Chased Away, by Joe Bruno
By now most of us have read, or seen on the news, how the 350 billion dollars Congress set aside to help save America’s small businesses has been distributed—all of it, there’s not a nickel left. Among the major stories are those involving unequal distribution of the money along party lines, with Republican states getting a far higher percentage of loan approvals than Democratic states; there are documented discrepancies among banks, with some banks processing very few applications, like Wells Fargo, and others processing many, like JP Morgan Chase; and, perhaps the area that’s received the most attention, there is the surprising news that many large, and even publicly traded corporations, applied for and received huge loans (some in excess of the stated loan limit of 10 million dollars) while many bonafide small businesses, like mine, have not received a dime.
With the passage of the Cares Act, Congress allocated 350 billion dollars to the Small Business Administration (the SBA) to help save Main St. from the utter devastation that closing America’s businesses was surely going to bring. The plan was that a small business, a business with fewer than 500 employees, could borrow up to 2.5 times its monthly payroll. Exceptions were made for larger businesses, like chain restaurants, as long as no single restaurant in the chain employed more than 500. This was a weak spot that would soon cause the entire plan to fall into disgrace. A borrower, as long as it followed the rules and used the money for rent and payroll, would later be able to ask that the loan be forgiven, that is, turned into a grant. It was a bailout, a program set up to help small businesses stay afloat until they could reopen again, to avoid the inevitable bankruptcies that the government mandated shut-down would cause. It seemed a great idea.
To get the money into the hands of the nation’s many small businesses, the Cares Act directed the SBA to loan the money through the nation’s banks and lending institutions. Businesses wishing to participate had to apply to a bank. This put the banks in charge, and is where the Merry-Go-Round broke down.
Stepping back a bit and considering what the world may look like to a Congressman, it is easy to understand how, looking across a vast chamber that holds all 435 colleagues, one might divvy up 350 billion dollars. (No snickering, please). In a chamber that seats a million things don’t work the same. Bracing themselves for the onslaught of Cares Act loan applications that was about to befall them, the banks chose to limit who could apply--most of them accepting applications only from existing business clients. (A business without a banking relationship was just out of luck).
Next the banks had to make sure they were following the rules; they didn’t want the Federal Government coming back later and accusing them of errors and improprieties, etc. And all this had to be done in a hurry. Some banks forged ahead and accepted applications even before they were 100% sure they were following the SBA’s guidelines correctly. Other were cautious. If a small business were fortunate enough to be the customer of a daring bank, their application would go in early, but if one were banking with a cautious lender, it may never happen at all.
Putting the program into the hands of private banks has led to uneven access. As I write the news is coming in that Bank of America and Wells Fargo are both being sued over their handling of the applications. B of A has already gone into court defending its right to put some applicants ahead of others; so they are even admitting it. God bless America—and its banks.
So aside from Red State/Blue State issues, and aggressive bank/timid bank issues, and fake small businesses dipping into the fund (like Ruth’s Chris and Shake Shack, both multi-million dollar enterprises) there’s this whole matter of bank duplicity. And what’s amazing me is that even as I write, new stories are coming out about how rotten this whole thing is.
In 14th century English, when the word business first appears, it meant to be busy or occupied in an activity. Collecting baseball cards, or having sex for that matter, was, in that sense, business. Over time, and factoring in the industrial revolution, after which the daily activities of humans became drastically altered, the word morphed into going to the bathroom and making money. Hmmm…Banks are engaged in business (presumably of the latter sort), that is, they endeavor to make money, a profit, by providing a service.
Cares Act loan applications are very simple forms. In fact, it is a single page of basic information about the business, plus a page of places where one attests to what a good citizen he is, and finally a signature. To that simple document one attaches a spread sheet that shows payroll for a month, rent and utilities, health insurance costs (if any) and a few other things. The rest of the application is just copies of tax documents that prove the numbers on the spread sheet. That’s it. For the bank this is a walk in the park. A qualified bookkeeper in the bank can review all this and certify the numbers add up in a few minutes to an hour at most.
In the case of the Cares Act loan applications, as I understand it, banks stand to make 3% in fees for their efforts. So, a bank that processes my application for $130,000 will make $3900 for its work. A good reason to get to it, you might think. But how about Shake Shack’s application for 10 million? Ah, now you are seeing the light. With the same effort a bank can make $300,000.00 processing Shake Shack’s application, but only $3900 processing mine. Oi, oh, I mean, huh, wtf, really? That’s business folks. After all, a bank owes its shareholders the highest return, right? Is it any wonder then that JP Morgan Chase has scandalously processed so many of the huge Cares Act loans while so many of its peanut sized clients are wondering if they will ever get to open their mom & pop stores again?
But there’s more to it than even that. While the simple numbers dictate that bigger is better, there’s also that bigger is fatter too. Ruth’s Chris is fat. That means that over the years Ruth’s Chris uses a lot of the bank’s services and therefore makes a bank a lot of money. Would it do to lose customers like that? Would it not be a disservice to the profit-entitled shareholders to let fat clients like that slip away, while giving out piddling loans to guys like me? To say nothing of giving out loans to businesses that are not even customers at all. If I were the bank I’d do the same thing. You would too. It would seem your duty, your obligation. You’d feel you did the right thing. That’s how B of A can barefacedly go into court and defend its right to put some applications ahead of others. Never mind that Congress said the loans were to be given out on a first come, first served basis. Easy for Congress to talk like that! Let them give them out. They put the fox in the hen house and then asked it to be fair. Absurd, you can only ask it to be a fox. Anything else and it will turn around and laugh at you. What’s wrong with Congress?
And so now you know what this is about: American banks are laughing at Congress. There ought to be a law. And incidentally, bruculino has received NO Cares Act money. And while we are at it, neither has it received the $10k grant they promised all businesses, big and small. Just like most people have yet to receive the measly $1200 they are supposed to survive on until…until when? Until they die?
The take away here might be that administering the Cares Act should never have been entrusted to an institution that cares about making a profit. The Cares Act is about saving our society, not about making money on the deal.
After having been given a lot of misinformation by our Business Banking Relationship Manager at Chase, misinformation that caused us at least two days’ delay, we submitted our loan application on April 7. Today, 12 days later, they have just notified us that they are looking it over. Ruth’s Chris, on the other hand, who asked for 20 million dollars, double the limit set by Congress, got their loan in a day.
Ruth’s Chris is laughing at Congress too. And so am I. And so should you.
PS Today, as I post this article on the bruculino website, the news broke that a shamefaced Danny Meyer, founder of Shake Shack, is publicly, openly, noisily, and with a profound wagging of a reproving finger at Congress for having gotten him into such a mess, is returning the ten million he couldn’t stop himself from taking from the Cares Act loan program. Yes, it was legal for his 200 store mega-burger operation to go begging for a share of the Cares Act pie, but as he now admits, it wasn’t right—though he doesn’t exactly say that. What he says is that there are others, like me, who are for more in need of it—though he doesn’t exactly mention me by name. But what he doesn’t address at all is how he just happened to be first in line. And that’s the real crime. That his bankers at JP Morgan Chase had him all prepped out so that when the bell rang, there he was, his loan a done deal, all packaged and ready to go, mustard and fries on the side please.