By MB Pell and Chris Prentice
PHILADELPHIA / WASHINGTON (Reuters) – With backlights, quiet music and bare poles turned off, strip clubs across the United States closed earlier this year in the face of COVID-19 social distancing measures that prevented close nature. of the exotic dance industry. Like many businesses, these cabarets, salons, and gentlemen’s clubs hoped that a $ 660 billion Small Business Administration (SBA) loan program would help them weather the shutdown.
But almost four months after the launch of the loan initiative known as the Paycheck Protection Program (PPP), it is still unclear whether the SBA can make it rain for them. The Trump administration has banned the participation of companies that “present live performances of a prurient sexual nature.” The clubs sued and two federal judges reprimanded the SBA for excluding establishments from receiving forgivable loans intended to protect jobs amid the health crisis.
For a government loan program that has been plagued with criticism (duplicate loans, borrowers with no clear financial need, inconsistent data), the strip club’s uncertainties are yet another example of confusion around an initiative that pushed hundreds of billions of dollars.
Will the SBA allow clubs that have not won a court order to participate? And for those who received loans, either by court order or from banks that apparently took a broad interpretation of the law, will the government forgive the loans, as it does with other borrowers?
“The ball is on the SBA court right now,” said Brad Shafer, an attorney who convinced a federal judge in the United States District Court for the Eastern District of Michigan to issue a ruling in May ordering SBA works with more than 50 stripes. clubs. “We still don’t know the end of this story.”
Using loan data released by the SBA earlier this month, Reuters identified 36 organizations representing dozens of strip clubs across the country that were approved for loans worth between $ 11.15 million and $ 27.95 million from the help for small business pandemics. Some of the companies received the funds after the court decision; Others obtained the money from the banks despite the ban. In total, these companies saved 2,548 jobs, according to government data.
An SBA representative did not directly respond to questions about the discrepancies around the loans.
One of Shafer’s clients, John Meehan, said he does not expect a direct response from the SBA any time soon.
Meehan owns three combined sports clubs, all called Cheerleaders, in Philadelphia, Pittsburgh, and Gloucester, New Jersey. They were affected by state and local shutdown orders for the hotel industry. To keep employees paid while he and his partners invested up to $ 50,000 in cleaning and safety improvements, such as installing UV light purification systems in the air ducts, he turned to the SBA for funds.
His bank in Philadelphia denied the loan, citing SBA rules. However, when Meehan applied to Pittsburgh with PNC Bank for a different club, he was approved for a loan of between $ 150,000 and $ 350,000.
“I wasn’t complaining, but I was scratching my head,” he said.
A PNC spokeswoman declined to comment on specific loans, but said the bank tried to process all requests according to SBA guidelines.
“Under those guidelines, applicants were responsible for certifying that they met the applicable SBA eligibility requirements, and lenders were not required to independently verify such eligibility,” he said.
RISKS FOR LENDERS
Going against SBA’s unclear rules yet poses a potential danger to lenders, who risk getting caught up with unforgivable loans on their books or litigation, attorneys said.
The SBA’s main small business financing program, known as 7 (a), restricts a number of organizations, including churches and strip clubs. Under the PPP, houses of worship received an exemption from normal rules, the bare skin business did not.
“Although it is not clear that the 7 (a) program eligibility rules apply to PPP loans, companies that do not comply with these rules could be sued, as are their lenders,” said Scott Pearson, Manatt partner Phelps. & Phillips LLP in Los Angeles.
Meehan is not the only one facing the mess. RCI Hospitality Holdings Inc operates more than 35 strip clubs, including the self-styled “World’s Largest Strip Club,” Tootsie’s Cabaret, in Miami.
Several banks approved the company and its subsidiaries for between $ 4.45 million and $ 11.7 million despite the fact that RCI was not one of the companies protected by federal court rulings in Michigan and Wisconsin.
A representative from RCI declined to comment. A spokesman for lender Hancock Whitney Corp, who according to government data approved a loan to RCI Entertainment Inc in New Orleans, told Reuters that the company “followed all the guidance provided by the SBA, which changed frequently as the program went down. was implementing outside. “
Meehan’s clubs in Pennsylvania remain closed, but her New Jersey store, which received a loan, has a liquor license for the outdoor patio. So, while the empty stools are stacked on the inner bar, the dancers outside work on a makeshift stage.
On a hot Friday afternoon in July, Jordan Lawrence received some shouts from the audience when he broke up. After his grand finale, he gathered tips from men who drank beverages, his long blonde ponytail tickling dollar bills in his costume.
Lawrence lost her insurance job during the pandemic and returned to her former career as a dancer a few weeks ago. Even though she had saved for years, she struggled to pay her bills without her old job. Lawrence said she is frustrated that the SBA is squeezing her industry just as it is recovering and taking the stage.
“These people need to come here and interact with people like me because they are interfering with our livelihood,” he said. “We also have bills to pay.”
(Report by MB Pell in Philadelphia and Chris Prentice in Washington; Additional report by Michelle Price in Washington; Edition by Tom Lasseter and Matthew Lewis)
