This spring, when the pandemic started, my financial planning business slowed down. I get a lot of satisfaction from working with my financial planning clients. Being a catalyst that helps folks get to a place where they feel good about their financial decisions and where they’re headed with their lives is powerful stuff. The sting of that loss was compounded by the death of my dad in February. Dad’s passing meant not only losing the father I loved but also, as his long-time primary care-giver, losing the sense of purpose care-giving provided. There are no two ways about it, care-giving is hard work, but I never had to wonder whether it made a difference if I showed up. I knew that my actions, and those of my partner Ron, made a big difference in Dad’s quality of life every single day. And that gave meaning to my life.

What now?

So Dad bows out and COVID-19 arrives. In this new environment, what could I do to contribute for the greater good and continue to feel that I’m living with purpose? I stayed home, social distanced, wore a mask, donated plasma, kept paying service providers (like the guy who cuts my hair and the woman who cleans my house) while they stayed home to stay healthy. And wondered, living my privileged life that allows me to stay home and not risk exposure to COVID-19, is this all there is?

While looking for information on Small Business Administration (SBA) loans for a client, I noticed on the SBA website that they were hiring loan officers. Twenty five years ago, when I lived on a sailboat in St. Thomas, I worked for the SBA as a disaster loan officer after Hurricane Marilyn blew through. I liked the work then. Seemed like this might be a way that I could make a contribution during COVID-19. So I applied.

And then the fun began!

After a month or so, the SBA got back to me with an offer. And things started to move very fast—they shipped me a laptop, scheduled me for swearing in and orientation, and gave me a few hours of virtual training. Then they said, “go to it, approve disaster loans, at least 40 loans a day”. At the outset, the mandatory schedule was 12 hours a day (with a 30 minute break), seven days a week. My team leader had already been working that schedule, as had everyone in the SBA disaster loan division, for more than a month. Later, the mandatory hours would be reduced to 10 hours a day, six days a week.

My team was made up of 15 of us who had done orientation together. We had a virtual meeting the day we started, then shared a team chat. Initially, our team leader would chat back answers to the questions we posted. But within a few days, we were told to use the resources we had and only IM the team leader when we had exhausted those. There was a short reference guide, email updates, and the things that other team members had learned and could share. On the one hand, it seemed kinda crazy, on the other, it made sense. The SBA disaster division, where I worked, had never before handled a disaster of this magnitude. In a “normal” disaster, they would process 700,000 loan applications, using a combination of permanent staff and temporary hires (like I had been in St. Thomas in 1995). When I started in June, the SBA had already received more than 7 million Economic Injury Disaster Loan (EIDL) applications. The application portal was temporarily closed but would reopen and turn back on the fire-hose of new applications. And the charge from Congress and the expectation of the public was to get money to small businesses that desperately needed it ASAP.

As a financial planner, I knew more about the CARES disaster relief legislation that spawned these EIDL applications than the rest of my team members. Like most planners, I had been reading articles and attending webinars to learn the ins and outs of the various parts of the legislation in order to help my clients get the help they needed. And I had seen the EIDL application first hand, having applied for an EIDL loan for my own business. But it was only after I went to work for the SBA that I realized what an enormous challenge it was to administer the program that Congress had envisioned.

When the CARES act passed in March, there were no systems in place, beyond the existence of the SBA, to carry it out. Congress funded two different loan programs to help small businesses, to be administered by two different branches of the SBA.

The Payroll Protection Loan program was offered through participating banks by the branch of the SBA that oversees traditional small business lending. This loan program was designed to provide funds to help businesses keep their employees. If the proceeds were used for payroll and a few other specific purposes, they could be forgiven.
EIDL loans and advances are administered by a separate part of the SBA, the disaster loan division. This is the division that makes loans to get people and businesses back on their feet after disasters—floods, hurricanes, tornadoes, wildfires, or, in this case, a pandemic. Knowing that businesses needed money right away and that processing loan applications takes time, Congress authorized an advance program. Every business that applied was to receive an advance of up to $10,000 which did not have to be repaid, whether a loan was approved or not. Great idea!

When the legislation passed, the SBA was charged with carrying out a program unlike anything it had done before, and doing it during an on-going pandemic. There were no existing applications for loans that looked like these. In the case of the disaster division, the existing application processing system wasn’t workable. The concept of quickly providing an advance to each applicant was just that—a concept, had never been done before. And there was no precedent for bringing in and training the number of people who would be needed to carry out this work…or for doing the on-boarding and training virtually.

