Jae C. Hong/AP Photo
Fourth-generation restaurant owner Debbie Briano waits for customers at her struggling business in downtown Los Angeles last December, during the coronavirus pandemic.
In February, Sarah B., an independent massage therapist and wellness coach in Richmond, Virginia, received a promising email from the Small Business Administration. The agency was inviting her to apply for a grant through a new program Congress established in its massive COVID-19 relief package last December.
The invitation-only program offered up to $10,000 for select businesses, nonprofits, and freelancers in low-income areas. They needed to have fewer than 300 employees and have received or applied for grants through a broader aid program created by the CARES Act in March 2020. About 5.8 million grants worth $20 billion were approved under the earlier program before its funding ran out in July, according to the SBA; none had to be repaid.
Sarah, who requested partial anonymity for fear of retaliation, fit the profile. She’d received $1,000 along with a modest Economic Injury Disaster Loan (EIDL), which she used to pay rent while pivoting to remote wellness services as the pandemic dragged on. Uplifted by the prospect of an extra $9,000 after a year when her client base vanished, she applied for a “Targeted EIDL Advance” grant soon after seeing the SBA’s email.
“I’m like, ‘Cool, I hit all these qualifications no problem,’” Sarah remembers thinking at the time. The SBA said its goal was to process her application within 21 days, as required by the law authorizing the program.
Only a sliver of the Targeted EIDL Advance program’s overall budget has been approved for grants.
But it wasn’t until April 2 that she received a decision letter from the agency. It said her application was denied because she hadn’t demonstrated the revenue loss required for the program: 30 percent over any eight weeks after March 2, 2020, as compared with the previous year.
Sarah was stunned. She’d suffered an 80 percent loss for the year, and put multiple zeros in the revenue table featured in the application. Suspecting that the SBA had erred, she called the agency, and eventually reached a representative, who said they couldn’t help her.
“They were like, ‘No reconsiderations, goodbye,’” says Sarah. She repeatedly emailed the sole in-box the SBA had listed for the program, but was met with various canned responses. And although she engaged Sen. Tim Kaine’s (D-VA) office to liaise with the agency on her behalf, she’s still fighting for a grant today.
“It’s definitely been something straight out of The Twilight Zone,” she says.
She’s far from alone in that assessment. Targeted EIDL Advance, a $35 billion initiative, has been plagued with problems, from extensive delays to poor communication to plain mismanagement, according to interviews with several applicants, emails from the SBA, and hundreds of social media posts reviewed by The American Prospect.
Applicants across industries and regions, including independent contractors and gig workers, say they’ve been wrongly denied grants or have waited months for decisions, often without any updates. They recount days spent on the phone with customer service reps, contradictory answers from the agency, and emotional distress from having to deal with nettlesome bureaucracy while trying to revive their livelihoods.
In other cases, applicants who can show steep losses have been told they don’t qualify for the program because their businesses are located outside of designated “low-income communities,” as per the federal tax code. That’s happened even when their business addresses—or home addresses, for many freelancers—are mere feet from such places.
The SBA also has rejected applicants for being more than 60 days behind on child support payments or lacking American citizenship, despite the fact that they were born in the U.S. and have always had custody of their children, or have no children. And in at least three instances described in private Facebook groups where applicants have shared their experiences, officials reportedly withheld grants because they had reason to believe—likely from “do-not-pay” databases used by the federal government—that the applicants were dead.
In yet other cases, the SBA has indicated that applicants were approved on paper but has been slow to wire them funds, compounding the delays. Some have received unexplained “error” messages in the application portal; others have been told there were issues with their banking information or there was a “glitch” in the system, and that the SBA was working to fix it.
These problems are part of a troubling pattern for the agency, which has long stumbled in realizing its mission of aiding small businesses. In late April, the SBA finally launched another COVID relief grant program, for music venue and theater operators, after four months of delays due to technical issues with the application portal.
Data on the Targeted EIDL Advance program are hard to come by, but official figures released last week show only a sliver of its overall budget has been approved for grants. Meanwhile, countless small businesses continue to struggle because of the pandemic, amid shifting consumer habits and the accelerated lurch toward online commerce.
“It’s a cluster,” says a self-published author and Uber driver in Tuscaloosa, Alabama, whose grant application was declined over a supposedly missing tax return she indeed filed. (She asked to remain nameless to speak freely.) “You can add back the curse word.”
