Nothing stops failing companies from taking millions in federal Paycheck Protection Program aid on their way under. Few will pay the government back.

Stein Mart Inc. was desperate for shoppers long before COVID-19 forced closures at its discount department stores, scattered mostly throughout the Southeast. 
During the past several years, the Florida retailer had hemorrhaged tens of millions of dollars, while searching for a corporate buyer. Like many struggling businesses, the company in June turned to the federal governments Paycheck Protection Program as a possible savior. The $10 million loan didnt last long. 
Within two months, Stein Mart filed for Chapter 11 bankruptcy protection, citing more than $500 million in liabilities. The company closed all 280 stores and 9,000 workers lost their jobs. 
A shopper passes a Stein Mart store that closed recently at Ellisburg Shopping Center in Cherry Hill.
 (Photo: Jim Walsh, USA TODAY Network)
Nothing prevented Stein Mart from taking the PPP handout on its way under.
Lenders participating in the Small Business Administration relief program shelled out more than $520 billion last year to millions of companies searching for a lifeline to stave off the economic impacts of COVID-19. Like Stein Mart, USA TODAY found that some were failing long before the pandemic hit.
They came from sinking industries like taxi cab services, newspaper printing and mining. Many were already trimming staff, flirting with bankruptcy and planning for possible closure.
While extreme, the situations underscore broader flaws in the rapidly deployed program, including only cursory reviews of applicants pre-pandemic financial state and no requirement that recipients actually save jobs or even stay open. For Stein Mart, and others like it that failed anyway, the millions in taxpayer dollars will never be fully repaid the companies simply do not have the cash.
While it may not be a good look, it was not strictly forbidden, said John Pendleton, director of financial markets and community investment for the U.S. Government Accountability Office, which is reviewing the PPP program for Congress. There wasnt anything that said you had to stay in business indefinitely. Thats why the process of forgiving the loans will be very significant.
For the funds to be forgiven, borrowers are supposed to maintain the same number of workers or rehire any lost staff. No collateral or personal guarantees were required, though, leaving a loophole for struggling employers to fold and still see the loans forgiven or default without major consequences. 
These already-failing businesses joined a broader group of borrowers that took out PPP funds and still went on to fire workers, sometimes just days later. 
A control room at a newsprint company in Washington state, which declared bankruptcy after receiving its PPP loan.
 (Photo: Jennifer Mosbrucker for USA Today)
USA TODAY scrutinized more than 50 employers across the county that collected $160 million in PPP loans yet filed public WARN notices to lay off more than 13,000 workers. That represents just a small sample of the PPP recipients nationwide that faltered. At least 900 companies borrowed more than $1.8 billion in PPP loans, while laying off or furloughing some 90,000 employees, according to a recent report by the Center for Public Integrity, which shared its data with USA TODAY. 
Most were from industries with clear impacts from COVID-19, including restaurants, hotels, gyms or car dealerships. Data from the recipients of the program that borrowed $150,000 or under became public for the first time in December following a months-long legal fight by media companies.
Milwaukee-based Bars & Recreation Inc., with activity bars that offer painting and axe throwing, received nearly $380,000 in PPP funds in April to save 32 positions. Four days later, the company filed a WARN notice that it had already begun trimming 38 jobs. A tiny gas station in Georgia, Meena Corp. took out a modest $19,900 PPP loan with a plan to save five employees. It lasted four months, filing a notice to let go five workers in August.
Inside Trump Tower in New York, the Triomphe Restaurant Corp. took out more than $2 million in PPP money but still shuttered, saving no jobs. And the company that operates The MC Hotel in New Jersey received more than $1 million in PPP funds in April, reporting that 109 positions would be saved. The hotel filed notices that 64 of its employees would lose their jobs by Sept. 14, after laying off 123 before it received the loan. 
Borrowers argue the stimulus has allowed them to prolong the inevitable and keep paying employees, even if only for a month or two.
Experts question whether some companies should have known that the taxpayer support would not be enough to keep the lights on. They say the federal government should have done vetting on the fiscal status of borrowers before shelling out millions of dollars. 
Another $284 billion is set aside for the program in the new coronavirus stimulus package, with some tightening of rules related to applying for loans and seeking forgiveness, including a provision that borrowers must show revenue is down. Nothing addresses businesses already in freefall or those that subsequently fail beyond repair.
