“The PPP loan was an essential lifeline to help them stay afloat,” Davis said. “Stein Mart spent all of the money on paying salaries, which was a significant help. In fact, Stein Mart was able to weather the March and April shutdowns due to COVID. Stein Mart failed because of the second wave in June and July, which swept the South, where most of the stores are located.”
Davis said the PPP program was not designed to save companies like Stein Mart from collapse but instead was crafted so that employees would continue earning income – and continue buying groceries and other goods, keeping the economy afloat. He noted that most Stein Mart employees likely lived paycheck-to-paycheck.
Experts say that as long as retailers borrowed the PPP funds in good faith, and spent it actually paying salaries, there likely will be no consequences to companies like Stein Mart that still ultimately go under.
“If it’s not enough money and they still go out of business, then they go out of business,” said Page Pate, an Atlanta attorney who has represented both people accused of PPP loan fraud and whistleblowers in those cases. “The only problems are when you make false statements or misspend the money. Did you spend the money on the right things?”
Stein Mart will seek forgiveness of the $10 million PPP loan on the grounds that it was used for payroll, Davis said. If denied, the debt to the US government will be added to the stack of unsecured creditors in the bankruptcy, to be paid out cents on the dollar.
Retail Ecommerce Ventures, the company that owns Pier 1 Imports, purchased the Stein Mart brand out of bankruptcy in November for just over $6 million, with plans to transform it into an online-only store.
Local officials anticipated business closure for years
Along the Canada border, where Idaho meets Washington State, a rural community of 13,000 has long braced for the closure of its largest private employer.
Ponderay Newsprint Co. employed nearly 150 workers at annual wages that ranged above $80,000. But the paper mill struggled through the decline of newspaper circulation, as readers turned to online platforms and demand for paper plummeted. The mill supplied newsprint for publications along the West Coast, in the Midwest, and in parts of Asia and South America, according to a company website, which has been taken down.
In April, Ponderay Newsprint took out a $3.5 million PPP loan through AmericanAg Credit. Within two months, the company filed a WARN notice saying it was letting go of all 148 jobs it had projected to save, while permanently closing down its plant in Washington State.
Officials in the rural area have anticipated the mill’s closure for years – a major blow to the local economy. Advertising losses tied to the virus further exacerbated the decline. Officials now fear a rail line that depended on its paper shipments could fold, too.
“It’s devastating, especially when you consider the impact on other businesses,” said Pend Oreille County Commission Chairman Mike Manus. “We have been bracing for it. But the reality is it’s hard to cope no matter what you do to get ready.”
Manus said company representatives warned local officials years ago that shrinking demand for its product left the plant’s future in jeopardy, highlighted when the mill canceled its contract to buy 90 megawatts of power from the area utility.
When Ponderay Newsprint filed for Chapter 7 bankruptcy in late June, citing more than $50 million in total liabilities, Pend Oreille County Public Utility District General Manager Colin Willenbrock said “news of the mill being indefinitely idled has long been anticipated” and that the utility “has been working tirelessly over the past several years to lessen the blow.”
John Munding, a trustee in the federal bankruptcy case, said the PPP funds were used for operations, like payroll. Ponderay Newsprint, he said, has no revenues left to repay the government loan.
Munding said the company is in the process of liquidating assets, which includes seeking a buyer for the plant, built in the late 1980s. While Munding did not know how exactly much the sale would generate, he said it would not be enough to pay all creditors.
One of the mill’s remaining owners at the time of bankruptcy was Indiana Newspapers, a subsidiary of Gannett, the corporate owner of USA TODAY, which owned 13.5% of the business.
Gannett CEO Mike Reed said that he was not part of the process of obtaining the PPP funds, negotiated between mill management and the lender, but he said the bankruptcy decision was made well after the loan.
“The hope with the loan would (be) that it would bridge to the other side of the pandemic and Ponderay would survive,” Reed said in an email.
Several other U.S. publishers had stakes in the company, as did a Canadian paper business. Following the PPP loan, two of the largest partners – McClatchy and Resolute Forest Products – exited the partnership, said Frank O'Toole, president of Gannett Supply Corp.
“The newspaper business has been in distress for years – the risk was always there,” said Todd Behrend, interim mill manager who remains there part-time handling aspects of the closure for the bankruptcy trustee. “When demand for newsprint fell off a cliff in March and April, it was just unsustainable at that point.”
