WASHINGTON – Even though the coronavirus pandemic has begun one of the biggest economic downturns in modern history, Lazydays Holdings, a Tampa vacation rental company, has had a good year.
While fears of the coronavirus have driven Americans away from air travel and hotels, RV sales have grown significantly. Lazydays, which is publicly traded, posted revenue of $ 214 million for its second quarter, an increase of more than 25 percent compared to 2019, and it sold more than 40 percent more RVs than it did in the same quarter last year.
However, in late April and early May, three of its subsidiaries received three separate loans totaling $ 8.7 million as part of the Paycheck Protection Program, or PPP, passed by Congress to help save small businesses from being destroyed. by the pandemic.
However, that program has also benefited some companies, such as Lazydays, which had more than one subsidiary with PPP loans. In general, about two dozen companies have either had multiple branches, each of which has taken out a loan or even taken out loans together with one or more branches, Yahoo News has found.
The practice is legal because the federal government allows branches to qualify as small businesses, but it raises questions about how federal fund disbursements are controlled by the Trump administration, according to government watchdogs.
“It’s unfair,” Small Business Committee Chairman Nydia Velázquez, DN.Y., told Yahoo News, “that large publicly traded companies with the resources to approach the pandemic gained access to PPP loans, while smaller business owners were hit with confusing guidelines and were seen as a lower priority by some large banks. ”
Velázquez claimed that this was “never the intention of the law” and promised “by pushing for two hundred reforms to ensure that PPP loans reach the really small and underserved companies in America.”
With its $ 660 billion in forgivable loans, the PPP was touted by the Trump administration as a bridge over weeks of shutdowns by government. It is part of the CARES Act, a $ 2 trillion incentive package designed to save an economy effectively paralyzed by COVID-19. According to the Treasury Department, which oversaw that program, loan recipients were intended to use the funds they received “to maintain their pay, hire back employees who may have been laid off and have the application applied. . “
However, since its inception, the PPP has been plagued by problems. Nine out of 10 small businesses with minorities, for example, failed to receive the necessary assistance. At the same time, some large, well-known companies obtained loans despite showing signs of financial health, at least relative to their competitors. Those companies, which included Shake Shack and the Los Angeles Lakers, returned their loans to backlog over distribution of the programme’s fund. And then there are companies like Lazydays, whose multiple PPP loans to subsidiaries have revealed a potential gap in the loan program.
Five other companies also received three different PPP loans – whether among their subsidiaries only as the subsidiaries and parent company. Among them is Rekor Systems, a publicly traded artificial intelligence company based in Maryland. A Texas-based subsidiary won a $ 5 million PPP loan in early May. Later that month, the parent company was the beneficiary of a $ 221,000 loan, which did not stop another of its subsidiaries, Rekor Recognition Systems, from receiving a $ 652,000 loan about a week later.
“This program has failed so many small businesses in so many ways. It’s clear that Congress needs to create a new program that helps the mother-and-pop companies that still exist,” said Derek Martin, spokesman for Accountable .US, a progressive government-run dog control group that controls the distribution of PPP loans. Martin criticized the Trump administration for handing out taxpayer dollars to large publicly traded companies that “may not even need the funding.”
The Treasury Department disputes suggestions that it had failed to adequately monitor the disbursement of COVID-19 relief loans. A spokeswoman told Yahoo News that “all PPP loan applicants are required to provide their lenders with business information and certification regarding their suitability, number of employees, industry classification and loan applications.” The spokesman stressed that the “self-certification approach ensured the rapid delivery of PPP loans to small businesses in a crisis when more than 10 million Americans lost their jobs in a two-week period.”
Democrats, however, maintain that the program is plagued by underlying flaws that are compounded by a lack of oversight. An April letter from sen. Elizabeth Warren, D-Mass., Who helped create the Consumer Financial Protection Bureau, and Velázquez accused banks of ‘playing favorites’ and closing legitimate small businesses from receiving loans.
The CARES law does not prevent subsidiaries of a larger company from taking over loans, but that apparent screw has already taken control, as it has meant that even Chinese companies have benefited from PPP loans. But even for U.S.-owned companies, the ability of multiple subsidiaries owned by a single company to get help marks the fact that some small businesses have received nothing at all.
In particular, small businesses of minorities and women across the country have failed to secure PPP funding at seemingly unclear rates. Members of Congress have called on the Small Business Administration (SBA) to disclose demographic data on the loans.
“There is no accountability or reporting on how they do their lending program,” Renee Johnson of the Main Street Alliance recently told American Banker.
Yahoo News contacts all member companies with more than one subsidiary that received loans through the PPP program, as well as those in which a parent and subsidiary each received a loan. Most of them did not respond, and those who did remark that each subsidiary is its own business.
For example, Real Networks received a $ 2.8 million loan on April 24, and a month later its subsidiary Napster, the onetime music streaming giant, received $ 1.7 million from the federal government. Kim Orlando, an investor relations representative for Real Networks, said that Napster, although a subsidiary of Real Networks, “operates as an independent company with its own board, strategy and leadership team.”
Another company, Digirad Corporation, had seven different entities receiving a total of $ 6.7 million. Hannah Bible, vice president of medical imaging company based in Southern California, told Yahoo News that “no subsidiary of Digirad has applied for more than one loan, as disclosed in our public applications.”
In another case, Prime EFS, a subsidiary of Florida-based transportation and logistics systems, received a $ 2.9 million PPP loan from the Treasury on April 15. Thirteen days later, another of its subsidiaries, ShypDirect, secured a $ 504,940 PPP loan.
Those loans came at a crucial time for the parent company, Transportation and Logistics Systems, which was suffering from financial problems, even before the pandemic. The company was “burning cash, missing out on debt payments and struggling to raise capital,” according to an article in the Wall Street Journal about the company.
Critics say such loans fly in the face of a commitment to protect parent-parent companies, which often do not have cash reserves or access to lines of credit that large companies can have, from the devastating effects of ‘ and pandemic. What’s more, those promises were made by the administration of a president who won the White House by promising to look out for ordinary Americans.
Loans would “have to go to underserved and really small businesses that need help,” Sen said. Sherrod Brown, D-Ohio, to Yahoo News.
An SBA spokesman defended the program, noting that it “has more than $ 100 billion left” and pointed to a April 28 press release on the PPP review process of Treasury Secretary Steven Mnuchin and SBA chief Jovita Carranza. In the statement, Mnuchin and Carranza noted the number of companies that received loans that might not have been needed, “re-evaluated their need” and repaid said loans. The “SBA decided, in consultation with the Treasury Department, that it would raise all loans in excess of $ 2 million, in addition to other loans as appropriate,” they said.
Accountable.US estimates that 797 publicly traded companies have taken over coronavirus-related loans. Those loans amount to close to $ 2 billion. At the same time, small businesses – the only ones that could save the program – closed at an unusual rate, leading to what some called a small business “apocalypse”.
As for Lazydays, the company whose subsidiaries received nearly $ 9 million in foreclosed loans, business is still going strong.
“We have and continue to experience incredibly strong demand for RVs,” Bill Murmane, the chairman and CEO, said in a Aug. 1 call. “We believe this strong demand is primarily related to the life change caused by the pandemic and the limited options people have to enjoy vacation and leisure activities that enable social distance.”
Cover thumbnail photo: Yuri Gripas / Abaca / Bloomberg via Getty Images
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