Forgivable loans in an unforgiving environment
Oakman Aerospace hasn’t furloughed anyone. In fact, the Colorado company is training two recent hires thanks in part to the Paycheck Protection Program (PPP), a U.S. Small Business Administration initiative designed to limit the economic impact of the COVID-19 pandemic.
“We likened it to winning the Powerball,” said Oakman Aerospace CEO Maureen O’Brien.
That’s because Oakman Aerospace, one of the thousands of small businesses sharing more than half a trillion dollars in relief loans underwritten by the SBA, won’t have to repay the money if they meet the terms for loan forgiveness — namely, maintaining a steady payroll for the next two months.
Much of the news about PPP has focused on awards to the Los Angeles Lakers, Shake Shack and Ruth’s Chris Steakhouse, companies that have pledged to return the money. Space industry small businesses including ExoTerra Resources, Oakman Aerospace, Space Micro and Stellar Exploration also received PPP loans, as did SpaceNews.
The PPP is a $669 billion federal loan program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in late March and expanded by a follow-on relief bill Congress passed in late April.
“We encourage all eligible lenders to participate and all eligible borrowers that need this assistance to work with an approved lender to apply,” Treasury Secretary Steven Mnuchin said May 3 in a joint statement with Jovita Carranza, who leads the Small Business Administration.
Space companies needed no encouragement. Many began working with their banks to apply as soon as PPP was unveiled in March, but were frustrated when the initial tranche of $320 million was committed in less than two weeks.
“Almost everyone has complained about this process for good reason,” said Michael Torosian, who leads the emerging company and venture capital practice at international law firm Baker Botts. “It’s a new program that was launched very quickly.”
Industry groups representing space and technology companies complain many venture capital-backed startups are not eligible for PPP funding because of the Small Business Administration’s “affiliation rule.” PPP eligibility is limited to firms with fewer than 500 employees. Under the affiliation rule, “small venture-backed or investor-backed companies could fall outside of the PPP loan program if they’re controlled by an investor who controls other companies,” Torosian said. In certain cases, “you have to aggregate all those employees ” and still fall under the 500-employee cap, he added. The cap, however, didn’t apply to franchise businesses like some of the national restaurant chains subsequently shamed into returning the money.
In spite of those issues, PPP terms were so attractive companies raced to apply. PPP lets small businesses borrow an amount roughly equal to two and a half months of payroll to spend over eight weeks to cover wages, rent, interest and utilities. The loan is forgivable, meaning it does not have to be repaid, provided the company doesn’t layoff employees or cut wages.
Banks were overwhelmed by the demand. Umpqua Bank with 350 branches in Oregon, California, Washington, Idaho and Nevada, received roughly 6,500 PPP applications in the first 24 hours.
“The number of applications at the outset was so large that we paused submissions and carefully managed intake so that we could process the applications already in our system,” said Kurt Heath, spokesman for the Portland, Oregon-based bank. “We knew early on it was a race against the clock to get as many applications approved as possible.”
Since banks began accepting applications April 27 for the second tranche of PPP money, “we’re working around the clock,” Heath said by email.
PPP funding allowed ExoTerra and Stella Exploration to bring back employees furloughed when the pandemic halted work. ExoTerra of Littleton, Colorado, has 29 employees. Stellar Exploration of San Luis Obispo, California, has 11 employees. PPP funding means “we can continue working on projects for our customers, even with inevitable inefficiencies and productivity loss from the current conditions, and thus protect our current staff employment,” Stellar Exploration President Tomas Svitek, said by email.
Satellite component supplier Space Micro was surprised by the speed of its PPP loan. The San Diego company with 85 employees found the money in its bank account three days after learning its loan was approved.
“It shows the government can move fast when it wants to,” said Space Micro CEO David Strobel.
For Oakman Aerospace, a firm with 27 employees and two interns, PPP money provides some breathing room.
“It’s pennies from heaven as far as our business is concerned,” O’Brien said.
YOU DOWN WITH PPP? If your small business applied for a Paycheck Protection Program loan, please take our survey: https://www. surveymonkey.com/r/sn-ppp-survey
This article originally appeared in the May 11, 2020 issue of SpaceNews magazine.