SALT LAKE CITY — Did federal emergency funding that went to multi-million dollar operations like Ruth’s Chris Steak House, the L.A. Lakers and Shake Shack leave hundreds of struggling mom and pop businesses out in the cold?
© Jeffrey D. Allred, Deseret News
Rep. Ben McAdams, D-Utah, greets public health nurse Maria DiCaro as he visits the Salt Lake County Public Health Center in Salt Lake City on Tuesday, April 28, 2020. McAdams thanked employees who are producing vital data about the source of the county’s COVID-19 infections.
That’s the question on the mind of Utah Democratic Rep. Ben McAdams, who is set to call for higher transparency, and accountability, for the hundreds of billions in funding that was earmarked for helping small businesses in distress due to COVID-19 related economic fallout.
Some 21,000 Utah businesses were approved for over $3.6 billion in federal emergency loans earlier this month in the first round of disbursements from the Paycheck Protection Program. That effort was seeded with $350 billion from the $2.2 trillion federal stimulus package passed in mid-March by Congress and then resupplied with an additional $310 billion in funding last week.
The U.S. Small Business Administration, the agency tasked with overseeing the program which disburses funds through loans originated by local lenders, has released some aggregated information about where the Paycheck Protection loans have gone, but so far, no details about exactly who did, and did not, get help through the program.
“The money behind these loans comes from our hard-earned tax dollars and we need to make sure not a penny is being wasted,” McAdams said. “It’s important for people to see who’s getting the loans and for how much.
While Deseret News requests for more detailed information on first round Paycheck Protection Program loan disbursement have been declined by the Small Business Administration, McAdams said he and other congressional members have also been precluded from seeing which companies in their home states are getting loans and in what amounts. He also noted that reports surfacing about mega-operations like the Lakers, Shake Shack and others getting money that was supposed to go to small businesses isn’t instilling a sense of confidence.
“The stories I’m hearing are alarming,” McAdams said. “I just want to make sure that the second round is allocated more fairly and that we’re not pushing small business to the back of the line, especially those businesses that don’t have anywhere else to look for a lifeline.”
The Paycheck Protection Program provides federally guaranteed loans to eligible small businesses in amounts up to $10 million and may be partially forgivable. The available financing can provide businesses that employ 500 or fewer with funds equal to 2.5 times the company’s average monthly payroll expenses.
Following the close of the first round of Paycheck Protection funding, Utah Credit Union Association President Scott Simpson said at a news conference that about 74% of the loans secured by Utah companies were $150,000 or less, reflecting that portion of funding having gone to actual small businesses.
But, that accounting still leaves thousands of recipients that received larger — and in some cases much larger — loan amounts in Utah.
One Utah business, the publicly traded biotech firm PolarityTE, announced it had been approved for $3.6 million in assistance via the Paycheck Protection Program.
In a statement included in a filing with the U.S. Securities and Exchange Commission, PolarityTE CEO David Seaburg also noted the company had almost $40 million cash on hand as of March 31.
“We closed the first quarter with approximately $39.5 million of cash on hand and, as announced last week, we also received a $3.6 million loan under the Paycheck Protection Program operated by the U.S. Small Business Administration,” Seaburg said.
In the same filing, the company reported it was experiencing, as a result of COVID-19 impacts, a slowdown in sales of its skin-regenerating products and was taking cost-cutting measures in response to reduced business volume. Those measures, according to the company, include reducing payroll expenses, reducing discretionary spending to “minimal levels” and managing manufacturing capacities “to ensure sufficient levels to support current procedure volumes.”
But in another SEC filing submitted just days after it announced its Paycheck Protection award, PolarityTE announced annual 2019 bonuses of $165,000 and 115,000 shares of company stock for Chief Operating Officer and President Richard Hague; 100,000 shares of stock and $125,000 cash for Cameron Hoyler, PolarityTE’s general counsel, secretary and executive vice president of corporate development and strategy; and 315,000 shares of stock for Seaburg. The same filing indicated the three executives also received hundreds of thousands of shares of restricted stock as part of PolarityTE’s 2020 equity investment program. As of the end of regular trading Tuesday, PolarityTE stock was trading at $1.07 per share.
In a statement, PolarityTE said the information from the SEC filings does not present the full story of the company’s current financial condition nor the economic impacts it is suffering due to COVID-19.
“PolarityTE is very grateful to have received the $3.6 million loan as part of the Paycheck Protection Program,” the statement read. “While we are a publicly traded company, we are a small business. We employ 130 individuals in Utah and across the country and our entire organization is committed to improving the lives of patients through our innovative technology platform.
“We are an early stage biotech company and our most recent public financial statement shows we realized a substantial operating loss in 2019, which means we depend on outside financing to operate and make payroll. Unlike large public companies, PolarityTE does not have easy access to capital markets. In addition, COVID-19 has adversely impacted our commercial operations. The Paycheck Protection Program loan that we received will help support the crucial work we do for patients and allow us to continue our operations during this difficult time by covering payroll and rent expenses. In short, we have the need for assistance the Paycheck Protection Program was intended for and we applied for the loan to meet that need.”
The company also noted that top executives had taken a salary reduction in 2019 and that a 10% salary cut had also been implemented recently for executives and employees.
“We applied for the Paycheck Protection Program loan based on the criteria that were published by the program’s administrators, which allowed us to qualify for the loan that we received,” the company said. “We appreciate the federal government’s support, which is helping our employees to continue their important work and continue earning their wages during this most difficult period for our country, our company, and the health care industry that our team works so tirelessly to serve.”
While McAdams did not call out any particular company in his comments, he did note that every jumbo loan made to companies whose need for the help was questionable was the equivalent of many loans that owners of small Utah businesses missed out on.
“For every one, well-connected big business that gets $4 million they don’t need, there are 20 small businesses that get nothing,” McAdams said.
Of the $310 billion in second-round funding Congress approved last week for the Paycheck Protection Program, part of a $484 billion package, some $60 billion was set aside for small banks and an alternative network of community development banks that focus on development in urban neighborhoods and rural areas ignored by many lenders.
McAdams said when the U.S. House reconvenes he’s ready to push hard for greater transparency and accountability in the disbursement of federal COVID-19 relief funds and noted it is only through an open process that lawmakers, and the taxpaying public, can assess the fairness of emergency funding distribution.
“No one should have to be a sophisticated, well-connected business to get the help they need,” McAdams said. “We need a way to certify that those who took the funds actually needed it. I’m going to be looking to see if this was all done appropriately.”
The Small Business Administration reported that as of Tuesday afternoon, the second round of Paycheck Protection Program funding had approved loans for over 475,000 U.S. businesses for $52 billion in emergency loans. The first round of funding funneled $350 billion in loans to some 1.7 million businesses.