Posted on 03/22/2021 12:17:28 PM PDT by nickcarraway
A woman who took out a loan trying to save her small business during the pandemic now says that loan could cause her to shut down.
The owner just found out she owes thousands more dollars than she expected.
CBS 2’s Tara Molina is Working for Chicago, helping people navigate these challenging times. She reports that owner says she just can’t afford to pay it all back.
She’s on the hook for $36,000 today. Money she says she doesn’t have, and can’t be forgiven, all because of what she calls bad communication with the bank she turned to for help.
Amy, who wasn’t comfortable sharing her last name, built Yazz Jazz Music and Productions from the ground up.
“My business specializes in providing musicians, DJs, and bands for live events and weddings, social events,” she said.
When the pandemic hit, her business crumbled overnight. Forced to cancel more than 60 events, Amy said she turned to the Small Business Administration for help back in April, applying for a PPP loan through Bank of America.
“I was called by a banker from Bank of America who walked me through my application,” Amy said.
She got about $38,000 from the Paycheck Protection Program; money she says she set aside to pay her team through the cancellations.
Amy checked in with Bank of America for months regarding forgiveness of the loan.
Then, the call that led to her call to CBS 2.
“A couple days ago, they called me to notify me that they made an error, and that I was only qualified to receive $2,000 in forgiveness, and that I would have to pay back that $36,000,” Amy said.
CBS 2 reached out to Bank of America and the SBA to find out why. They said they can’t speak to specific cases like Amy’s, due to privacy laws, but said payments made to contractors don’t meet SBA requirements for loan forgiveness.
“We processed Paycheck Protection Program loans based on loan amount requests and representations made by businesses. In the forgiveness process, we are required to follow SBA rules about what expenses qualify to be forgiven,” Bank of America spokesman Bill Halldin said in an email. “Certain expenses, such as payments made to contractors, do not meet the requirements for loan forgiveness. In those instances, the loan continues at the SBA-established interest rate of 1 percent.”
Amy claimed the issue of payments to contractors, like her musicians, never came up when she walked through the process.
“I feel that I was misled,” she said.
After a year without music, this could be the end for her company.
“There is no way I would ask my team to pay me back that money. They used it to feed themselves and their families,” she said. “There’s no way I’m going to be able to pay that back. The money is gone.”
A spokesperson for the SBA deferred to Bank of America as the lender here, but said it’s up to the borrower to certify their loan eligibility.
The SBA’s frequently asked questions website also features two questions relevant to Amy’s case:
Question: Are lenders required to make an independent determination regarding applicability of affiliation rules under 13 C.F.R. 121.301(f) to borrowers? Answer: No. It is the responsibility of the borrower to determine which entities (if any) are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders are permitted to rely on borrowers’ certifications.
Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
Amy has reached out to Congressman Brad Schneider for help; but is hoping, in some way, speaking out helps others.
In a statement, Schneider’s office said, “Constituents with problems gaining access to services provided by the federal government, whether it is the SBA’s PPP program or a problem with Social Security, the VA (Veteran’s Administration) or otherwise, are encouraged to call Congressman Schneider’s office to work with our federal caseworkers who can help resolve your issue.”
CBS 2 is committing to Working For Chicago, connecting you every day with the information you or a loved one might need about the jobs market, and helping you remove roadblocks to getting back to work.
We’ll keep uncovering information every day to help this community get back to work, until the job crisis passes. CBS 2 has several helpful items right here on our website, including a look at specific companies that are hiring, and information from the state about the best way to get through to file for unemployment benefits in the meantime.
I believe there was no need for repayment, if you used the loan for the purpose specified. Sounds like maybe she didn’t do that. I would guess that, in this type of business, most of her “employees” were actually independent contractors, not on a payroll, and not receiving benefits.
??
>>most of her “employees” were actually independent contractors, not on a payroll, and not receiving benefits.
correct, and because they were independent contractors, they could have - and probably did - apply for their own forgivable loans.
Stupid people borrowing money and signing paperwork they didn’t read and can’t understand - what could possibly go wrong?
I was wondering when this carp would start happening, with these PPP loans.
Hopefully, this lady...with the help of the investigative reporter/reporting....will stop this nonsense, stat.
for sure now the larger institutions who greedily hitched onto the PPE bandwagon will never re-pay one damn dime and most if not all didnt really need it
And.....did she actually pay these contractors the $$? There should be reciepts, for all transactions....maybe the contractors were double paid (by her and their own loans) and may have to pay back.
She should have read the requirements before she applied. She doesn’t have to pay back the money immediately, she can get some pretty decent terms at a low interest rate.
A contractor is not an employee. They were not eligible to get a ‘paycheck’ from her.
They were eligible to apply for a PPP loan of their own or file PUA.
The payback is 5 years at 1% interest. I’m sure she can manage that.
If you don’t know the difference between an employee and a contractor, you probably should not be in business.
She has a 1% return rate through the SBA for this money.
Who didn’t see this coming?.....................
The Government giveth, and the Government taketh away.
More than that, if I remember correctly the loans were based on wages paid and reported on 941s. If she received the loan based on ordinary wages and then chose to flip all her “employees” to “contractors” she probably committed fraud.
Sounds like the people she paid were not payroll employees but independent contractors. Those payments were not specifically carved out by the PPP loan regulations. The regs changed a bit so forgive me if I am off by a bit but I think the final ruling was that 60% had to go to employees and 40% could go to overhead expenses. But the entire loan amount was based on historic payroll, 2.5 times your average monthly payroll, and you needed to provide the payroll quarterly reports with the loan application.
But I am pretty sure they were handling so many volumes of paperwork they were likely to just go through the motions and rubber stamp just about everything - some with the rubber stamp probably didn’t understand the specific clauses either.
If she really did give the money to her workers, they really should forgive the loan even if they were independent contractors. However, that creates another problem if the recipients of the money were also not reporting the income or taking unemployment money on top of the backdoor payments.
In reality this borrower needs to file 1099 reports on payments to contractors. Could raise a red flag for the workers if anyone is looking.
As for the terms of the loan, IIRC it is 1% interest payable over 5 years for whatever portion is unforgiven. So asking for $36,000 back in lump sum does seem a bit unfair. Worst case, $600 a month to pay it back. Hard for many to budget that right now, but not impossible in time.
Small shop owners are typically not the type to know the in and outs of these loans.
We got one for our church, and it worked because a retired group of accountants guarded that money like a a bunch of penny pinching mad men. We even paid some back that we didn’t use.
They were explicitly not employees, so the funds don’t cover them, when coming from her.
They were all self-employed, independent contractors.
Churches don’t pay taxes, and therefore should not have been bailed out with taxpayer funds.
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