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KARE 11 Investigates: Some small businesses shut out of SBA loans

Minnesota businesses with few employees say they were left behind as larger firms grabbed much of the $349 billion meant to help.

EDEN PRAIRIE, Minn. — The federal government’s Paycheck Protection Program was supposed to help small businesses keep employees working during the COVID-19 crisis by offering forgivable loans through the Small Business Administration.

That’s why Jason Ivesdal says he applied right away. “Right when it came out that Friday, we were on it,” he told KARE 11.

Ivesdal and his wife Ruth own Higher Power Training, a personal fitness center in Eden Prairie that’s been shut down for more than a month.

Ruth says they had a plan to bring back the dozen people who worked for them. “Take them off unemployment and put them on salary,” she said. “And they can be helping us setting up some online training opportunities and classes.”

Credit: KARE 11
Ruth and Jason Ivesdal say their small business was shut out of the SBA loan program.

But the SBA loan program ran out of money late last week – blowing through nearly $350 billion nationwide – before the Ivesdahls were approved.

Cases like theirs are raising questions about why the smallest companies with only a handful of employees were often left behind as larger companies were able to grab most of the funding.

“We’re not a big enough fish”

So how did the owners of Higher Power Training miss out?  

They think it’s simple.

Since the loan applications went through banks and other lenders first, the Ivesdals think the bigger businesses with strong banking relationships were the top priority.

And since the law defined a “small business” as companies with up to 500 employees, there were larger companies ahead of them.

“At bigger banks, they are going through and their biggest customers get the business first,” Ruth said. “We’re not a big enough fish to get priority.”

Twin Cities accountant Scott Driscoll says he’s seen the same thing happen to some of his clients.

“Disheartened, I mean sad,” Driscoll told KARE 11. “I mean a lot of small business out there need this money to survive.”

Credit: KARE 11
Accountant Scott Driscoll says banks seemed to prioritize their bigger customers.

He owns an accounting business in Robbinsdale servicing small businesses, many of them stuck in line in the application process.

“It seems like the big banks were taking their larger clients first, because they had a stronger background working relationship with them,” Driscoll said. “And based on what banks were being compensated to do this, they would take the bigger client first before the smaller client.”

Restaurant chains get millions

The law setting up the program said a business that “employs not more than 500 employees per physical location” was eligible. That “per physical location” loophole in the law allowed several large, national restaurant chains to apply for the SBA program and receive a combined $40 million dollars.

After the disclosure, the CEO of the New York-based Shake Shack announced his company would return the $10 million loan it received.

As Congress considers a new round of funding for the loan program, Senator Amy Klobuchar (D-MN) called for additional protections to ensure all small businesses – including minority-owned businesses – have equal access to the funds.

Meanwhile, officials announced Minnesota businesses got more money in loans than most other states.

“Minnesota certainly was one of the leaders of the pack across the United States,” said Rob Scott, the SBA Regional Administrator.

The SBA says 46,383 applications were approved in Minnesota totaling $9,014,600.

Nationwide, the government approved the equivalent of 14 years of loans in just days.

“In the last 14 days we essentially approved the number of loans in that appropriated amount which equaled 14 years of SBA lending,” Scott said.

And yet for many small businesses, still desperate for help, it hasn’t been enough.

“These businesses aren’t going to last more than another two weeks, or three weeks,” accountant Scott Driscoll said.

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KARE 11’s coverage of the coronavirus is rooted in Facts, not Fear. Visit kare11.com/coronavirus for comprehensive coverage, find out what you need to know about the Midwest specifically, learn more about the symptoms, and see what companies in Minnesota are hiring. Have a question? Text it to us at 763-797-7215. And get the latest coronavirus updates sent right to your inbox every morning. Subscribe to the KARE 11 Sunrise newsletter here. Help local families in need: www.kare11.com/give11

The state of Minnesota has set up a hotline for general questions about coronavirus at 651-201-3920 or 1-800-657-3903, available 7 a.m. to 7 p.m.

There is also a data portal online at mn.gov/covid19.