At first, Bill Hein Jr. was thrilled that his Amherst legal publishing company had obtained one of the coveted Paycheck Protection Program loans offered through the federal government.
William S. Hein Co. had been counting on the $740,000 from M&T Bank to help weather the economic storm caused by Covid-19 and the ensuing statewide business shutdown.
The privately owned company on North Forest Road missed out on the first round of $349 billion when the federal funds ran out within days of the launch. But its lenders at Buffalo-based M&T got the firm approved in the second round, after Congress renewed the program with another $310 billion.
In between, however, the Trump Administration – through the U.S. Small Business Administration, which is administering the PPP program – rewrote the guidelines in response to a public outcry and congressional criticism over how funding in the first round was allocated.
So when Hein finally got the money last week, company officials decided to return it rather than keep it. They feared that the company wasn't an appropriate borrower, wouldn't have enough time to properly use the funds, and might not qualify for the loan to be forgiven.
"We were a fit under the first phase, but not the second phase, when they changed the rules and regulations," said Hein, the company's owner and chairman.
The experience of Hein – the world's largest distributor of legal publications and owner of the HeinOnline legal research database – is emblematic of a challenge faced by many businesses and nonprofits across the country as they navigate the federal program that was originally designed to help them.
The goal of the PPP, created as part of the $2 trillion CARES Act, was to provide low-interest, short-term loans for small businesses with fewer than 500 employees that would be forgiven and paid off by the government if the businesses used it mostly to retain and pay their workers. The loans are provided through banks, credit unions and other lenders and guaranteed for repayment by the SBA, as long as at least 75% of the money is used for payroll over eight weeks.
Businesses struggle for federal loan help: 'We're going to run out of payroll money'
The SBA even approved more than 3,700 new small banks and credit unions to participate in the program who don't normally do SBA loans, including nine credit unions locally.
“PPP provides a critical source of capital for entrepreneurs, including eligible nonprofit organizations, Veterans organizations and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors,” said SBA Buffalo District Director Franklin Sciortino. “With these resources, we can put more entrepreneurs and small business owners in a position to succeed and maintain jobs that will in turn help drive our nation’s economic recovery.”
But the program only lasts through June 30, and it was rushed out and is rife with problems. Many small businesses complained that they were unable to get a penny the first time, while some prominent publicly traded companies, chain hotel and restaurant franchises, and commercial clients of the largest banks obtained loans that critics said they didn't need.
In response, the government tightened the rules, set new limits on eligible businesses and publicly warned other companies to give back the money or not even apply if they wouldn't really qualify and didn't truly need it. Federal officials even threatened audits and penalties.
The negative attention and threats prompted a number of companies to give back the money, while deterring many others from applying and accepting it because of what they saw as red flags, mixed messages and uncertainty.
Statewide, the SBA and its lenders have approved 281,058 loans totaling $37.8 billion, after accounting for givebacks and cancellations, said Kelly LoTempio, spokeswoman for the agency's Buffalo District Office. However, she said she was not aware of any givebacks locally.
Nor is Tom Mazurek, a partner at Tronconi Segarra & Co., one of the region's top accounting firms, which has worked to advise small businesses in the PPP. He said many companies he has talked with have wrestled with the program terms, trying to understand them, but they have all concluded they need it.
Keith Bookbinder, managing partner of accounting firm Lougen Valenti Bookbinder & Weintraub LLP, said he has "heard of a couple instances" of applicants pulling out of the program, but doesn't know the details.
"As far as I know, this is not a common occurrence," Bookbinder said.
In Hein's case, most of its 60 staff members were able to work remotely, but the company had no work for seven to 10 employees because its facilities were shuttered. So officials sent them home, but still paid them, said CEO Kevin Marmion.
Marmion said Hein initially appeared to fit the program's goal of keeping people on payroll, and the company's lenders encouraged them to pursue the loan, which had no restrictions at first. The company applied for $120,000 on the second day and got approved, but the money ran out, so it had to wait.
"We didn’t know what we were getting into, because there were no rules at the beginning," Marmion said. "It wasn’t really clear."
The program's rules specified that the money was to be used for eight weeks of payroll and similar expenses, but only from the date that the company received the loan. So it couldn't get reimbursed for payroll expenses in March and April.
And by the time it received the PPP loan, the company was already preparing to bring its employees back, so it was almost too late given the eight-week term for which the funding was intended. "It would have been a very shortened period," Hein said.
Additionally, the program now required the company to certify that it had no other option for financing, and needed the loan. But Hein had cash available to cover the expenses. And it couldn't use enough of the loan proceeds to make facility improvements for Covid-19 or purchase supplies in preparation for returning.
"We couldn’t use most of it, so we sent it back," Marmion said. "We’re probably not the company that should take it."
Meanwhile, lawmakers are debating proposals to extend the program from eight weeks to 16 or even 24 weeks, and to loosen the guidelines so that more of the money could be used for other expenses. Some of those elements were approved as part of the Heroes Act that was passed by the House of Representatives, but the Republican-controlled Senate has objected to that legislation, and recessed before it could pass a potential compromise.
For some small businesses, Paycheck Protection Program loans are a lifeline
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