Mark Shriner needed help. It was spring 2020, and his coffee shop in Lincoln, Nebraska, was at risk as the Covid-19 pandemic forced small businesses like his to close their doors.
So he sought assistance from the federal government’s Paycheck Protection Program, which was intended to keep small businesses afloat as the virus spread and customers stayed home.
All three of his applications were rejected.
“I tried everything,” said Shriner, who owns The Coffee House in downtown Lincoln. “Every time, the government basically told me, ‘Tough luck, honey.'”
PPP loans were designed to keep workers on payroll and cushion the economic blow from the pandemic. Businesses that didn’t get the aid, like Shriner’s, had to get creative to stay afloat through a crisis that has upended business models for entire industries.
The program, which expired last May, doled out nearly 11.5 million loans worth more than $790 billion, according to the latest data from the U.S. Small Business Administration, the federal agency that guaranteed PPP loans approved by banks and other participating lenders.
The SBA said it had no data on how many PPP loan applications were rejected. SBA spokeswoman Shannon Giles said the agency “does not have details on PPP loan disbursements” and only receives certain information from lenders.
Despite being rejected for the PPP loans, The Coffee House managed to keep its doors open. CNBC also spoke with the owners of three other small businesses — a video game shop in New Jersey, an herbal co-op in Wisconsin and a spa in Colorado — that went through a similar ordeal.
The owners were able to help their businesses survive by relying on other loan and grant programs, changing their business models, finding community support and even selling personal belongings. Now, they have braced themselves as the pandemic is set to enter its third year and brings a new wave of Covid cases driven by the extremely contagious omicron variant.
“We’ve been able to weather the storm by innovating and learning new ways to reach our customers,” Shriner said. “But it was also the employees that stayed around to work and the people of our city that supported us. They were a huge part of helping us get by until now.”
PPP controversy and rejections
The PPP, first passed by Congress in March 2020 as part of the $2 trillion CARES Act, offered a lifeline to many small businesses during the pandemic. But controversy has also followed the program.
The public erupted in outrage after the PPP’s initial $350 billion allotment ran dry in less than two weeks. Scrutiny piled up following the revelation that many large companies secured loans while thousands of small businesses fell through the cracks.
Shake Shack, automotive retailer AutoNation and the holding company of Ruth’s Chris Steak House were among the 440 public companies awarded $1.39 billion in PPP loans during the first few months of the pandemic, according to Securities and Exchange Commission filings data compiled by FactSquared, a political and media data firm. Other large entities that received loans included the NBA’s Los Angeles Lakers.
Amid pressure, several of the companies returned a total of $436 million in PPP loans, according to FactSquared. The SBA also issued new guidance that made it less likely for a “public company with substantial market value and access to capital markets” to receive aid from the program.
A nationwide Federal Reserve survey of businesses with fewer than 500 employees found 20% of nonemployer businesses received none of the PPP funding they sought. Nonemployer businesses, which have no employees other than the owner, make up 81% of all small businesses in the U.S., according to the survey released in August. It also found that 4% of businesses that have at least one employee other than the owner received none of the PPP funding they sought.
PPP loans have been subject to fraud, as well.
The Department of Justice has led a crackdown on fraud related to Covid-19 relief programs such as the PPP. So far, the department has prosecuted more than 150 defendants in nearly 100 criminal cases and seized over $75 million from “fraudulently obtained” PPP loans, it said earlier this month. In December, the U.S. Secret Service said nearly $100 billion from a variety of Covid relief programs, including PPP, had been stolen.
The program’s early flaws particularly frustrated small business owners such as Ashlie Ordonez, who did not receive any PPP aid after she applied.
“I get so angry when I look back at how the government kept denying me when I had nothing close to these gigantic companies that received loans,” said Ordonez, the founder and owner of The Bare Bar, which offers waxing, lash treatments and facials in Denver.