Major Growing Pains
The troubles with Targeted EIDL Advance coincide with an unprecedented expansion of the SBA’s aid efforts. Last year, in response to the pandemic, the agency received its largest-ever outlay from Congress—nearly $752 billion—and provided more loans than ever before, helping keep millions of employers afloat as the economy tanked.
The majority of this money went to the Paycheck Protection Program (PPP), a forgivable loan program run through private banks. But through its COVID-19 EIDL program, the SBA approved roughly $214 billion in loans and grants, more than three times all the disaster funds it had previously approved since its founding in 1953. To get that money and other pandemic assistance out the door, it increased its head count to more than 9,000 permanent and temporary employees.
Still, October 2020 reports by the SBA’s inspector general found that hiring and training was among several challenges facing the agency, and that, as of July 31, it had approved about $1.1 billion in COVID-19 EIDL loans and grants to “potentially ineligible businesses.” On average, grants were disbursed 22 days after people submitted applications, though processing times ranged from zero days, for same-day awards, to 106 days.
In December, an independent audit by accounting giant KPMG identified the agency’s approval of COVID-19 EIDL funds as one of seven “material weaknesses,” stating that “management did not adequately design and implement controls to ensure [funds] were provided to eligible borrowers and accurately recorded.” (This is likely part of the problem with Targeted EIDL Advance, as stringent anti-fraud controls don’t mix well with an agency known for persistent errors and bad information technology.) While the SBA disputed this finding, then-Administrator Jovita Carranza said KPMG’s audit recommendations would be “addressed accordingly.”
After Joe Biden was sworn in as president, Carranza was replaced on an acting basis by Tami Perriello, the SBA’s chief financial officer at the time. Targeted EIDL Advance launched under Perriello’s leadership, a month and a half before the Senate confirmed Biden’s nominee for SBA administrator, Isabel Guzman, in March. (Guzman was the agency’s deputy chief of staff during Barack Obama’s second term and subsequently served as the head of California’s Office of the Small Business Advocate.)
The initiative isn’t the only U.S. pandemic program that’s seen problems. Payment delays, communication issues, and fraud have also ensnared the SBA’s much larger PPP and the Treasury Department’s stimulus checks.
But unlike those measures, Targeted EIDL Advance was rolled out entirely under the Biden administration, with a second round of funding for it included in his signature American Rescue Plan. People denied grants in the program’s first two and a half months were frustrated to learn there was no appeals process—something that didn’t change until April 16, when the SBA announced, in a newsletter, that rejected applicants could request re-evaluations by emailing a new in-box. Although some entrepreneurs have had their rejections overturned since then, just how many is unclear.
Applicants across industries and regions say they’ve been wrongly denied grants or have waited months for decisions.
“They could be overwhelmed, it could have been the transition of the administration, but this is the most incompetent thing I’ve ever seen,” says a DoorDash driver in Rochester, New York, who waited more than 45 days to be approved for a grant and asked to remain anonymous to protect her privacy. (She’s still waiting for the funds to be transferred to her bank account and has inquired with the SBA about the delay; separately, an employee at Treasury told her the money was returned to the SBA last week.) “They need to put the effort into having a more open and transparent communication with applicants.”
In response to detailed questions from the Prospect, Tiffani Clements, a spokesperson for the SBA, wrote in an April 29 email that the agency began accepting appeals “shortly after receiving an increasing number of requests” to do so from applicants.
She didn’t provide data on how many re-evaluation requests the SBA has gotten—or other data on how many entities it’s invited to apply for grants, how many applications it’s gotten, how many grants it’s awarded, how much they’re worth, and how long it’s typically taking to process applications—saying the agency would release data on the program in the next two weeks.
The SBA later reported it had approved 89,755 grants collectively worth more than $733 million, or just 2 percent of the $35 billion allocated for the program. By contrast, over a similar period last year, the agency approved 5.8 million grants totaling $20 billion through its precursor program, EIDL Advance, completely depleting its budget.
Math Errors and (Allegedly) Missing Tax Forms
After Sarah B., of Richmond, received her rejection letter from the SBA, she and Kim Zelinsky-Nobile, a restaurateur and small landlord in Morgantown, West Virginia, started a private Facebook group for people whose Targeted EIDL Advance applications were declined. (The two struck up a friendship online while looking into SBA issues.) Within a week of debuting, the group grew to about 400 members. It now has more than 1,100.
There, members trade information about their decision and appeal outcomes as well as tips on how to navigate the SBA’s customer service system. They also encourage each other to contact their elected officials when the agency goes radio silent.