The question becomes what happens to the funds do they get returned back into the governments hands or do they add insult to injury? said attorney Neil Getnick, chairman of Taxpayers Against Fraud, a Washington, D.C.-based nonprofit. One of the first things clear from this data is that its not the illegal things that threw this program off kilter its the misuse and money that went to unintended recipients.
Retail business faltering long before COVID-19
After Stein Mart went public in the 1990s, the company became an empire of discount clothing department stores akin to TJ Maxx and Ross, with ultimately hundreds of locations across 30 states. But even before the pandemic halted in-person shopping, the retailers business model was crumbling.  
Stein Mart took out a $10 million Paycheck Protection Program loan in June. Within two months it filed for Chapter 11 bankruptcy protection, citing more than $500 million in liabilities. The company closed all 280 stores and 9,000 workers lost their jobs.
 (Photo: Tori Lynn Schneider, Tallahassee Democrat)
The brand was built on a strong base of loyal followers who would peruse the racks for bargains on name-brand clothing and apparel. Foot-traffic at traditional brick-and-mortar stores has been declining for years as online shopping carves into that customer base. In an annual filing in June, the company also cited difficulties stocking merchandise attractive to buyers.
We face intense competition for customers from department stores, specialty stores, regional and national off-price retail chains and internet and mail-order retailers, the company wrote in the filing. Many of these competitors are larger and have significantly greater financial and marketing resources than we do.
Stein Mart announced in January it had a merger agreement in-hand. Amid COVID-19, that deal had faltered by April. Without fresh liquidity, the company had no path left to solvency.
In June, Stein Mart took out the maximum $10 million for the PPP program. Financial records show the federal PPP support paled in comparison to the bailout it needed.
Stein Marts total sales in the first quarter ending May 2 dropped nearly 60% on the way to a net loss of $65.7 million. That follows a net loss of $6.2 million for fiscal year 2018 and an operating loss of $31.2 million in 2017, public earnings show.
People will always take advantage of a poorly-run system, especially the big businesses and the ones who see it as a windfall, said Ashley Harrington, federal advocacy director and senior counsel at the Center for Responsible Lending. For the ones whove gone bankrupt, thats certainly something thats going to have to be dealt with. Those are all things were going to have to figure out.
A sign reading, ‘ Entire Store on Sale,’ at the entrance to a Stein Mart store on Aug. 12 in Miami, Florida.
 (Photo: Joe Raedle, Getty Images)
The Jacksonville Daily Record reported that some Stein Mart employees believed management knew more about the impending bankruptcy and closures than what they disclosed to workers, who received no severance, extended health benefits or other assistance.
Gardner Davis, a Jacksonville attorney who represents Stein Mart in the bankruptcy, said the PPP money was essential to keep paying employees during the initial pandemic. But he insisted nobody inside the company knew how long the fallout from the virus would last or how deep its impact would be.
The PPP loan was an essential lifeline to help them stay afloat, Davis said. Stein Mart spent all of the money on paying salaries, which was a significant help. In fact, Stein Mart was able to weather the March and April shutdowns due to COVID. Stein Mart failed because of the second wave in June and July, which swept the South, where most of the stores are located.
Davis said the PPP program was not designed to save companies like Stein Mart from collapse but instead was crafted so that employees would continue earning income and continue buying groceries and other goods, keeping the economy afloat. He noted that most Stein Mart employees likely lived paycheck-to-paycheck.
Sale signs adorn a closing Stein Mart store in Salt Lake City in August.
 (Photo: Rick Bowmer, AP)
Experts say that as long as retailers borrowed the PPP funds in good faith, and spent it actually paying salaries, there likely will be no consequences to companies like Stein Mart that still ultimately go under.
If its not enough money and they still go out of business, then they go out of business, said Page Pate, an Atlanta attorney who has represented both people accused of PPP loan fraud and whistleblowers in those cases. The only problems are when you make false statements or misspend the money. Did you spend the money on the right things?
Stein Mart will seek forgiveness of the $10 million PPP loan on the grounds that it was used for payroll, Davis said. If denied, the debt to the US government will be added to the stack of unsecured creditors in the bankruptcy, to be paid out cents on the dollar. 
