[gjmacd]

Not naming the company, but I know of a startup that's got a round of $10M (not much but enough) who just applied for relief because their burn rate is $200K+ a month. They have no customers, have been in the red for 2 years and have been slowly building their product out -- like most early funded startups -- they are building potential without revenue (yet).

Their theory is, get some free money and treat it like 6 months of salary to help and take it as a "gift".

When I cited that they "weren't directly affected by this and could keep going until this COVID thing ended and it wouldn't matter to them." The person I know who's involved at the exec level said, "It's free money, when you get a free bag of money, you don't turn away on that..."

I wanted to throw up.

[nunez]

The exec isn't wrong. You don't turn down free money if it's available, especially if you can use it to help build the business. There are plenty of businesses in /r/smallbusiness or /r/startups talking about doing exactly this.

Now, if they used it to buy a new McLaren or something like that, then, yeah, they're a piece of shit.

[e40]

If they are audited and can't show impact by COVID19, then there might be fines. Big ones. I just signed the loan app for my 36 yr old software company which has been hit by a drop-off in sales.

[cannaceo]

I didn't see proving harm by COVID19 as a requirement for applying for the loan. The loan is to minimize unemployment claims. Without the loan I would've been looking to make proactive staff cuts immediately despite not being dramatically impacted by COVID19. With the loan I feel comfortable keeping my workforce employed. My understanding is the requirement to not pay back the loan is that you keep 75% of your staff employed but we will see what the SBA and banks require as part of their loan forgiveness criteria.

Another thing to note here is that despite not being harmed directly by COVID19 we are all suffering the indirect harm. Consumers are broke, supply chains are disrupted, air freight cost is sky high, etc.

[texasbigdata]

It's literally on the form. There's criminal liability for mis-stating.

[cannaceo]

I should have been more clear. I was not required to prove economic hardship by providing financials.

The application makes you certify the following: "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

This is fairly ambiguous language putting most applicants in a defensible position regardless of firm performance over the next 6 months. There was a lot of litigation against lenders during the last QE so banks were more cautious about compliance. However, I was still not asked for tax returns, any financial statements, etc.

[weixiyen]

The company applying for the loan is liable for fines if it gets audited and somehow it is shown that the relief was not 'necessary'. Not only that but the signatory is also exposed to the risk of imprisonment.

The language in the terms of the loan is far too ambiguous for anyone that's not in a life-and-death situation to take on the risk imo.

[lovehashbrowns]

Would you mind sharing which company?

It'd be nice to have a place where companies which are struggling right now can post ads.

[dehrmann]

A harder environment to raise capital is COVID-19 impact, especially for an otherwise-viable startup.

[lvs]

You're right. Morality means nothing. Every man for himself.

[londons_explore]

This is the government's fault for not attaching more strings to the money.

It should have been a loan at favourable interest rates with a fixed term.

[drsooch]

I created an Account just for this thread.

I spent time working as a Credit Analyst for an Economic Development Firm (AKA we made SBA 504 loans). I would like to note I am no longer in the industry, however I do have contacts still. I've spent some time on the phone discussing the program with current lenders.

The SBA does not just hand out money with no strings attached. The actual 504 loan program (general small business loans) have strict requirements that are adhered too. There are size constraints, business type constraints etc. and (some of) these constraints extend to the PPP. I can't say for certain but it is entirely possible this firm doesn't qualify.

As for the PPP, I believe the max loan amount is 2.5x monthly payroll. I can imagine that 200M burn rate is not purely salary. But safe to say they can apply for a maximum 500M. Is that an exorbitant amount of money for a firm with no revenue? Probably.

But in talks with those in the industry, the main concern is Construction Companies. In the markets I'm in, construction is still underway, so these companies are applying for PPP while still maintaining a constant revenue stream. They are essentially getting free employees for 2.5 months, while still being relatively unaffected. That will most likely change if the economy enters a larger downturn as construction is usually the first to go.

[LeoTinnitus]

I worked in the commercial department of a state financial institution and I loathed SBA loans. They were such a pain. Everybody hated them. Lenders, processors, underwriters...but not the VP!

