Seven Vermont companies and nonprofits received as much as $10 million each from the federal government’s emergency Paycheck Protection Program (PPP), the federal loan program that was set up to help small businesses survive this year’s extended Covid-19-related business closures.
The Small Business Administration on July 6 released information on the U.S. companies that borrowed to meet payroll and other expenses through the PPP. The loans are converted to grants if borrowers meet certain criteria, including that about 60% of the money is used for payroll.
The SBA didn’t identify the borrowers with loans of $150,000 or less. But the rest were named and grouped into loan ranges up to $10 million, the maximum available under the program.
In Vermont, of about 12,000 PPP borrowers, just seven nonprofits and companies were in the top tier, with loans of $5 million to $10 million: PC Construction in South Burlington; GW Plastics in Randolph; Copley Hospital in Morrisville; Bennington College; ITech US Inc. of South Burlington; Momentum Manufacturing Group, the former NSA in St. Johnsbury, which describes itself as one of the 10 largest specialty manufacturers in the U.S., with 540 employees; and Vermont Energy Investment Corp. in Winooski. PPP loans were designed for small businesses, defined as those with fewer than 500 employees.
The rest of the named borrowers represented a wide range of Vermont enterprises, including private and religious schools, attractions like Shelburne Farms, and an array of construction companies, breweries, manufacturers, law firms and medical offices. Sterling College in Craftsbury received between $350,000 and $1 million, as did the Stratton Mountain School and Ski Foundation, the Woodstock Farmers Market, Vermont Public Radio and the Long Trail School in Dorset.
Loans of $1 million to $2 million went to Vermont Academy in Saxtons River, the Shelburne senior community Wake Robin Corp., Vermont Teddy Bear, the Skinny Pancake restaurants, the Tata’s Natural Alchemy skin products company in Whiting, and Peck Electric Co. in South Burlington.
The Woodstock Resort Corp., Vermont Law School, the Autumn Harp beauty products manufacturer in Essex Junction, the Vermont Electric Co-op, Gardeners Supply, Hubbardton Forge, the Downs Rachlin Martin law firm, Simon Pearce and St. Johnsbury Academy were among dozens of companies that received from $2 million to $5 million.
The new federal SBA loan guarantee program, which Congress hastily crafted as the extent of the economic emergency created by the pandemic started to become known in the late winter, initially required borrowers to use 75% of the money on payroll within two months if they hoped to apply for loan forgiveness. The Treasury Department later in the spring lowered that to 60%. This requirement discouraged many hospitality business owners from applying, because efforts to suppress the spread of the virus made it impossible for those businesses to reopen fully, or in some cases at all.
But the initial enthusiasm for the loan program – which ran out of money within two weeks on April 16 – has not returned. The second round of PPP funding wasn’t all spent, and the program reopened to applicants on July 6. This round closes August 8.
The criteria for having the loans forgiven were particularly difficult for restaurants to meet, said Cassie Polhemus, CEO of the Vermont Economic Development Authority, one of the Vermont lenders that is making the SBA-backed PPP loans.
“At first there were a fair number of restaurants, but as the guidance kept dribbling out, and applicants became more informed and aware about how they needed to meet the forgiveness, that became a real challenge and kind of tailed off,” said Polhemus. While the new guidance has made it easier for restaurants to use the program, Polhemus said there’s still worry about what kind of business conditions the autumn will bring. Meanwhile, banks are also taking a more cautious approach.
“Some banks – and I can’t say all — started to wind down and sort of turn off the application portal, as the banks became concerned about a couple things – one, will these loans actually be forgiven?” she said.
“The banks are carrying a loan that is paying 1% on their books,” she said. While the loans have a 100% guarantee from the SBA, “it’s never a given that will go smoothly either,” Polhemus said. “So there is that risk from an asset management standpoint for the banks. The banks are thinking about their own liquidity.”
As a taxpayer-funded grant program administered through the SBA, the PPP program has been criticized for assisting large, wealthy companies while making it more difficult for small businesses – which are less likely to have close relationships with lenders – to take advantage of the loans. Demographic data was requested but not required on the applications, and only about 25% of the applications included it.
“The limited data that is available indicates that PPP loans have largely shut out women- and minority-owned businesses, who lack access to traditional banking relationships,” wrote John Arensmeyer, founder & CEO of the San Francisco advocacy group Small Business Majority to lawmakers on June 18.
“It’s become abundantly clear that the program needs an oversight tool in place so we can ensure that the funding is reaching the communities and businesses that need it most,” he said. “The program was allocated nearly $660 billion dollars in funding, but it remains unclear where that money has been spent and whether it’s been distributed equitably.”
VEDA’s mission is economic development lending, and Polhemus said VEDA has helped many PPP borrowers who didn’t have a relationship with a bank.
“I think banks initially were prioritizing their existing borrowers, so some folks were having challenges in finding a lender,” she said. “We did a lot of crazy stuff. We had a few that were as small as a thousand dollars. It’s a lot of work to process something that small.”
VEDA made about 200 loans worth $10 million in the first round of the PPP program, and 100 loans worth about $1 million in the second round. Polhemus estimated that the average loan size was under $100,000.
The SBA loan data includes information about how many jobs were supported during the shutdowns. While some companies said that they retained hundreds of jobs, in other cases that number is zero.
Kevin Morehouse, a spokesman for the SBA in Vermont, said that lenders filled out the information.
“They were under so much pressure to enter applications into the system that they probably made some mistakes,” he said July 7. “That first round of funds, everybody was afraid it was going to run out. Our lenders were trying to ensure as many of our Vermont businesses got the PPP funding as possible.” Nobody knew if there would be a second round, he noted.
In the frantic early days of the pandemic shutdowns, the normal caution often present in the lending world was suspended when it came to the PPP. Borrowers “self-certified” much of the information on their applications.
Accordingly, the SBA noted that just because a business was approved for a PPP loan, there’s no guarantee the loan will be forgiven. All loans over $2 million will be reviewed.
“Further, a small business’s receipt of a PPP loan should not be interpreted as an endorsement of the small business’ business activity or business model,” the SBA said.
Update: Following publication of this report, the Vermont Energy Investment Corp. provided additional information about the loan it had received. The original amount was $5,391,900. However, upon reviewing additional guidelines from the SBA, VEIC decided to return $5,137,489 and keep $254,411.
Correction: An earlier version of this story referred incorrectly to a Treasury Department amendment of its rules governing PPP. While it initially required borrowers to use 75% of the money for payroll if they hoped to apply for loan forgiveness, that figured was later lowered to 60%.
Editor’s note: The Vermont Journalism Trust, the charitable organization doing business as VTDigger, authorized acceptance of a Paycheck Protection Program loan in late April.