She signed a four-year lease to open The Bare Bar just weeks before the World Health Organization declared the spread of Covid-19 to be a pandemic in March 2020. The crisis pushed back the spa’s opening date to May of that year.
It meant her business did not start operating by Feb. 15, 2020, an eligibility requirement for the program. Ordonez applied for PPP loans twice but was rejected both times. She said the government “basically told me I didn’t suffer any loss” because the spa did not have any revenue before the program’s eligibility date.
“I was pretty much told that I knew that we were in a pandemic so I shouldn’t have opened a business,” Ordonez said, adding that she had to let much of her staff go in 2020. “It was a smack in the face because nobody knew in February that the business closures would last longer than two weeks.”
Heather Herdman also applied for PPP loans twice. She ran into an issue similar to Ordonez’s because her herbal co-op, Sweet Willow Wellness, was “relatively new.”
Herdman opened her De Pere, Wisconsin, storefront in November 2019, three months before the February eligibility date. But Herdman said her attempts to secure PPP loans failed because her business could not demonstrate economic loss.
“I didn’t qualify for anything because I could only write that we were open for six weeks in 2019,” Herdman said. “Everything on the application seemed to be based on your 2019 information, but we weren’t open long enough to be able to compare my revenue from 2019 to 2020.”
In response to a question about the eligibility of businesses that opened in late 2019 and early 2020, Giles, the SBA spokeswoman, said the agency is “administering the law as written.” She said only borrowers that were operating by the February eligibility date could get first-draw PPP loans.
The Coffee House’s Shriner also said the PPP’s eligibility requirements barred him from receiving thousands of dollars in loans.
He said it came down to one box on the PPP application that asked whether a business or any of its owners were “presently involved in any bankruptcy.” Shriner filed for Chapter 13 in 2018 following a divorce and was still making court-ordered debt payments, so he marked “yes.”
His applications were rejected as a result.
Shriner was denied due to an SBA rule published in April 2020 that explicitly prohibited businesses in bankruptcy from participating in the PPP. After battling a flurry of court cases against such companies, the SBA released new guidance a year later that made businesses with court-approved bankruptcy plans eligible for a PPP loan. This meant Shriner, who had a court-approved Chapter 13 plan, would have had a chance to receive a loan.
Shriner heard about the new guidance and applied for a PPP loan after it was issued. But he said his local bank “still said they couldn’t help me.”
“I tried and couldn’t get past the bank,” Shriner said, noting that the bank processed the most loans in his city. “I thought I had a shot.”
Other small business owners, such as Justin and Adrienne Brandao, said they did not hear back about their PPP loan applications at all. The couple applied during the first round of the program after Side Scrollers, their video game shop in East Rutherford, New Jersey, was forced to close its doors from March to late June 2020.
“We never heard anything, so the first time was the last time,” Justin Brandao said. “I know there was a second round, but at that point we already found other ways to get money to support ourselves.”
Separate loan and grant programs
Before the pandemic hit, the Brandaos spent a few thousand dollars on Yu-Gi-Oh! Duel Power trading cards, a new product they believed would generate enough sales to sustain their business for several months.
But the cards launched on the same day that Bergen County, which includes East Rutherford, went into lockdown, leaving the couple with no way to sell them — or for Side Scrollers to make any revenue at all.
“The timing was horrible. We spent so much money on what was supposed to be the hottest product of the season, and then everything shut down,” Justin Brandao said. “More or less, we were scrounging around for cash.”
After hearing no word about their PPP applications, the couple took out two loans from Square Capital, which lends to small businesses that use the payment processing services of its parent company, Block, formerly known as Square. Square Capital, which separately from its own lending program was also a PPP lender, automatically deducts a fixed percentage of a business’ daily card sales until its loan sum is repaid, according to its website.
The Brandaos have fully repaid their first $4,000 loan and have nearly paid off a second loan of $6,500. They have put the money toward steep bills for rent, utilities and internet, according to Justin Brandao.
