Some businesses thrived during Covid and then got their Covid PPP relief loans canceled
At the end of June, Sharps Compliance, a Houston-based medical waste management company, reported spectacular financial results. The deployment of Covid-19 vaccines has increased demand for the company’s services, Sharps said, and its revenue has more than quadrupled. The company’s board of directors awarded Sharps’ three key executives double the performance-based compensation they received a year earlier; the trio shared nearly $ 1 million more than they received in fiscal 2020, according to Securities and Exchange Commission documents.
As the publicly traded Sharps recorded enviable results, he also applied to the federal government. Last year, the company appealed to taxpayers through a lender for a $ 2.2 million loan under the Paycheck Protection Program, or PPP, a relief operation for small businesses facing economic hardship as a result of the coronavirus measures. A year later, Sharps wanted that loan canceled.
On June 15, Sharps granted his wish, according to regulatory documents.
At the start of the terrifying days of the pandemic, the federal government rushed to support businesses and consumers defeated by Covid shutdowns. One signature effort was the Paycheck Protection Program, a forgivable loan operation for small businesses. Overseen by the Small Business Administration, or SBA, it disbursed nearly $ 800 billion in total from April 2020 to May 2021, when it ended.
For small businesses, the PPP was “the lifeline they needed to survive during a unique economic crisis,” said Isabella Casillas Guzman, administrator of the SBA.
But an NBC News survey shows that the operations of some loan forgiveness companies, like Sharps, appeared to thrive during Covid, rather than suffer. And while these companies couldn’t predict their exceptional results when they applied for PPP loans, their loan cancellation requests came long after the payoffs were obvious.
Under the program, PPP loans can be canceled if beneficiaries maintain employee and compensation levels where they were before Covid and if at least 60% of loan proceeds are spent on salary costs and the remainder on payroll costs. other eligible expenses, such as rent or utility payments. .
There is no evidence that Sharps and the other companies identified by NBC News broke any laws or obtained their loan cancellation improperly.
A record year
When the government launched the PPP, few rules were in place; the idea was to get money to businesses quickly. The government made it clear at the time that borrowers would be entitled to a rebate if they met certain conditions.
Initially, borrowers had to certify “in good faith” that financing was required when applying for loans, taking into account “their current business activity” and their ability to access other sources of capital to support their operations. , like the stock market or investors with deep pockets.
“It is unlikely that a SOE with substantial market value and access to capital markets will be able to perform the required certification in good faith”, the SBA said.
Nonetheless, some companies whose loans over $ 1 million were canceled had access to stock market funding both when they took taxpayer money and when they received the cancellation, found out. NBC News. At the start of the pandemic, the stock market was in a crater, but since then it has repeatedly hit new highs.
Some 157 companies with access to the stock market raised about $ 300 million of the $ 610 billion that had been handed over in mid-October, less than 0.1% of the total. For example, Sharps’ market value was around $ 100 million when it got the PPP loan, and soon after it was canceled, the company raised $ 17 million by issuing new shares, according to the documents. regulatory.
In addition, NBC News has determined that more than $ 120 million in loan cancellations have been made to companies with higher revenues and profits during Covid than before.
Sharps could not have been clearer on the impact of the pandemic. In his annual report to shareholders, released two months after his loan was canceled, he said: âTo date, the company has not identified any significant negative impact of COVID-19 on its financial position and results. exploitation â.
Nell Minow is an expert in corporate governance and vice president of ValueEdge Advisors, consultancy firm for institutional investors. She criticizes companies that took taxpayer money when she said they didn’t need it and company directors who gave CEOs higher compensation while receiving federal loan forgiveness .
âOnce again, corporate directors and CEOs are the real queens of welfare, exploiting loopholes in negligently drafted emergency legislation,â Minow said. “It is an outrage.”
NBC News asked Sharps to respond to the criticisms and explain why he asked for the cancellation of the taxpayer loan during such a prosperous year. A spokesperson for Sharps declined to address the issues, but said the company met SBA criteria for loan cancellation.
âSharps is a relatively small company and dedicated employees have stepped up in a time of great uncertainty and risk, to play a vital role in the safe collection and disposal of medical waste related to COVID-19,â said declared the spokesperson. “This loan has played an important role in allowing Sharps to execute this plan with confidence, protect employees and help customers in their fight against the pandemic.”
In a regulatory filing, Sharps said he must keep records of his $ 2.2 million loan for six years in case the SBA decides to verify the company’s eligibility for the loan. “To the extent that eligibility is contested, the company may have to repay all or part of the PPP loan”, indicates the file.
Another example is Acme United, a manufacturer of sharpening tools and first aid kits. The Shelton, Connecticut-based company solicited taxpayers for a $ 3.5 million PPP loan in May 2020 and received a rebate in June this year.
For the nine months that ended Sept. 30, Acme gained 87% more than in the same period last year, according to its documents. And for 2020, the company saw revenue up 15%, while profits were up 47%.
Its top three executives shared an additional $ 1.1 million in total compensation last year, a 43% increase from 2019.
In awarding the salary, the Acme United board cited the company’s milestones and accomplishments, including a sharp increase in e-commerce sales and a $ 9.3 million acquisition of a manufacturer based in Florida antiseptic tampons and towels. The company “was able to continue to meet the needs of its customers in 2020 without interruption,” he said.
Walter Johnsen, chairman and CEO of Acme United, said in a phone call that the company was fortunate enough to be able to turn to internet sales during the pandemic. The company “has worked very carefully with the SBA, honestly responding to many requests,” he said. “We have met all of their requirements and responded as fully and honestly as possible, and they have concluded that the loan will be canceled.”
A third public company that has secured a loan forgiveness amidst an exceptional performance is Enzo Biochem, a New York-based clinical laboratory and diagnostics company. It received a $ 7 million PPP loan last year, which was canceled in June, according to regulatory records. The SBA granted the pardon as Enzo had a record year, generating a 55% increase in sales.
The company said Enzo’s FY2021 results were its Covid test products, for which it has received emergency use approvals and extensions from the Food and Drug Administration. Enzo reported a profit of nearly $ 8 million for the year, compared to a loss of $ 28.5 million in fiscal 2020.
It has been “a validating and extraordinary year for Enzo,” said Barry Weiner, president of the company. Enzo will unveil its executive compensation figures for 2021 this month.
Along with other companies in the health care arena, Enzo benefited from a range of government aid during the pandemic. Asked about the cancellation of the taxpayer loan in its peak year, an Enzo spokesperson said: âOur PPP loan did exactly the service it was meant to provide – a lifeline to avoid having to let people go and shut down divisions of our business – and we have met all the criteria to be eligible for the loan waiver. “
Like Sharps and Acme United, Enzo had access to stock market funding for his operations during the pandemic; her market value at the time she got the loan was $ 108 million. It is now $ 170 million.