Retail Ecommerce Ventures, the company that owns Pier 1 Imports, purchased the Stein Mart brand out of bankruptcy in November for just over $6 million, with plans to transform it into an online-only store.  
Local officials anticipated business closure for years
Along the Canada border, where Idaho meets Washington State, a rural community of 13,000 has long braced for the closure of its largest private employer.
Ponderay Newsprint Company in Usk, Washington declared bankruptcy on June 26 and laid-off 148 employees.
 (Photo: Jennifer Mosbrucker for USA Today)
Ponderay Newsprint Co. employed nearly 150 workers at annual wages that ranged above $80,000. But the paper mill struggled through the decline of newspaper circulation, as readers turned to online platforms and demand for paper plummeted. The mill supplied newsprint for publications along the West Coast, in the Midwest, and in parts of Asia and South America, according to a company website, which has been taken down. 
In April, Ponderay Newsprint took out a $3.5 million PPP loan through AmericanAg Credit. Within two months, the company filed a WARN notice saying it was letting go of all 148 jobs it had projected to save, while permanently closing down its plant in Washington State. 
Officials in the rural area have anticipated the mills closure for years a major blow to the local economy. Advertising losses tied to the virus further exacerbated the decline. Officials now fear a rail line that depended on its paper shipments could fold, too.
Its devastating, especially when you consider the impact on other businesses, said Pend Oreille County Commission Chairman Mike Manus. We have been bracing for it. But the reality is its hard to cope no matter what you do to get ready.
Manus said company representatives warned local officials years ago that shrinking demand for its product left the plants future in jeopardy, highlighted when the mill canceled its contract to buy 90 megawatts of power from the area utility.
Todd Behrend, interim mill manager at Ponderay Newsprint Company, celebrated 28 years of working for the company on June 15. He is part of the skeleton crew that maintains the facility.
 (Photo: Jennifer Mosbrucker for USA Today)
When Ponderay Newsprint filed for Chapter 7 bankruptcy in late June, citing more than $50 million in total liabilities, Pend Oreille County Public Utility District General Manager Colin Willenbrock said news of the mill being indefinitely idled has long been anticipated and that the utility has been working tirelessly over the past several years to lessen the blow.
John Munding, a trustee in the federal bankruptcy case, said the PPP funds were used for operations, like payroll. Ponderay Newsprint, he said, has no revenues left to repay the government loan. 
Munding said the company is in the process of liquidating assets, which includes seeking a buyer for the plant, built in the late 1980s. While Munding did not know how exactly much the sale would generate, he said it would not be enough to pay all creditors.
Blueprints of the building and the machinery it holds were roadmaps for employees when they faced an issue in the production line.
 (Photo: Jennifer Mosbrucker for USA Today)
One of the mills remaining owners at the time of bankruptcy was Indiana Newspapers, a subsidiary of Gannett, the corporate owner of USA TODAY, which owned 13.5% of the business. 
Gannett CEO Mike Reed said that he was not part of the process of obtaining the PPP funds, negotiated between mill management and the lender, but he said the bankruptcy decision was made well after the loan. 
The hope with the loan would (be) that it would bridge to the other side of the pandemic and Ponderay would survive, Reed said in an email. 
Several other U.S. publishers had stakes in the company, as did a Canadian paper business. Following the PPP loan, two of the largest partners McClatchy and Resolute Forest Products exited the partnership, said Frank O’Toole, president of Gannett Supply Corp.
Todd Behrend stands inside the shuttered facility in Usk, Washington.
 (Photo: Jennifer Mosbrucker for USA Today)
The newspaper business has been in distress for years the risk was always there, said Todd Behrend, interim mill manager who remains there part-time handling aspects of the closure for the bankruptcy trustee. When demand for newsprint fell off a cliff in March and April, it was just unsustainable at that point.
Loan requests processed in minutes, with little review
Attorneys, whistleblower groups and government watchdogs blame a lack of accountability and the rushed rollout of the PPP for many of its problems.
At the onset of the pandemic, the program was inundated with loan requests. More than 680,000 applications were filed on a single day, said Getnick, the whistleblower attorney and chairman of Taxpayers Against Fraud. Many of the loans were processed in a matter of minutes. 
Watchdog groups have cited more than $4 billion in improper loans, saying 50% of all funding went to just 5% of the applicants, with communities of color and microbusinesses left out. An MIT study in July showed that each job saved through PPP cost nearly $225,000.