“We had to find different ways to get money,” he said. “And we ended up really leaning on that loan from our payment processor.”
Shriner, the owner of The Coffee House, also took out two loans from Square Capital after receiving PPP rejections. Square Capital deducted roughly $200 to $300 from the cafe’s card sales each day to pay off $107,000 in loans.
Shriner said he used the loan money to keep The Coffee House operating on a limited basis and to pay staff during the first year of the pandemic.
Other business owners such as Herdman, the owner of Sweet Willow Wellness, turned to another federal Covid relief program. While she had no luck with PPP, she was approved for a $3,000 Economic Injury Disaster Loan in April 2021 after applying twice.
The EIDL program was established in March 2020 after the U.S. and its territories were declared a disaster area due to the pandemic. Under the program, the SBA approved and funded about 3.8 million low-interest emergency loans worth more than $316 billion to help businesses meet operating expenses, according to the agency’s latest data.
Herdman said she put the loan toward offsetting her rents, which are the “biggest expense” of running Sweet Willow Wellness. Her storefront alone costs $1,700 per month, and she pays an additional $350 each month to use a commercial kitchen space.
Earlier in the pandemic, Herdman also received two grants from a Covid business relief program run by a local nonprofit organization in partnership with the city of De Pere. The program provides grants up to $2,500 to eligible De Pere businesses to try to fill the gaps in federal programs like the PPP.
Herdman used the first grant to pay for a month of rent, which helped to keep her head above water when customers were scarce, she said. She used the second to restock Sweet Willow Wellness’ inventory of herbs and teas.
“At that point in 2020, nobody was coming in the door, and I had to make rent,” Herdman said. “The grants were critical in helping us get through that first year of the pandemic. It honestly saved me.”
Unlike the other business owners, Ordonez did not receive any funds from separate loan programs. She said she took matters into her own hands to keep The Bare Bar alive and its staff on payroll.
She sold her wedding ring for $12,000 and put the proceeds plus stimulus money directly into the spa.
“I just went into survival mode as a brand new business,” Ordonez said. When asked if she’d consider applying for loans or grants again, Ordonez said, “I think I’m done with that disappointment.”
Changing business models
State-ordered shutdowns and social distancing requirements prevented many businesses from operating like they normally would, especially during the early stages of the pandemic.
This prompted some to alter their business models in an effort to reach their customer bases. A 2020 survey released by The UPS Store found that 41% of businesses with fewer than 500 employees “changed or pivoted their businesses” during the first few months of the pandemic. About 65% said they were doing more business online, 28% responded that they were shifting to e-commerce, and 15% said they were offering curbside delivery.
Sweet Willow Wellness, for instance, offered only herbal products when it first opened. But Herdman decided to jump on the delivery and curbside pickup craze that boomed when indoor dining and shopping became prohibited during the pandemic.
Herdman expanded her co-op’s inventory to soups and other fresh food products that could be picked up curbside or delivered through online services Grubhub and EatStreet. The expansion created a new source of revenue that supported the store until customers could shop in person, she said.
“The pandemic caused me to take a leap of faith to make that change to what we offered, and it sure did make a difference,” Herdman said.
The Brandaos also started curbside pickup early on in the pandemic. During the four months that Side Scrollers was closed in 2020, Justin Brandao raced to create a website that would allow customers to order products online.
“That was the only way you could buy stuff from our shop for a while,” he said. “And it definitely helped in the beginning to have that new option.”
The couple also pivoted to holding events remotely. Before Covid-19 hit, customers could hold birthday parties or participate in video game tournaments, which were core sources of revenue for Side Scrollers, according to the Brandaos.
During the first year of the pandemic, the couple began to hold remote video game tournaments on the gaming platform Discord, which allows users to chat by text, audio or video. The remote tournaments allowed Side Scrollers to expand its reach, gathering participants from outside of its county, state and even the U.S.