That route has seemed to help some applicants, including the Rochester DoorDash driver, win grant approvals, but it’s barely made a difference for others. Even congressional offices are having a hard time getting answers from SBA officials, according to Zelinsky-Nobile, who’s discussed her situation with Sen. Joe Manchin’s (D-WV) team.
Clements, the SBA spokesperson, acknowledged that the agency “receives many Congressional inquiries about all aspects of the COVID-19 EIDL program on behalf of constituents,” and that “there are several Facebook, YouTube, and Reddit groups with large followings that strongly encourage applicants to contact elected officials.” (For example, another private Facebook group focused on the program has approximately 9,000 members, while small-business owner-advocates Jason McElhone and Edward Bilder have more than 65,000 and 20,000 YouTube subscribers, respectively.)
“We do not expedite cases because we receive a Congressional inquiry, but we do fully research and respond to the inquiry with a summary of the actions taken,” Clements added.
Targeted EIDL Advance grants are supposed to benefit the hardest-hit small businesses.
Sarah and Zelinsky-Nobile say their cases represent the two most common reasons the SBA has cited when denying applications by their Facebook group’s members: math errors and (allegedly) missing tax forms.
After Sarah was told she hadn’t substantiated enough revenue loss for her massage and wellness business to qualify for a grant, she sent the SBA tax records showing an 80 percent loss in her gross receipts and asked for a reconsideration.
On April 30, the agency rejected her request, writing in a brief email: “At this time, we are unable to offer you the Targeted Advance due to inconsistencies in your 2019 business tax returns and your 2019 revenues.” The email was signed by the “Application Processing Department” of the SBA’s Office of Disaster Assistance.
Sarah says she feels exhausted and defeated by the rigamarole. “They literally denied me for the same reason as before, even though I proved it wasn’t true,” she explains. “It’s insane to me that I have been asking repeatedly for a phone call and they didn’t call me.” (She’s since sent the SBA all her bank statements for 2019 in the hopes that it will reverse its decision.)
Zelinsky-Nobile had the opposite problem: The SBA claimed her tax return for her restaurant, Dirty Bird, which specializes in fried chicken and has been closed since March 2020, wasn’t on file with the Internal Revenue Service. But she actually filed those taxes in fall 2020—she ended up owing money, which she paid—and has an electronic verification proving it.
The issue was that the IRS hadn’t processed her return, owing to a gigantic backlog from the pandemic. So when the SBA sought to pull her 2019 tax transcript, as she’d authorized the agency to do by signing a form called a 4506-T, it came back as missing. It was as if her business, which is now more than a decade old, didn’t exist that year.
Without the grant, Zelinsky-Nobile worries she might have to shutter her restaurant permanently, over what she calls a “technicality.” She intended to reopen this spring, but a burst pipe thwarted those plans, and she needs to restock inventory regardless.
“I sleep and live this. I dream about it. It has absorbed my whole life,” she said in a recent interview. “They’re not hearing us. We want to be heard. We just want a fair shake.” (Zelinsky-Nobile says her applications for her restaurant and rental properties are still being processed, though the SBA finally assigned her a loan officer last Saturday.)
The troubles with Targeted EIDL Advance coincide with an unprecedented expansion of the SBA’s aid efforts.
The SBA’s spokesperson told the Prospect that, in light of the IRS backlog, its loan officers would consider alternative forms of tax and income documentation “on a case-by-case basis.” (The IRS didn’t respond to requests for comment.) The spokesperson also said the SBA doesn’t automatically decline applications when the IRS fails to produce tax transcripts, “but instead will research the case file to see if we already have tax records to validate eligibility.”
Another frustration for those who were among the first people invited to apply for Targeted EIDL Advance is that subsequent applicants have reported approvals within just a few days of applying. This has made early applicants feel shafted and demoralized about their chances of success, given that the program is purportedly first-come, first-served. (As Zelinsky-Nobile put it: “I don’t care if Mickey Mouse gets the grant if they’re eligible. But we don’t want the funds to run out for us.”)
Clements, of the SBA, said the agency is “processing applications in the order they are received.” She added that some applications take longer to process than others for various reasons, including when applicants lag in submitting signed 4506-T forms; when the IRS takes time to transmit people’s tax transcripts; and when applicants register changes in personal information, such as business addresses, that the SBA then must verify.
