How a Federal Agency Excluded Thousands of Viable Businesses From Pandemic Relief – By Lydia DePillis (ProPublica) / Mar 24 2021
The Small Business Administration refuses to give pandemic relief loans to people who have filed for bankruptcy, even if their businesses can survive.
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Like every other storefront in downtown Lincoln, Nebraska, the Coffee House — a cavernous student hangout slinging espresso and decadent pastries since 1987 — saw its revenue dry up almost overnight last spring when the coronavirus pandemic made dining indoors a deadly risk. Unlike most, however, the business wouldn’t have access to the massive loan fund that Congress made available for small enterprises in late March.
The reason had nothing to do with the business itself, which had been having one of its best years ever, according to its owner, Mark Shriner. Rather, it all came down to one box on the application for the Paycheck Protection Program money, which asked whether the company or any of its owners were “presently involved in any bankruptcy.” Shriner had filed for Chapter 13 in 2018 after a divorce and was still making court-ordered debt payments, so he checked “yes.” He was automatically rejected and lost about $25,000 in payroll and other costs that the program would have covered.
“My money is my store’s money. When I got divorced and she was entitled to half, it’s not like a company can raise money real quick,” Shriner said, noting the way in which many small businesses are structured as pass-through entities that pay taxes on any profits as individual income. “All these businesses that had a tough time and are trying to make payments at the same time are getting kind of hosed.”
Thousands of people file for Chapter 13 bankruptcy every year — 282,628 did so in 2019 alone. Although it’s not clear how many of them own businesses, all of those individuals were barred from the PPP program, along with the thousands of businesses currently working through a reorganization plan under Chapter 11 and the family farms that file under the lesser-known Chapter 12.
