Kitsap businesses, banks navigate fraught federal small-business loan program

May 2, 2020 – Kitsap Sun

Author: Christian Vosler, Kitsap Sun, Published May 2, 2020

Spring is the beginning of peak season in the restaurant business, and the time of year when Brett Hayfield usually starts hiring more employees to work at his two restaurants, the Yacht Broiler Club in Silverdale and The Boat Shed in Manette.

This spring, those hirings turned into layoffs as the coronavirus swept across the country, and Washington state ordered all non-essential businesses to close indefinitely.

“This is our time, so to get shut down, it couldn’t be any worse,” Hayfield said.

Like many small business owners affected by the COVID-19 pandemic, Hayfield looked to the federal government for help. But the federal loan program meant to prop up small businesses has proven difficult to navigate both for owners and banks tasked with making the loans.

The Payroll Protection Program (PPP), which is administered through the Small Business Administration, is a low-interest loan that businesses with 500 or fewer employees can use to pay workers for up to eight weeks, plus certain other expenses like rent and utilities. Businesses don’t have to pay back the loan if they use at least 75% of the money to keep or hire employees.

Since it opened on April 2, the program has been the focus of nationwide scrutiny —large, publicly-traded companies like Shake Shack received millions in loans while local businesses struggled to have their applications approved. Applicants have run into problems with vague guidelines and technical glitches with the online loan portal.

Kitsap business owners who have been successfully approved for funding, like Hayfield, still face difficulties. A PPP loan doesn’t solve the problems facing a restaurant that has laid off employees and isn’t bringing in any revenue.

“We basically have to hire them back even though we’re not open,” Hayfield said.

To have a loan forgiven, a business must use it within eight weeks to pay its employees. Funding can’t be used to pay vendors, purchase inventory or many other expenses. The additional $600 a week in unemployment benefits that were approved as part of the $2 trillion federal coronavirus relief package means many laid-off employees are making more at home than they would at work.

“We get no benefit out of that, we’re getting people off unemployment, which is admirable, but the employees quite frankly are going to be disappointed because they’re making more money right now than they will from the operator,” Hayfield said.

On top of that, when restaurants reopen, it will likely be at a reduced capacity. Seasonal employees may be laid off after returning to work because revenue will be at a fraction of normal levels.

“It’s a real Catch-22,” Hayfield said.

Navigating the system

Local banks, meanwhile, have had to deal with a high volume of applications, technology issues and vague rules from the federal government concerning the loans.

Liberty Bank has had more success than most in Kitsap. The Poulsbo lender (formerly Liberty Bay Bank), has boasted a 100% success rate with its applications, meaning every business, nonprofit and church that applied was approved for a loan. In total, Liberty Bank has secured $40 million and counting for more than 210 businesses.

But it wasn’t easy. The first round of PPP funding, $349 billion, ran out in 13 days. Congress approved a second round of funding of $310 billion, which opened for applications April 27 and is expected to be depleted just as quickly.

During the first round of funding, Liberty Bank employees worked for two weeks straight, including on Easter, to put together applications and submit them to the SBA.

“There was a dedication to it, knowing that we were going to be helping small businesses that were struggling in our community,” Liberty Bank CEO Rick Darrows said.

During the second round, the bank used a special program to preload batches of applications. Soon after applications opened Monday morning, the system crashed. Employees kept resending the applications, slipping one or two through at a time as the system would allow.

Darrow said the guidelines from the federal government weren’t set even as the program was being rolled out.  

“You had a situation where, as a banker, you had to make a decision, are you going to participate in this knowing that not all of the rules have been put into place?” Darrow said.

Chris Frazier, who owns Waterfront CPA Group in Silverdale, has seen both sides of the coin. Frazier’s accounting firm normally makes most of its revenue during the first four months of the year, when people seek help filing their tax returns.

The downturn has forced Frazier to keep seasonal employees at home even as the firm has been flooded with questions from small business owners about how they can get help from the federal government. Frazier applied for and received a PPP loan through Liberty after first trying with Chase Bank.

“In 13 days (the PPP) was out of money and (Chase) never said anything,” Frazier said.

Liberty not only answered the phone but was able to process Waterfront CPA’s application the same day. The Poulsbo bank has also been accepting applications from businesses that aren’t current customers.

“Having somebody kind of go out of their way and say you’re not a client here, we’ll take you, for me that was huge,” Frazier said.

Smaller regional banks may have more success in securing funding because of their size, Frazier said. Many international banks were flooded with thousands of applications minutes after the program portal opened. Some banks restricted who could apply — only processing applications for those with an existing account or loan on the books.

“If you were basically waiting in line and nobody was getting back to you, Liberty (Bank) was processing your loan,” Frazier said.

Moving forward

The program has still been helpful for some local businesses.

Haylee Herdman, the owner of Herdman Plumbing in Silverdale, found her business suddenly shut down when Washington state deemed construction a non-essential service in late March. Most of Herdman’s business comes from new plumbing on construction projects.

“We had to furlough pretty much the majority of our employees because we had no work for them,” Herdman said.

Herdman was able to weather April on the income made in March before work shut down, but the company is expecting a rough May. Funding from the PPP should help to pay employees that are back at work as of Wednesday.

“We are putting what we got towards payroll and employer-paid benefits that go to our employees and utilities and rent,” Herdman said.

Steve Sego, who owns The Dock Bar & Eatery in Port Orchard, has been able to rehire some of his employees that were laid off during the shutdown thanks to $56,000 in federal funding.

The restaurant has transitioned to providing takeout and providing delivery in South Kitsap. The Dock’s landlord has also waived rent for April and May.

“We found a path, we’re not prospering, but we’re keeping the doors open and we’re preparing that transition to being a viable restaurant again,” Sego said.

CORRECTION: An earlier version of this story stated that an additional $600 a month in unemployment benefits for laid-off workers was approved as part of the federal coronavirus relief package. The additional unemployment money is $600 a week.