I mean I get but ffs why? Let the big companies do it. They're just a hassle.

[drsooch]

They're a hassle, but less risk for the primary lender. We worked with primarily smaller Banks, it makes sense for a small bank to work with the program.

[LeoTinnitus]

Yeah but most small banks don't have any understanding of what it all requires. It's not like an inhouse loan where if the borrower misses a payment they just show up on a report. You gotta jump though hoops and notify tons of stuff to the SBA about it. Not to mention everything needing to be perfect.

[toomuchtodo]

Thank you for taking the time to contribute this.

[latortuga]

The PPP program is a loan at favorable interest rates (1%) and a fixed term (2 years). The loan can be entirely forgiven as well, provided certain requirements are met. There is no collateral requirement but you do have to affirm that you are affected by the pandemic, so it sounds like the startup mentioned by OP possibly committed fraud.

[xvedejas]

Just a thought: when the government starts giving out lots of money with strings attached, you get a lot more jobs doing administrative compliance tasks. I'm thinking of, for instance, universities and the growing numbers of administrators who exist to chase funding. More strings attached means money will go towards meeting all requirements. Maybe this isn't strictly bad, but it might be less efficient than just letting some undeserving companies get away with extra cash. I'd rather startups consist of employees focused on building their product than focused on qualifying for government grants.

[drsooch]

Just as an aside, compliance (at least in the case of the SBA ) is done at loan approval time. Compliance for the SBA mirrors what most traditional lenders require: insurance, permits, etc.

It's also hard to extend what the government is doing now (payroll protection) to a university or some other large firm. Funding for those type of entities has been around for a long time and is set in stone.

[xvedejas]

And that's not to mention compliance enforcement required on the government's side, which I imagine isn't so easily scaled up at a moment's notice.

[drsooch]

Compliance in this case won't be that big of a deal. The fact of the matter is it will be relatively simple for a small business to show that the money from the program has been a benefit to them. The way the SBA program works is the intermediary lender is required to gather all the necessary documents for submission to the SBA.

The sheer quantity of loans is the only bottleneck. Even that would probably be add minor stress to their system. A regular loan can take a week to two weeks to process when things are running smoothly. Most of that time is the loan sitting in a queue waiting to be processed. The actual enforcement requirements will be relatively unchanged compared to regular loans.

From my understanding the actual compliance of whether the loan will be forgiven or not is straightforward and probably wont need to be enforced until a few months down the road. If it does not comply, the company will pay back in full.

[pkulak]

The point was to get money out fast. Everyone knew it would get into some wrong hands, but the window is small here. Any hope of coming out of this in a few months hinges on getting people support quickly.

And besides, all these small-business loans are exactly that; loans. You can get them forgiven later if you can show that you used it directly for salary. But later is the key word. Get the money out now, worry about forgiveness paperwork later.

[lukas099]

Stimulus payments, like tax codes, are usually best kept broad and simple. Doing otherwise usually just rewards those who are best at gaming the system.

[jdkdi9]

“Government by, of, and for the people.”

The idea government should have rules around keeping people afloat seems anathema to its mottos.

And the people blaming government... it’s like COVID... reality doesn’t give a shit about you not paying attention

[refurb]

Are you really surprised?

I think you'd be very hard pressed to find people willing to turn down free money.

It's not like are lying to gov't to get it. They qualify, so why not take it.

[DangerousPie]

Don't you have to claim that you are negatively affected by COVID to get it? But I guess arguably everyone can claim that to some degree.

[refurb]

Looks like there are different programs, but for the payroll loans, I don't see anything like that in the criteria.[1]

[1]https://www.sba.gov/funding-programs/loans/coronavirus-relie...

[akatechis]

No. I got my money in my account yesterday, about an hour after my employeer direct-deposited my paycheck.

[Aperocky]

If they qualify, they qualify.

If they don't, then they're a fraud.

If they shouldn't qualify but they did, then blame the policy makers.

Only (2) would have been their fault.