“They were saying, ‘Hey, look, my local game store closed, and I’m looking for somewhere to play while everything’s shut down.’ ‘I’m from Texas.’ ‘I’m from Florida.’ We even had a guy from Greece,” Justin Brandao said, adding that the $5 tournament entry fee brought in a “good amount” of revenue to cover rent and other operating expenses.
Some of the small businesses also said community support helped them stay afloat without PPP loans.
Shriner set up a GoFundMe page in March of last year that he said “blew up.”
He wrote in the description that “any funds raised will be used for payroll for our 11 wonderful staff members” and noted that The Coffee House did not qualify for federal programs such as PPP.
Shriner set a fundraising goal of $10,000, but more than $23,000 has flowed in from over 500 donors.
“It was overwhelming. I couldn’t believe it. I really didn’t realize that people in our community cared that much,” Shriner said.
Ordonez also said support from “normal people, the most kind-hearted strangers,” helped The Bare Bar survive.
Last year, a customer put Ordonez in touch with a journalist who featured The Bare Bar in a New York Times story about small businesses. She said the exposure prompted people from all over the U.S. to reach out and send a total of $15,000 in aid, which became critical in helping to cover rent and payroll expenses.
“People from Florida, Seattle and California — everywhere. They started sending money and telling me they wanted to help. Without them, my business would not be open right now,” Ordonez said.
The omicron question
The four small businesses have managed to weather the difficulties of the pandemic so far. But the nationwide spike in cases of the omicron variant has brought new hurdles.
During the first week of January, the Centers for Disease Control and Prevention said omicron made up 95% of all sequenced cases in the U.S., a jump from the beginning of December, when it represented less than 1%.
The variant appears to be leaving its mark on small businesses across the country. Roughly one-third of them reported a decrease in sales during the week that ended Jan. 9, according to the U.S. Census Small Business Pulse Survey, which records changing business conditions during the pandemic. This is a jump of about 10 percentage points from the 22% of small businesses that reported a decline in sales during the week that ended Nov. 28, 2021, when the variant had been detected only in South Africa and a handful of other countries.
The variant had little effect on Sweet Willow Wellness last month. Herdman said business was “booming,” with December revenue “completely tripling our best month ever.”
But, she said, January is a different story.
Business has been slower than in previous months, she said. For instance, the co-op is usually swamped with customers on Saturdays but that day of the week has been “quite quiet” since the New Year.
Herdman said more customers are uncomfortable shopping in the store, which has caused most of them to turn to curbside pickup and delivery orders. She added that several customers and regular volunteers at Sweet Willow Wellness have tested positive for the virus.
“I’m hearing more and more people coming in and saying they or a family member had it,” Herdman said. “We’re just trying to be extra careful with washing, masking and all of that.”
Unlike Herdman, the Brandaos said they have not seen a noticeable difference in revenue or foot traffic amid the spread of omicron.
“It’s been pretty much the same in the past two months. Revenue has taken a dip a little bit this January, but I don’t know if that’s really attributable to Covid,” Justin Brandao said, suggesting that customers might have exhausted their spending money during the holidays.
But the new variant has complicated things. The Brandaos closed Side Scrollers for a week in December after a customer who visited the shop reported testing positive for the virus.
“I don’t regret the decision to close, because I’d rather not take that risk,” Justin Brandao said.
Shriner said he has noticed a difference in business in recent weeks because more people are getting “spooked” about omicron. Because of the spike in Covid cases, two nearby offices had their staff begin working from home, reducing the number of potential customers for The Coffee House, he said.
But Shriner noted that college students from the nearby University of Nebraska-Lincoln were set to return to campus this month, which should bring in more revenue for his business.
For Ordonez and The Bare Bar, the new variant has “slowed things drastically.” She said customers are more reluctant to seek in-person beauty treatments at her salon, which caused revenue to drop by roughly 30% from November to December.
“As soon as you start feeling good, like you might have just made it out of the woods, something like this comes back,” Ordonez said. “We just keep asking ourselves, when are we going to have some relief?”