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N.C small business loan program struggling to allocate all funding

N.C small business loan program struggling to allocate all funding

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Offering small business owners in North Carolina an economic loan lifeline during the COVID-19 pandemic is proving to be more challenging than expected.

The N.C. Rural Center said last week that $53 million out of $90 million in state Rapid Recovery loans remains available. The application deadline is Oct. 15.

As of Sept. 15, the 1,062 loans approved since the program began in early May are worth a combined $37 million. There have been 645 applications declined, while another 1,971 have been withdrawn or are pending documentation.

"This program was launched this spring as an urgent response to the historic economic crisis facing the backbone of our state's economy —small businesses and family farms," said Patrick Woodie, the center's president.

"We are committed to raising awareness that these funds are available through this carefully vetted and proven loan program that’s geared to help small businesses stay on their feet by helping them make payroll, pay rent or pay vendors.”

On Tuesday, the center announced changes to the loan term, "based on loan applicant feedback."

Small businesses can borrow up to $250,000, compared with the initial $50,000, based on the business' losses because of COVID-19 and current revenue. Loan sizes are meant to cover at least two months’ worth of current revenue.

Instead of getting up to six months without loan payments and a loan term of up to 6½ years, there would be no payments for 18 months and a loan term of up to 8½ years.

The interest rate would drop for the first 18 months to 0.25%, instead of the initial 4%. After 18 months, the interest rate rises to 5.5%.

Individuals with greater than a 20% ownership in the applying business “must personally guarantee the loan.”

"We appreciate the confidence given to the Rapid Recovery program once again by state leaders," Woodie said.

Cooling demand

The amending of the terms comes after Republican legislative leadership recognized the cooling of demand for Rapid Recovery loans.

In late August, GOP leaders opted within the third COVID-19 relief bill to shift $50 million from Rapid Recovery to the State Office of Budget & Management to shore up the state’s funding match for the federal Lost Wages program.

The transfer was made in part because any unallocated funds from the federal CARES Act must be returned to the federal government after Dec. 31.

Rep. Donny Lambeth, R-Forsyth, and a lead House budget writer, said "it is fiscally irresponsible for any state agency or organization that received funds to be used to help North Carolina businesses and citizens not to allocate those funds."

“We do have a fallback mechanism that will allocate money to others in need if they (Rapid Recovery officials) cannot find anyone in need.”

Local borrower

Among those borrowing from the Rapid Recovery loan program was Lisa Bugg, who operated The Collegiate Shop Apparel & Gifts of Kernersville.

The retail store at 128 W. Mountain St. primarily made custom sports apparel and other paraphernalia and souvenirs with a wide variety of local, Atlantic Coast and Southeastern conference teams.

Bugg said in a testimonial on the Rapid Recovery website that the loan was "a huge help during an already stressful and emotional time."

However, the loan wasn't enough to keep The Collegiate Shop in business.

According to the Collegiate Shop's Facebook page, Bugg announced July 24 the store was closing. Following a clearance sale, the store closed permanently Aug. 28, as Bugg shifted her focus to her Lady Bugg Embroidery & More business.

Bugg could not be reached for comment on the Rapid Recovery loan participation.

Bugg said in her testimonial that August and September typically were the store's prime revenue months generated from college football and tailgating.

The pandemic hit Bugg's business just two years after she made a major investment in buying a commercial embroidery machine, a heat press machine and a vinyl cutter.

Bugg expressed confidence in the Rapid Recovery testimonial that the loan was "going to help us get through the other side of this.”

Several factors

After initial impressions that $125 million in Rapid Recovery loans might not have been enough to meet demand, there have been several reasons cited for the cooling off.

They include:

  • More small businesses than expected qualified for the federal Paycheck Protection Program, which offers loan forgiveness if certain performance requirements are met;
  • A lack of desire to take on additional debt, particularly if the business owner or operator wasn’t in a position to immediately rehire workers or ramp up production and services;
  • An ill-fated Democratic-sponsored effort to provide $30 million in grants to small businesses; and
  • Loan proceeds may only be used for maintaining or restarting a business.

The Rural Center cautioned that Rapid Recovery loans “are not designed to be a singular source of assistance for small businesses.”

