PPP And SBA EIDL Loans: CDC Cellular's Status And Opinion On These Instruments
With the COVID-19 crisis ongoing, one of the more devastating aspects of the virus was the effect it had on certain classes of business. While many in public service and federal contracting were able to continue receiving their pay and benefits, the private sector wasn't so fortunate. Many sectors of the economy were deemed "non essential" and were required to shutter their businesses with little to no recourse for the plight of their employees or their operating expenses.
This presented a very serious economic crisis that staggered the economy and left millions with virtually no income. To compensate the Federal Government created a series of "forgivable" loan packages for qualified businesses. The two most prevalent were SBA EIDL Disaster Loans, which offer very low interest financing to businesses that experience hardship. Essentially speaking, the EIDL program was an expansion of the existing disaster relief programs that are offered to communities during such events as hurricanes, fires, tornadoes, and other natural disasters.
The second program that was assembled, and proved to be the most popular, was known as "PPP" or "Paycheck Protection Program". These were loans that could be up to a few million dollars in size, and were designed as a "lifeboat" for small businesses. Basically speaking, the loans were processed and paid out through participating banks and it was all done under the SBA's umbrella. The basic rules were that you had to spend the money within a limited amount of time and 75% was to go towards paying the wages and benefits of employees. The rest could be used for overhead costs such as rent, utilities, and so forth. The program had greater details and rules than this, but basically speaking this is how it was supposed to work. Additionally, there was a process where the business could apply for "forgiveness" of the loan, and many were able to successfully do so. Others are still in the process of seeking "forgiveness" as of this time.
As far as CDC Cellular Repair's status with PPP and EIDL? I did not participate in either program. The reason for this was what I believed was an ethical decision. Granted, my ethics are not your ethics, so I concede that all of this is relative. Others have differing viewpoints and certainly different circumstances. So my feelings about these programs are my own, and should be considered as opinion only. In no way am I telling anyone what to do. Additionally, there were millions of businesses that had no other recourse, so for those entities I have no criticism whatsoever.
Why though, did I not participate despite being eligible? First, CDC was considered and "essential business", and the shop was able to operate. Overall business was fairly strong as well; many folks were working from home as well as the schools were virtual. So I saw a lot of demand for service during the height of the crisis. Ethically speaking, I believed that it was not appropriate to take any of these loans because my business was doing well. Let others more in need have access to these funds, at least that's how I figured. I offer no apologies and firmly believe this approach was the right thing to do. Others may disagree and that's OK, but in my view those loans were meant for distressed businesses. CDC was not distressed, it's that simple.
Now for the purpose of full disclosure, and what I believe in my puny little mind is a bragging point, I wasn't completely out of the funding. My accountant strongly recommended applying for these programs, and I did put in for EIDL. Part of that program included forgivable grants which initially were promised to be $10,000. That never came to fruition, but I did receive $1,000 from SBA. In the end I was not comfortable with receiving this money, so I wrote a check for $1,000 and sent the money back to SBA. They initially told me they would not take it, but the check was cashed. I was ridiculed by some in my inner circle, as it was viewed as a bit extreme. But in the end it worked out exactly as I had hoped for and I'd do it again if required. I can also prove all of this with documentation if you don't believe me; feel free to stop by and I'll show it all to you if you wish.
So my non-participation was to allow others to have the money, as stated. But that wasn't the only reason, oh heck no! I had other reasons, and to this day I am VERY confident it was about the smartest move I've ever made in my life to date. Let me try to explain this in as simplest of terms as possible. Am I paranoid? Oh my yes, but I've learned how to harness my paranoia in a useful manner. Ever heard of the term "There's no such thing as a free lunch"? I'll bet you have. The expression comes from a lot of places, but it's most notably tied to the late, great economist Dr. Milton Friedman. I strongly agree with this sentiment, and that way of thinking guided me when it came to PPP and EIDL.
Let's be honest here folks. I don't care who you are or what you are, no one is going to give you money with no strings attached. If I were to give you $50,000 for your business, am I doing it to be a nice guy or am I expecting something in return. It's the latter, every single time. There's always a catch, and there's always an expectation of something in return. Simply put, if someone puts money into your business, that gives them an equity stake in your company. They're essentially a shareholder, and shareholders have a say in what happens, that's how it works.
So OK, let's say you got a forgivable PPP loan for, I don't know, $150,000. Do you really know who is actually calling the shots on this one? Perhaps you do, but I never found a definitive answer to this question. And whoever they are, in this case it's Uncle Sam, they have equity in your operations. If you believe the day will not come where they expect something of you, well, I've got some oceanfront real estate in Oklahoma to sell you. I just find it very unlikely that at some point there won't be a problem with these loans. We already see the current administration and the Justice Department talking about forcing private businesses into mask mandates and other measures. How do you think they'll do that? I don't know, but they do have equity in a lot of businesses, don't they? I could easily see a "do it or we call on that loan" scenario, I wouldn't put that past them.
That's what my rationale was the whole time. Let others more in need have the access, but also maintain arm's length as much as possible from anyone seeking an equity stake in CDC. Some of you by this point may be thinking "this guy is a nut!". Guilty as charged, Your Honor! But CDC is also 100% independent with no outside equity interests either, so how nutty am I? I'll leave that up to you to decide. But that's where I stand on that issue, and I feel over the long haul it will serve me well.
I also feel that waste, fraud, and abuse in PPP was significant. There are already documented examples of people who have been caught and prosecuted for it. The penalties are no joke either. 30 years imprisonment in some cases. I don't need that in my life, let me tell you. I've also observed questionable behavior by some with these loans. ProPublica has the list of businesses, it's required to be public information. I've seen some entities who inexplicably seem to be doing well considering the current state of affairs. New cars, RVs, and other bling bling I've seen and heard of. Are these people doing anything illegal? I'm not saying that and not getting involved. But I will say it isn't the smartest thing to do. Remember the scene in Goodfellas with Johnny Roastbeef and the pink Caddy? Uh huh, exactly. Don't attract attention, yet some don't care. So like I said, I'm not assuming or accusing anyone of anything. But it's not a good look, trust me, and a lot of us see it.
That's where I stand on these programs. Indeed they were crucial to many businesses for their survival. But I also believe it is important to not draw from the well just because you can. And certainly I do not believe everyone who drew did so within the spirit of the program's intentions. They may get away with it legally, but in the end I believe things like that come back around. I don't want that in my life and certainly not for this business.