Federal COVID-19 relief funds slow to reach Nome
On March 27, President Donald Trump signed into law the CARES Act, which provided $376 billion in relief for small businesses and workers. This made small business owners eligible to apply for a Paycheck Protection Program and Economic Injury Disaster Loans to help deal with the loss of revenue due to the Covid-19 shutdown. Fearing the grave economic impact of furloughed or laid-off employees, the Paycheck Protection Program, PPP for short, aimed to enable employers to keep their workers on the payroll through the shutdown. The Small Business Administration, which is administering the program, forgives portions of or the entire loan if the conditions attached to them are met by the borrower. Conditions include that 75 percent of the loan must be spent on payroll, only 25 percent can be spent on rent, utilities or the like.
Nome’s business owners are used to surviving long periods with little revenue. They live from the money they take in during three times of plenty. The Iditarod, including the basketball tournament, the summer tourist season, and PFD time allow them to replenish capital and make a little profit. Take away any one of the three and the balance sheet will be tilting dangerously to the wrong side. The state mandate to shut down all non-essential businesses just came about as the Iditarod got underway and the city asked Iditarod-related travelers to stay out of Nome.
“Nome businesses are a hardy bunch,” said Nome CPA Mark Johnson. “The small businesses that depend on Iditarod are really hanging on by a thread and those SBA loans would help a lot.”
The problem is few Nome businesses have been able to access the loans. The process has been slow all across the country but in Alaska, especially rural Alaska, only very few were able to secure a loan.
Kristine McRae, owner of Bering Tea and Coffee, was able to get a PPP loan to help with payroll. “I did some research on my own and talked to my coffee supplier in Anchorage who is also on the economic task force,” said McRae. The coffee supplier gave an online seminar, a webinar, about the different kinds of loans. Senators Lisa Murkowski and Dan Sullivan held three town hall meetings online where they answered questions about the Payroll Protection loans and the Economic Injury Disaster loans. “I’ve spent some time and learned a lot, because in my situation, I don’t want to take a loan that I have to pay back or pay back at a high interest rate,” said McRae. “But if they’re going to offer me a loan to protect my employees and keep my business open then I’m going to take that.” She reported getting emails about loans or grants that got to her too late. “Some philanthropist was giving 5,000 to small businesses in economically strained areas. I missed that by one day because I didn’t see the email.”
Such was the fate of Nome Chamber of Commerce members as a funding opportunity already had closed its doors before an email was circulated alerting Nome businesses of the grant. The U.S. Chamber of Commerce offered a $5,000 grant for businesses that employ three to 20 employees and operate in an economically vulnerable community. That funding was exhausted within minutes of the link going live to take applications.
Back to the federal loans. Dave Ahn at Milano’s applied for the PPP loan but was told the funds were already spent.
At Subway, Randy Pomeranz has been keeping the business going with take-out only. “We only applied for the $10,000 initial stimulus money that was out there,” said Pomeranz. “As of this point we haven’t received anything on that. We’ve kept most of our employees working so there is not a proper program we can apply for.”
According to Mark Johnson one of the problems is businesses have to apply for the loan through their local bank, the one they have their accounts with. Credit Union 1 did not offer a link to process loans connected to the COVID-19 funds. Most businesses in rural Alaska bank with Wells Fargo and they were not prepared to handle the large volume of applications. The application process was handled online only and Nome branch employees were not able to help people with applications. Also, the federal government put a cap on how much money Wells Fargo’s could approve loans for due to the Wells Fargo scandal a few years ago when nationwide Wells Fargo employees created millions of fraudulent savings and checking accounts on behalf of existing clients without their consent. In late 2016, the Consumer Financial Protection Bureau fined Wells Fargo $185 million, with more civil and criminal legal action still pending.
Another reason why rural, smaller businesses were left holding the bag was that many loans tended to go to larger businesses, because the larger firms have a closer working relationship with the bank’s upper echelons. For example, Alaska Airlines had already funding secured before lenders would even take applications. The New York Times reports in an April 22 article that private banks gave wealthy clients a leg up to apply and receive the pandemic aid. For example, Citibank’s private bank clients, whose minimum account size is $25 million, didn’t have to use an online portal to apply for a loan. In what is termed “concierge”-style, the bankers swiftly processed and approved loan applications of their millionaire clients and submitted the applications to the SBA. A public outcry over this abuse of bailout money caused some to return the money. For example, Potbelly, a Chicago-based sandwich shop chain with 474 restaurants and 7,000 employees returned $10 million in PPP funds that were supposed to go to businesses with fewer than 500 employees.
