B y T.A. Hendrickson and Emily Jo Wharry
It has been more than a month since the federal government created the Paycheck Protection Program (PPP), a loan fund now totaling $659 billion to help small businesses survive the coronavirus shutdown.
But as of May 1, none of 10 small businesses in Northeast Los Angeles contacted by the Boulevard Sentinel had received a PPP loan, though all had applied.
Some of the business owners are hopeful that help is on the way. Others are more despairing. All are struggling to survive.
The Sentinel will update this story in the weeks ahead to track the flow of PPP money to NELA. In the meantime, here’s a snapshot of the situation on the boulevards.
One business owner’s story
The Mathnasium tutoring center in Eagle Rock would seem to be the ideal candidate for a PPP loan.
Enrollment has dropped from 110 students to 70 since the shutdown began in mid-March and tutoring has moved online. But payroll at Mathnasium has gone up, said co-owner Maya Diakoff, because the student/teacher ratio for online learning is 2:1 versus 3:1 for in-person tutoring. PPP loans are expressly intended to help struggling small businesses retain employees. So, on April 3, the opening day of the PPP loan program, Diakoff applied through her business bank, Bank of America.
What happened next is typical of many of the stories we heard from local businesses.
The bank acknowledged Diakoff’s application, but then proceeded to send auto-generated emails about missing information. As far as Diakoff could tell, her application was complete, but she couldn’t reach anyone at the bank to investigate further. She also couldn’t go elsewhere for help because the PPP, though a federal initiative, requires businesses to apply through banks.
On April 16, thirteen days after Diakoff had applied, federal officials announced that PPP funding, $349 billion, had run out. On April 20, Bank of America sent Diakoff an email saying it would submit her application once the federal government approved a second round of PPP funding.
The second round, $310 billion, opened on April 27. The next day, Bank of America emailed Diakoff that her application had been submitted. On May 1, the bank sent another email saying it would reach out “over the next few days” to complete the loan disbursement process.
“I hope they get it right this time,” said Diakoff. She and her co-owner have stopped paying themselves. Their landlord has agreed to a 10% rent reduction. But with revenues down by 50%, the business is not covering its expenses. “Our survival depends on help from the feds and from the state,” said Diakoff.
Frustration breeds despair
Frustration with big-bank lenders was common at several other NELA businesses, including Dr. Caine Optometry, Café de Leche, Relentless Brewing & Spirits and Street Food Cinema. Like Mathnasium, many businesses applied on day one, only to be told later that their applications had not been processed in time to be part of the initial funding round. The public has since learned that hundreds of publicly traded companies got access to those funds because of loopholes and technicalities that let big banks favor large, well connected clients. Small banks and community lenders proved more adept than big banks at processing PPP loans.
At Café de Leche, owner Matt Schodorf applied though Citibank, where he had previously taken out a small business loan. But a runaround ensued and Citi advised him to find another bank. By the time he reapplied, the first round of funding was gone and he was relegated to round two. At the café, he offers takeout and has cut costs by reducing hours. He finds it hard to be optimistic. “This is everything I’ve got in my life,” he said. “It’s how I feed my family… I have to make this work,” he said, likening his experience with the PPP to a lottery where you’re waiting for your number to be pulled or a scene from the Titanic where you’re fighting for a lifeboat. “You’re on your own,” he said.
Street Food Cinema, which stages large outdoor movie screenings, also got nowhere in the first funding round, said owner Steve Allison. “It was very disappointing because I know bigger companies that we work with that got funded for $900k,” he said. If money comes in from the second round, Allison says he could rehire four employees who were let go as business came to a standstill. But he anticipates that a loan would cover his payroll for only about three months. What then?
The uncertain future
The casual Malbec Market restaurant in Eagle Rock also functions as a central kitchen for three high-end Malbec restaurants – in Pasadena, Toluca Lake and Santa Monica. The restaurants have closed during the shutdown while Eagle Rock has remained open, offering takeout to customers and preparing food for deliveries in and around NELA. Malbec owner Javier Pardini feels confident his PPP loan will come through, in part, because he works with a smaller trusted bank, Boston Private Bank & Trust. The loan could help him rehire dozens of employees who were laid off when the restaurants were shuttered.
Pardini’s bigger worry is paying the rent on the restaurants when the economy reopens; he owns the building in Eagle Rock but rents the other locations. Pardini expects that when restaurants are allowed to re-open, social distancing requirements will allow for far less seating. “If capacity goes from 100 to 50, then business goes down and rent has to go down,” said Pardini. Malbec’s landlords in Pasadena and Toluca Lake have been open to negotiation, but not in Santa Monica, said Pardini.
PPP loans, if they come through, could see NELA’s small businesses through the shutdown. But the impacts of the pandemic – on incomes, spending, behavior and regulation – are likely to outlast the shutdown. The struggle to survive could be a long one.
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