Asked about widespread complaints that the agency’s customer service reps have been rude to people, Clements said the SBA doesn’t tolerate such behavior. “We encourage applicants to report … any incidents of poor or inappropriate customer service to us at disastercustomerservice@sba.gov, and please provide as much detail … as possible,” she wrote in an email. “We will review the reported cases and take the appropriate actions.”
SBA reviews, however, have sometimes produced knottier results than what preceded them. For the Tuscaloosa-based author and Uber driver who spoke with the Prospect, this meant first being denied a grant over an unretrieved tax return, and then being rejected on appeal for two different reasons, listed as bullet points in a terse email from the SBA: “insufficient evidence of business” and “unable to verify bank account information.”
“It’s like they changed the rules in the middle of it,” she said this week, noting that she’d sent the agency her banking information and tax forms. “When I proved [them] wrong, they found another reason to deny me.” (A loan officer has since emailed her, but her application is still shown as declined in the portal.)
Low-Income Rule Excludes Struggling Entrepreneurs
As distinct from other forms of coronavirus relief, Targeted EIDL Advance grants are supposed to benefit the hardest-hit small businesses. But reporting by the Prospect shows the program is failing to reach many of those businesses and entrepreneurs because of its strict requirement that they must be in “low-income communities” to qualify.
The legislation behind the program relied on the Internal Revenue Code’s definition of these communities: generally, census tracts where the poverty rate is higher than 20 percent. The SBA, in turn, published an interactive map people could use to figure out if they met the requirement.
The agency also invited businesses situated outside of low-income areas to apply for grants, causing confusion for owners who quickly learned they were ineligible due to their locations. This was particularly baffling for sole proprietors, independent contractors, and gig workers whose earnings had nosedived since 2020 but who lived in higher-income neighborhoods and whose homes served as their business addresses.
Abdurahim Idris was one of them. A professional driver in Washington, D.C., who provides Uber rides to make additional income, he received an email to apply for Targeted EIDL Advance on April 17. The email stated he had 30 days to apply and contained a time-limited link to the application portal.
At first, Idris wasn’t sure whether he should go through with it, since the SBA’s map showed that his rent-controlled apartment in the heavily gentrified neighborhood of Logan Circle, where he’s lived for nearly two decades, wasn’t in a low-income community. But he ended up applying anyway, having lost most of his business over the past year and thinking he had a lot to gain.
Sure enough, in late April, his application was denied over the geographical restriction. “At this point I don’t know what to do,” he says in a text message. “If I can [appeal the decision] I will.”
The agency invited businesses situated outside of low-income areas to apply, causing confusion for owners who quickly learned they were ineligible.
One of his peers, Balemlay Gebeyehu, was rejected from the program even though he lives directly across the street from a designated low-income area in D.C.’s booming Union Market neighborhood. (On May 5, President Biden visited a Mexican restaurant there to promote an unrelated SBA program.) Gebeyehu also drives for work, via his own transportation company and Uber.
“In Union Market, they’ve got all those million-dollar condos, all those businesses that pay $50-60-70 per square foot,” he pointed out in an interview. “There’s no reason why I shouldn’t qualify for that program.” (Gebeyehu requested a reconsideration from the SBA but hasn’t heard back.)
The SBA says it doesn’t have the “statutory authority” to change the low-income community rule or the other eligibility criteria for Targeted EIDL Advance, as they were established by Congress. In an email, agency spokesperson Tiffani Clements pointed to alternative pandemic assistance programs the SBA is offering, including the Paycheck Protection Program, Economic Injury Disaster Loans, Shuttered Venue Operators Grants, and the Restaurant Revitalization Fund. (Most of these have run into their own difficulties, though on Tuesday the PPP ran out of money for the vast majority of borrowers, weeks ahead of its scheduled end on May 31, suggesting that money is getting out to intended targets.) “We encourage businesses to contact an SBA office or resource partner in their area to discuss other resources,” she wrote.
A spokesperson for Sen. Ben Cardin (D-MD), who chairs the Senate’s Small Business Committee, didn’t immediately respond to a request for comment Thursday.
Even as the SBA has fumbled through the first few months of Targeted EIDL Advance, it’s forged ahead with new announcements. On April 23, the agency unveiled Supplemental Targeted EIDL Advance, a narrower initiative aimed at small businesses, also in low-income areas, that have lost more than half their usual revenues and have ten or fewer employees. (It provides $5,000 per applicant, representing $5 billion of the total $35 billion Congress directed toward the targeted grants.)
The initiative, SBA Administrator Isabel Guzman said in a statement that day, “will help us make sure that no small business falls through the cracks or gets left behind.”
