loan request did not appear to be processed. She questioned why the companies that asked for larger amounts, like $10 million, were able to receive their money when smaller business owners couldn’t even get processed.
Shake Shack stated they received $10 million of PPP last week but decided to return it. Public opinion has not been positive toward the company when it was learned of their loan, so maybe it was due to that negative publicity that it decided to return the money; however, according to the letter on LinkedIn, they stated the company was able to access “additional capital we needed to ensure our long term stability through an equity transaction in the public markets.”
Shake Shack was lucky to have the “public markets” to turn to, an option many smaller mom and pops do not have so they are once again fighting to get in the queue to get funded this time around.