“Repayment is expected either from more permanent funding sources or from the future cash flow of the business.”

Calvin McRae, vice president of public policy for Greater Winston-Salem Inc., said that “while each company's situation is unique, there are some common reasons why some businesses have not applied for relief from federal or state programs.”

“This ranges from confusion regarding the rules, uncertainty regarding loan forgiveness criteria, and difficulty navigating the application process.

“A lot of our advocacy efforts have been centered around clarifying the rules and language, attempting to widen the scope of those eligible for relief, and making requests to have as much of the funds forgiven as possible,” McRae said.

Still hopeful

Lynn Minges, president of the N.C. Restaurant and Lodging Association, said in a statement that "hundreds of restaurant and lodging businesses have already turned to the Rapid Recovery program to help them stay afloat."

"Expanding the program to offer loans up to $250,000 with 18 months of no payments makes it a very useful tool to help businesses in the most affected industries as they adapt to the realities of the pandemic."

Getting the support of the restaurant and lodging association could be pivotal considering Minges has expressed disappointment with other legislative small-business loan offerings.

For example, the third COVID-19 relief bill raised from $15 million to $60.5 million the funds available in the state’s Job Retention Grant program. It also provides up to $250,000. The deadline for filing is Sept. 25.

The state Commerce Department plans to award grants by early October.

However, to qualify, small businesses must have kept 90% of their employees on their payroll from mid-March through May 31.

Minges tweeted when that when HB1105 cleared the General Assembly on Sept. 3 that “the small business grant program ... does nothing to help restaurants, bars, gyms. etc., that were forced to close and lay off staff.”

“Can’t we remove the 90% employee retention requirement for JUST THOSE BUSINESSES? No help for those with the most need.”

Minges also tweeted that restaurants, hotels and bars “can’t take on more debt, and many will not survive.”

Not enough grant support

During the floor debate on HB1105, Senate Democrats submitted an amendment that would have shifted up to $30 million toward small business grants to help pay for rent, mortgages and other facility costs.

The amendment was tabled by Republican leadership.

The restaurant and lodging association supported House Bill 1224, a bipartisan attempt designated to assist restaurants, motels and hotels with up to $125 million in loans via North Carolina’s portion of the federal CARES Act.

Restaurant and lodging loan recipients could have received up to $50,000.

However, the bill was never heard in committee.

Funding would have been provided into two categories.

The first category provides up to $50 million for restaurants with 25 or fewer locations and “capable of showing economic losses in gross revenue of greater than 50% as a result of the state of emergency” declared in Cooper’s Executive Order No. 116 on March 10.

Portions of a restaurant’s loan could be forgivable for the amounts restaurants spend on purchasing produce, dairy, meat or fish from a N.C. small farm, whether directly or indirectly, or a large food wholesaler.

The lodging portion of the bill would allow for forgiveness for the amounts collected in hotel occupancy taxes, pro rata amount of property taxes, and income tax.

Reopening better option?

House speaker Tim Moore, R-Cleveland, and Lambeth said Sept. 3 that those small businesses would be better served by Democratic Gov. Roy Cooper reopening the state’s economy beyond the easing in Phase 2.5 that began Sept. 4.

"These small-business families are desperate for the opportunity to earn revenue to care for their children and to pay their bills," Moore said.

"It is past time the governor met with these business leaders to make a plan for their reopening, get their employees back to work, and ensure North Carolina communities do not have vacant real estate because the administration has no solutions for the inevitable result of it economic closures."

Sen. Paul Lowe, D-Forsyth, said that while he was pleased by the bipartisan support for the Rapid Recovery funding, he said there "needs to be a recognition that we're in unprecedented times and a one-size-fits-all small business aid program isn't the right approach."

"Some small business owners are fearful to take loans," Lowe said. "For some, the (initial) loans may not have been enough to get them to apply.

"There is obviously more demand for grants that don't have to be paid back than for loans that have to be paid back."

Lowe said he believes there is a middle ground where public health can be protected from the virus while allowing more businesses the ability to reopen with proper safety guidelines in place.

"We have to take into considerations changes in how we approach economic development on the whole," Lowe said.

"We know that some businesses affected by the pandemic will not come back. We need to do better to assist those who can survive the pandemic to survive."

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@rcraverWSJ

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