March 25, 2021
Today, U.S. Sen. Jim Inhofe (R-Okla.) questioned witnesses at a Small Business and Entrepreneurship Committee hearing entitled: “Oversight of SBA’s COVID-19 Relief Programs.”
Witnesses included: Mr. Patrick Kelley, Associate Administrator, Office of Capital Access, Small Business Administration, Washington, D.C; Mr. James Rivera, Associate Administrator, Office of Disaster Assistance, Small Business Administration, Washington, D.C.; Honorable Hannibal “Mike” Ware, Inspector General, Small Business Administration, Washington, D.C.; and Mr. William B. Shear, Director, Financial Markets and Community Investment, U.S. Government Accountability Office (GAO), Washington, D.C.
Inhofe: Thank you, Mr. Chairman.
I do have a couple of questions both for Mr. Kelly and both being very parochial to Oklahoma. Let me share and see if you've heard of a situation like this other than the situation that is in my state of Oklahoma. The December COVID relief authorization Second Draw PPP loans that took place — in order to be eligible businesses must have lost 25 percent revenue between the years of 2019 and 2021. Now, unfortunately some businesses have changed ownership in that time and there doesn't seem to be anything there that addresses this as a problem. I'll be specific. In the town of Cushing, Oklahoma, a couple named J.D. Meisner and his wife MaryLee bought a newspaper, The Cushing Citizen, in February 2020—only a month before the COVID-19 lockdowns began. Now, their business model stayed the same yet J.D. and MaryLee have been unable to receive a Second Draw, or really, to have this problem addressed. What happens in this unique situation? I'm sure they're not the only ones where this has taken place. What would you suggest in looking at ways to mitigate, I would say, the unintended circumstances that they found themselves in.
Kelly: Senator, it's an excellent question. As I mentioned in my testimony, I am relatively new — three weeks into the job but, I can assure you that it has come up in other states. Change of ownership during the pandemic is creating an issue with Second Draws about whether or not the entity, the NewCo post-acquisition, it should apply as NewCo First Draw or does it apply Second Draw because of the outstanding. What I’d like to do is take this offline, work with the staff in committee. We are addressing this through our Office of Policy but it has been raised and it is an issue that we need to clarify. I appreciate the question.
Inhofe: Well, I’ll ask a further question. Why would there be a difference if you had a change? If all the plans were the same and nothing else changed but only the ownership during that period of time — I can't think of any justification for that. Or do you know of the particular case that I’m referencing? I'm not sure whether our staff had sent that up in preparation for this meeting. What do you suggest though in this particular case that we do?
Kelly: I apologize because I agree with you that it should be commonsense. However, the way that the Small Business Administration (SBA) loan programs typically work is they consider a combined NewCo, seller and buyer, post-acquisition, as a new company. That’s what creates the tension because the seller was the first draw recipient. But, now there is a new company that has been formed post-acquisition. So, does that apply through the First Draw and the Second Draw. I apologize for letting you down Senator. I don’t have the answer right at this moment. I will get it.
Inhofe: I did not anticipate that you would have the answer, but if you would look into that particular case because I know there are other examples around that would fall into a category that probably should be addressed. So, if you would do that and let me know, I’d appreciate it.
The second thing is, it’s kind of similar, and it is local. Back in February, the SBA changed the calculus, the calculation for the PPP loans for certain small businesses. A lot more, as you are fully aware, of the independent contractors, sole proprietors and self-employed individuals are now eligible for PPP and can receive higher loan amounts. Yet some of the businesses — I know in my state of Oklahoma — were not aware of the change that had been made, which had opened it up to them, but they were not aware of it. We have cases, in Oklahoma, where businesses are actually closing simply because they think they remain ineligible when, in fact, they are now eligible. What are they doing to make sure that these changes are properly communicated and what would be the path forward for someone that has already passed the deadline? Can you address that?
Kelly: Just to clarify, Senator, are you referring to the gross income calculation for sole proprietors, self-employed individuals and 1099?
Kelly: Okay, thank you. Yes. We do need to amplify that message and part of what we tried to do a month ago was to begin that effort. There is more work to be done. I would recommend your staff to send me an inquiry, and we will work with constituents to help that.
Inhofe: Okay, I will do that. I will also include others that are involved in this. It is a tough job — you make changes like that and all of a sudden you have a large population that become eligible or ineligible because of that. Anyway, if you will do that and get back with me, I’d appreciate it very much. Thank you so much.