By the time most small rural businesses were able to apply, the federal money was already gone.
“The small business community is suffering through this Covid closedown,” said Nome accountant Mark Johnson. “People who do not get funded in the first cycle of the PPP loans, are getting notices that their applications are being processed but there’s no guarantee they’ll get funded in the second round, either.”
Businesses were encouraged by their banks to also apply at other institutions, banks or lending services in order to be ready for the next relief package, which arrived last week. Also, rules were changed on the fly. Initially, the SBA stated that a $10,000 advance on an approved EIDL loan was to be forgiven and the money turned into a grant, but the terms were changed to providing a $1,000 advance per employee, for up to 10 employees.
Congress passed a second wave of federal funding in form of a $484 billion coronavirus relief bill to help small businesses and hospitals. Banks have alerted loan applicants that they will forward loan applications to the federal Small Business Administration, in charge of distributing the money. As of Tuesday, the SBA reports that more than 475,000 loans valued at $52 billion were approved. However, the target kept on moving as banks were told that they could only submit a certain amount of applications per hour.
Confusion over Alaska disbursement of federal funds
The State of Alaska is to receive a $1.25 billion federal bailout package. Last Friday, Governor Mike Dunleavy proposed to distribute $562.5 million in three payments to Alaskan communities, with Nome to receive $5.67 million, according to a spreadsheet the governor’s office presented. According to the document the following amounts were listed for regional communities: Brevig Mission 274,000; Diomede: 116,870; Elim: $259,623; Gambell: 359,490; Golovin: 127,827; Koyuk: 218,417; Savoonga: $385,892; Shaktoolik: $229,402; Shishmaref: $324,865; Stebbins: $352,405; Teller: $214,310; Unalakleet: $633,038; Wales: $143,083 and White Mountain: $152,933. However, the terms of the payments are not clear and Nome City Manager Glenn Steckman said he’d been in touch with other city managers across the state through the Alaska Municipal League and found that there was no clear guidance given what the money could be spent on. It is unknown if it can be used to offset the loss of tax revenue due to COVID-19 closures. The disbursement of the funds need legislative approval.
The governor also proposed to use $337 million for COVID-19 related health costs and $300 million for small business relief. These $300 million are not connected to the federal PPP or EIDL programs.
Asked how the state ensures that the $300 million will indeed go to small businesses and not large corporations, Representative Neal Foster (D-Nome) told the Nome Nugget in an email exchange on Monday that the federal government tried to close this loophole by issuing clearer guidelines, and that the Governor must follow those guidelines. “We will be having finance meetings, and we can ask the administration on the record how they intend to follow the intent of the federal distribution. What will the application process look like? Which agencies are responsible for disbursement? How will they ensure that funds are distributed correctly? If a future federal audit finds the funds were distributed improperly then Alaska would be on the hook for repaying those funds. We don’t want to get to that point in the first place, and we want to make sure this is done correctly to help our small local businesses,” Foster wrote.
He added that transparency is the key, and the administration has already proposed that communities submit monthly reports to ensure that funds under the community program are used properly. “We can also ask this same reporting mechanism be required of banks, AIDEA, AHFC, Commerce etc.,” Foster wrote.
Separately, the Alaska Industrial Development and Export Authority board at its March 27 meeting created the Sustaining Alaska’s Future Economy Guaranty Program, AK SAFE for short, to confront the economic crisis Alaska businesses face as a result of the COVID-19 pandemic. That program provides a loan guarantee of up to $1 million per borrower. According to an AIDEA press release, the objective is to enable Alaska’s banks and financial institutions to immediately provide additional capital to Alaska businesses through their existing relationships as they continue to manage terms with those borrowers. The caveat: Businesses have to have an existing loan agreement in place to qualify for the program and it’s a loan, not a grant nor does it have the prospect to be forgiven. Loan agreements through previous PPP or EIDL applications don’t count.
In an April 23 press release, AIDEA’s Commercial Finance Director Chris Anderson said that the Commercial Finance Division has been extremely busy approving loan participation modifications generated by lending institutions throughout the state. “We’ve seen a 150 percent increase in loan modifications in just three weeks, and have approved all of them,” he said. Call (907) 771-3043 or email AKSAFE@aidea.org for more information.