WASHINGTON — Even as the coronavirus pandemic has ushered in one of the greatest economic downturns in modern history, Lazydays Holdings, a recreation vehicle dealership company based in Tampa, has been having a good year.
As fear of the coronavirus has driven Americans away from air travel and hotels, RV sales have soared. Lazydays, which is publicly traded, posted revenues of $214 million for its second quarter, a rise of more than 25 percent compared with 2019, and it sold more than 40 percent more RVs than it did in the same quarter last year.
Yet in late April and early May, three of its subsidiaries received three separate loans for a total of $8.7 million as part of the Paycheck Protection Program, or PPP, which Congress passed to help save small businesses devastated by the pandemic.
That program, however, has also benefited some corporations, like Lazydays, which had more than one subsidiary taking in PPP loans. In all, about two dozen companies have either had multiple subsidiaries that have each taken out a loan or have themselves taken out loans along with one or more subsidiaries, Yahoo News has found.
The practice is legal, since the federal government allows subsidiaries to qualify as small businesses, but it does raise questions about how disbursements of federal funds have been overseen by the Trump administration, according to government watchdogs.
“It is unfair,” House Small Business Committee Chairwoman Nydia Velázquez, D-N.Y., told Yahoo News, “that large publicly traded companies with the resources to navigate the pandemic accessed PPP loans while smaller business owners were met with confusing guidelines and viewed as a lower priority by some big banks.”
Velázquez argued that this “was never the intent of the law” and vowed to “keep pressing for bipartisan reforms to ensure PPP loans continue to reach the truly small and underserved businesses hurting across America.”
With its $660 billion in forgivable loans, the PPP was touted by the Trump administration as a bridge over weeks of government-imposed shutdowns. It is part of the CARES Act, a $2 trillion stimulus package meant to rescue an economy effectively paralyzed by COVID-19. According to the Treasury Department, which oversaw that program, loan recipients were supposed to use the funds they received “to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead.”
Since its inception, however, the PPP has been plagued by problems. Nine out of 10 minority-run small businesses, for example, failed to receive the necessary assistance. At the same time, some large, well-known corporations received loans despite displaying signs of financial health, at least relative to their competitors. Those companies, which included Shake Shack and the Los Angeles Lakers, returned their loans after backlash over distribution of the program’s funds. And then there are companies like Lazydays, whose multiple PPP loans to subsidiaries seemed to reveal a potential loophole in the loan program.
Five other companies also received three different PPP loans — either among their subsidiaries alone or the subsidiaries and parent company. Among them is Rekor Systems, a publicly traded artificial intelligence company based in Maryland. A subsidiary of the company based in Texas won a $5 million PPP loan in early May. Later that same month the parent company was the beneficiary of a $221,000 loan, which did not stop another one of its subsidiaries, called Rekor Recognition Systems, from receiving a $652,000 loan about a week later.
“This program has failed so many small businesses in so many ways, it’s clear Congress needs to create a new program that streamlines help to the mom-and-pop businesses that are still left,” says Derek Martin, spokesman for Accountable.US, a progressive government watchdog group that has been monitoring the distribution of PPP loans. Martin criticized the Trump administration for handing out taxpayer dollars to large publicly traded companies that “may not even have needed the funding.”
The Treasury Department disputed suggestions that it had failed to adequately monitor the disbursement of COVID-19 relief loans. A spokesperson told Yahoo News that “all applicants for PPP loans are required to provide their lenders with business information and certification regarding their eligibility, number of employees, industry classification, and requested loans.” The spokesperson emphasized that the “self-certification approach enabled the rapid delivery of PPP loans to small businesses during a crisis when over 10 million Americans lost their jobs in a two-week period.”
Democrats nevertheless maintain that the program is plagued by underlying flaws that are compounded by a lack of oversight. An April letter from Sen. Elizabeth Warren, D-Mass., who helped create the Consumer Financial Protection Bureau, and Velázquez accused banks of “playing favorites” and shutting out legitimate small businesses from receiving loans.
The CARES Act does not prevent subsidiaries of a larger company from taking out loans, yet that seeming loophole has already drawn scrutiny since it has meant that even Chinese-owned companies have benefited from PPP loans. But even for American-owned companies, the ability of multiple subsidiaries owned by a single corporation to get aid highlights the fact that some small businesses have gotten nothing at all.
In particular, minority- and women-owned small businesses across the country have failed to secure funding from the PPP at seemingly inexplicable rates. Members of Congress have called on the Small Business Administration (SBA) to disclose demographic data on the loans.
“There’s no accountability or reporting as to how they are doing their loan program,” Renee Johnson of the Main Street Alliance recently told American Banker.
Yahoo News contacted all parent companies with more than one subsidiary that received loans through the PPP program, or those in which a parent and subsidiary each received a loan. Most of them did not respond, and those that did noted that each subsidiary is its own company.
For example, Real Networks received a loan of $2.8 million on April 24, and a month later its subsidiary company Napster, the onetime music streaming giant, got $1.7 million from the federal government. Kim Orlando, an investor relations representative for Real Networks, said Napster, though a subsidiary of Real Networks, “operates as an independent business with its own board of directors, strategy, and leadership team.”
Another company, Digirad Corporation, had seven different entities receive a total of $6.7 million. Hannah Bible, vice president of the medical imaging company, based in Southern California, told Yahoo News that “no subsidiary of Digirad has applied for more than one loan, as disclosed in our public filings.”
In another case, Prime EFS, a subsidiary of Florida-based Transportation and Logistics Systems, received a $2.9 million PPP loan from the Treasury Department on April 15. Thirteen days later another of its subsidiaries, ShypDirect, secured a $504,940 PPP loan.
Those loans came at a propitious time for the parent company, Transportation and Logistics Systems, which was suffering from financial problems even before the pandemic. The business was “burning cash, missing debt payments and struggling to raise capital,” according to a Wall Street Journal article on the company.
Critics say such loans fly in the face of a promise to protect mom-and-pop businesses, which often lack cash reserves or access to lines of credit that large companies may have, from the devastating effects of the pandemic. What’s more, those promises were made by the administration of a president who won the White House by vowing to look out for ordinary Americans.
Loans should “go to underserved and truly small businesses that need help,” Sen. Sherrod Brown, D-Ohio, told Yahoo News.
An SBA spokesperson defended the program, noting that it “has more than $100 billion remaining” and pointing toward an April 28 press release on the PPP review procedure from Treasury Secretary Steven Mnuchin and SBA head Jovita Carranza. In the statement, Mnuchin and Carranza noted the number of companies that received loans that might not have been necessary, “reevaluated their need” and repaid said loans. The “SBA decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate,” they said.
Accountable.US estimates that 797 publicly traded companies have taken out coronavirus-related loans. Those loans amount to close to $2 billion. At the same time, small businesses — the very ones the program was supposed to save — have been closing at an unprecedented rate, leading to what some have called a small-business “apocalypse.”
As for Lazydays, the company whose subsidiaries received almost $9 million in forgivable loans, business is still going strong.
“We have and continue to experience incredibly robust demand for RVs,” Bill Murmane, the chairman and CEO, said on an Aug. 1 earnings call. “We believe this strong demand is primarily related to the lifestyle changes caused by the pandemic and the limited options people have to enjoy vacation and leisure activities that allow for social distancing.”
Cover thumbnail photo: Yuri Gripas/Abaca/Bloomberg via Getty Images
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