I’m awed and amazed by the way the SBA has managed to staff up and quickly create systems and processes to meet this unprecedented demand for assistance. No, it isn’t pretty. Applicants in desperate financial straits may have to wait hours before speaking to a customer service representative on the phone. It took months for some of the loan applications to make their way to loan officers. Advances did NOT go out immediately on applying; for some borrowers, the advances were funded after loan had been disbursed. The loan processing system, named “RAPID” was anything but as more and more loan officers and customer service reps tried to access it simultaneously. And, it turns out, you can’t just add hundreds of new users to your phone system and have it function. Everything was overloaded, working all out, and subject to slow downs or crashes.

Who gets a loan?

In order to move money out quickly, a greatly pared down process had to be created to assess applicants. The goal of the system and the loan officers using it is to determine if a legitimate business exists and then to roughly estimate if and how much this business was damaged by COVID-19. The resulting application was short. So short that, when I filled it out, I thought it must just be some kind of “pre-application” and that the “real” questions would follow. Not so. For a for-profit business, information on revenues and cost of goods sold (COGS) in the 12 months prior to the pandemic is required. For rental property management businesses, the amount of rents lost has to be quantified. And for non-profits or agricultural businesses, 12 months of expenses are requested. That’s it. All applicants are asked how many employees the business has. This question serves two purposes:

To insure that businesses meet the criteria of being “small”—with less than 500 employees; and
To determine advance eligibility at $1,000/employee up to a maximum of $10,000 (Note: all of the funds appropriated for advances had been allocated by mid-July.)

Even this striped down, mainly non-technical application stumped a lot of people. Not necessarily the ones we as taxpayers would hope it would stump, either. Small time scammers went after the $10,000 advances, just providing enough information that it might look like they had legitimate businesses with 10 or more employees for long enough to get that $10,000 into their bank accounts. Some folks with more nerve went for loans as well, sometimes supplying information for real businesses…just ones they didn’t own. Sadly, though, many business owners who really needed the help made mistakes on their applications that either disqualified them for loans or caused them to receive smaller loan offers than they might have.

The most common culprit I saw for a business receiving no loan or a very small loan offer was a misunderstanding of COGS, one of the very few financial questions on the application. While COGS—the cost of the product you produce—can be a relatively high percentage of revenues for a manufacturer or a retailer, it is zero for most service businesses. But many lawyers, photographers, barbers, taxi drivers and physical therapists don’t know what COGS is…and they entered COGS numbers that were as large as or larger than their revenues. EIDLs are intended to compensate for an economic injury brought about by a disaster. If a business was already losing money on a gross margin basis (revenues less COGS) during the 12 months prior to the pandemic, there’s really nothing there to injure. A business that was making nothing to cover its operating expenses was probably insolvent or on its way to being insolvent before the disaster ever started. And this is the story that many applications told, not because it was true, but because people didn’t understand what the application was asking. When I was able to connect with applicants and explain what COGS was and suggest that they speak with their accountants or bookkeepers, the vast majority came back to say that their initial applications had grossly overstated their COGS.

Unfortunately, a second common reason that applicants didn’t get the help they requested was a failure to respond to SBA requests for more information in a timely manner. We loan officers were trained to allow an applicant seven days to respond before declining the loan for lack of responsiveness. There were applicants, probably at both ends of the age spectrum, who don’t really use email regularly. These people could easily miss an email, or two or three, from an SBA loan officer. Others were put off by fears that they were being scammed. And why not when you get an email asking you to email back sensitive information, like a photo of your driver’s license or a copy of your tax return? Because the SBA application database would occasionally reshuffle the applications, applications would move from one loan officer’s queue to another’s. You might get an email from me requesting information on Monday and be contacted by a different loan officer on Friday. Applicants got suspicious.

Finally, it should come as no surprise—those most able to successfully navigate the process were the more sophisticated applicants, not necessarily those with the greatest needs. While the SBA disaster division tried to make the process as straightforward as possible, the result still isn’t intuitive for the average applicant.

I learned a lot about the SBA in my 38 days working there this summer. And there’s a lot to appreciate in the SBA’s rapid response. I also learned a few things about myself in this process—I’ll share that in my next blog installment.

Ready to learn more and take charge of your own financial life? Give me a call (336-701-2612) or send me a message.

Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the States of North Carolina and Texas and in other jurisdictions where exempted.