[lukifer]

I agree that policy makers bear primary culpability; but that doesn't absolve you morally for your individual choices. This is not "free money", in the sense of "I found a $100 bill on the street"; it comes from the sweat of taxpayers, both present and future. (In self-interested terms, it also doesn't absolve a company from harm to their brand and reputation, if/when it becomes public that they accepted a bailout they didn't need.)

[aero142]

I'm curious. If a person qualifies for the stimulus check but has enough in savings to get through the next few months, do you believe they should refuse because it comes from the sweat of taxpayers as well?

[lukifer]

I've seen at least one person in my social network, whose employment hasn't been impacted, offer to give their check to someone who is furloughed or laid-off.

It's tough to say, since there's always the risk of more layoffs; and there's an argument that the payments are stimulus as well as relief, and so it's perfectly legitimate to accept, so long as one spends it. But as a matter of conscience/citizenship, if one is economically stable, it's at least worth considering giving it to someone in greater need. Everyone's circumstance is different, and a lot of people were economically struggling before the virus, so I think we each answer that question for ourselves.

That said, I think the corporate bailouts are in a different category than individual payments. The $1200 relief check system is hardly perfect, but it's at least transparent and fair: every citizen of the same income bracket gets the same flat payment. But we all know there's a lot of wheeling and dealing and favors and promises taking place with the bailout money, and there's no objective algorithm for deciding who gets paid, or how much. If a travel agency gets $50m when they really could've stayed afloat for $25m, how exactly would anyone arrive at that definitive number, including the travel agency themselves? But if a company takes a bailout when they don't truly need it at all, I think it's fair for taxpayers to cry foul.

[not2b]

There isn't a guarantee that the economic impact will be over after the next few months. But someone who is in really good shape but still eligible for the money could donate all or part of it to charity.

[dvtrn]

So that raises a question, one I ask because I honestly don’t know the answer: have the policy makers who authorized the release of these monies even made a supplemental mechanism for returning it outside of the established parameters for funds distributed as an explicit loan?

Taking your argument of the morality of individual choices at face value: how is one supposed to put that money back? Are they obligated to report this action as they would others? What’s the enforcement mechanism like?

I get your point but it opens up a lot of questions IMO that maybe adds some sediment to the purely moral water being poured out

[bluetwo]

And that's why the fund ran out of cash within a week.

[electriclove]

This is happening times a million everywhere. I find it quite upsetting as well. We are rewarding those who don't need it while neglecting those who do.

[atlgator]

It's a LOAN of $1000 per employee, and you have to retain your employees for 180 days in order for the loan to be forgiven... do the math. I assume most employees make more than $2000 per year. The money is only "free" if you were going to stay open anyway.

[ivalm]

but they WERE going to stay open anyways. This is literally free money. They burn 2.4M/year and recently raised 10M. They could stay open even without this free money. This money is a bonus, it doesn't fully pay for the burn but it does give them money despite them not being directly impacted.

[ivalm]

Hedge funds can benefit from PPP as well, after all, in terms of employee count they are a "small business" and they are negatively affected by COVID:

https://www.pkfod.com/insights/are-hedge-fund-managers-eligi...

[juped]

If they took the relief money, then they aren't firing - that's the condition. Why is this on top of this thread?

[schwartzworld]

this is why we should bail out citizens, not corporations.

[lubujackson]

Tesla asked for money.

Hedge funds asked for money.

The U.S. government works for, and is run by, big businesses.

[londons_explore]

In an exchange between a government and a company, it's all a matter of policy and law. "We can survive without it so give it to someone more in need" isn't the way it's done, nor should it be in a capitalist society.

[lostcolony]

You just made a very compelling argument for more socialism.

[Nasrudith]

Compelling to the right sets of prejudices who have their own telology with preordained conclusions but ultimately a minutae of the whole picture akin to hyperfocusing on the obscure set "deaths caused by wearing a seatbelt" vs the far larger set "deaths prevented by them".

It is more an arguement for doing your goddamned homework as a government. Companies are essentially a function to find corner cases within what is written or not written. That sort of "creativity" is what they do. Using it as an arguement against it is like saying we should never have kept and domesticated cats or dogs because they can't be trusted to not to grab the Thanksgiving turkey when your back is turned.

[bfieidhbrjr]

Welcome to Europe.