It started as an urgent program, and we didnt expect it to reach the scale it has in size, Caroline Ciccone, executive director of the watchdog group Accountable.US, said during a recent news conference. 
Company executives have made headlines for fraudulently using PPP money to buy luxury items, like watches, yachts and sports cars. But experts say the bulk of fraud and waste in the program is more discrete like a company exaggerating its employee count or estimated losses from the pandemic. 
A USA TODAY analysis when the first batch of PPP data was released earlier in 2020 found that at least 700 vendors scored lucrative federal coronavirus contracts then also received emergency aid. Together those businesses took out at least $618 million in PPP loans through the SBA.
More: Coronavirus contractors double-dip government funds
The loan was designed to cover up to eight weeks of payroll but rules surrounding the program kept evolving. At least 60 percent had to be spent on salaries, while the rest could go to qualifying operating expenses, like rent or mortgage. Using the money for anything else could constitute fraud. 
Changes to the CARES Act allow loans to be forgiven if companies rehired employees by the end of 2020. Businesses that couldnt are expected to repay the note with modest interest if they can. Those rules left a loophole for struggling companies: take the money, fold and leave nothing left to repay the debt.
When businesses closed anyway, the question will be how exactly the PPP money was used to delay the inevitable. Regulators expect some of that vetting to occur in the coming weeks and months, as the government determines which loans to forgive.
Already suffering taxi service hard hit in pandemic
Even when already-struggling businesses avoided bankruptcy and permanent closure, major downsizing sometimes followed the PPP loan, USA TODAY found, but some still hope the help will tide them over.
For years, cab companies have battled losses as the proliferation of ride-sharing services like Uber and Lyft bounded into the market. Shutdowns in the pandemic further battered the industry. 
Nancy Weber arrives for her shift on Monday, Dec. 21, at Union Cab, where she has worked since 1999. In April the company received $690,000 in PPP loans with the hope of saving 180 jobs. By summer, the taxi company announced it was laying off 126 workers.
 (Photo: Angela Peterson / Milwaukee Journal Sentinel)
In Madison, Wisconsin, received nearly $690,000 in PPP loans in April to save 180 jobs, government records show. By summer, the taxi company announced it was laying off or furloughing 126 of those workers.
One of the cooperatives largest customers was the Madison School District. Another was the University of Wisconsin. Trips from both froze up when classes were canceled for remote learning. Nobody was traveling for daytime medical appointments or nighttime entertainment, either. At one point, the taxi service was down to about 10% of normal business.
The companys business manager, Bill Carter, estimates it lost a couple million dollars in revenue in 2020. To make up for it, Union Cab has been running a skeleton crew, he said, and cutting costs wherever possible. Aside from layoffs, the company took vehicles off of the road to save on fuel and maintenance.
Carter said the PPP money helped keep the remaining taxis running. Ultimately, that was not enough. 
The companys business manager, Bill Carter, estimates Union Cab lost a couple million dollars in revenue last year.
 (Photo: Angela Peterson / Milwaukee Journal Sentinel)
He understands the frustrations of other small business owners who also took out a PPP loan thinking it would be short-term but now have no way of paying it back. Hes counting on a large portion of his being forgiven based on guidance he has received from SBA. 
Union Cab also took out a $147,300 SBA Emergency Injury Disaster Loan, another part of the stimulus package, federal records show. Unlike PPP, those 30-year, low-interest loans generally are not forgivable. 
Its kind of a double-edged sword, Carter said. We didnt have as much business, so we couldnt have people work their normal schedules. But we also had people who were reluctant to drive because of the COVID situation, and we know were transporting (COVID) positive people.
The company has started bringing passengers to and from COVID testing sites and even taking ill patients to quarantine. Drivers began delivering for grocery stores as demand for that service increased. 
Carter says many of those laid off are now back working, although with greatly reduced hours.
Drivers Perry Halverson, left and Nancy Weber talk before heading out on their shifts. A year ago their office would have been busy with drivers during the holiday season, but things were a lot different last year due to the pandemic.
 (Photo: Angela Peterson / Milwaukee Journal Sentinel)
For most of the year, our battle has been trying to get our expenses if not lower, at least equal to our revenues, he said. Were getting closer and closer to that.
Dan Keemahill contributed to this report. 
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