Loan requests processed in minutes, with little review
Attorneys, whistleblower groups and government watchdogs blame a lack of accountability and the rushed rollout of the PPP for many of its problems.
At the onset of the pandemic, the program was inundated with loan requests. More than 680,000 applications were filed on a single day, said Getnick, the whistleblower attorney and chairman of Taxpayers Against Fraud. Many of the loans were processed in a matter of minutes.
Watchdog groups have cited more than $4 billion in improper loans, saying 50% of all funding went to just 5% of the applicants, with communities of color and microbusinesses left out. An MIT study in July showed that each job saved through PPP cost nearly $225,000.
“It started as an urgent program, and we didn’t expect it to reach the scale it has in size,” Caroline Ciccone, executive director of the watchdog group Accountable.US, said during a recent news conference.
Company executives have made headlines for fraudulently using PPP money to buy luxury items, like watches, yachts and sports cars. But experts say the bulk of fraud and waste in the program is more discrete – like a company exaggerating its employee count or estimated losses from the pandemic.
A USA TODAY analysis when the first batch of PPP data was released earlier in 2020 found that at least 700 vendors scored lucrative federal coronavirus contracts then also received emergency aid. Together those businesses took out at least $618 million in PPP loans through the SBA.
More: Coronavirus contractors double-dip government funds
The loan was designed to cover up to eight weeks of payroll but rules surrounding the program kept evolving. At least 60 percent had to be spent on salaries, while the rest could go to qualifying operating expenses, like rent or mortgage. Using the money for anything else could constitute fraud.
Changes to the CARES Act allow loans to be forgiven if companies rehired employees by the end of 2020. Businesses that couldn’t are expected to repay the note with modest interest – if they can. Those rules left a loophole for struggling companies: take the money, fold and leave nothing left to repay the debt.
When businesses closed anyway, the question will be how exactly the PPP money was used to delay the inevitable. Regulators expect some of that vetting to occur in the coming weeks and months, as the government determines which loans to forgive.
Already suffering taxi service hard hit in pandemic
Even when already-struggling businesses avoided bankruptcy and permanent closure, major downsizing sometimes followed the PPP loan, USA TODAY found, but some still hope the help will tide them over.
For years, cab companies have battled losses as the proliferation of ride-sharing services like Uber and Lyft bounded into the market. Shutdowns in the pandemic further battered the industry.
In Madison, Wisconsin, received nearly $690,000 in PPP loans in April to save 180 jobs, government records show. By summer, the taxi company announced it was laying off or furloughing 126 of those workers.
One of the cooperative’s largest customers was the Madison School District. Another was the University of Wisconsin. Trips from both froze up when classes were canceled for remote learning. Nobody was traveling for daytime medical appointments or nighttime entertainment, either. At one point, the taxi service was down to about 10% of normal business.
The company’s business manager, Bill Carter, estimates it lost “a couple million dollars” in revenue in 2020. To make up for it, Union Cab has been running a skeleton crew, he said, and cutting costs wherever possible. Aside from layoffs, the company took vehicles off of the road to save on fuel and maintenance.
Carter said the PPP money helped keep the remaining taxis running. Ultimately, that was not enough.
He understands the frustrations of other small business owners who also took out a PPP loan thinking it would be short-term but now have no way of paying it back. He’s counting on a large portion of his being forgiven based on guidance he has received from SBA.
Union Cab also took out a $147,300 SBA Emergency Injury Disaster Loan, another part of the stimulus package, federal records show. Unlike PPP, those 30-year, low-interest loans generally are not forgivable.
“It’s kind of a double-edged sword,” Carter said. “We didn’t have as much business, so we couldn’t have people work their normal schedules. But we also had people who were reluctant to drive because of the COVID situation, and we know we’re transporting (COVID) positive people.”
The company has started bringing passengers to and from COVID testing sites and even taking ill patients to quarantine. Drivers began delivering for grocery stores as demand for that service increased.
Carter says many of those laid off are now back working, although with greatly reduced hours.
“For most of the year, our battle has been trying to get our expenses if not lower, at least equal to our revenues,” he said. “We’re getting closer and closer to that.”
Dan Keemahill contributed to this report.
