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Last week, the Small Business Administration (SBA) updated its guidelines for Payroll Protection Program (PPP) loans to remove the exclusion of small US gambling businesses. It made the change just as Congress released $310 billion in new funding for the program.
The PPP is a key component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, through which the federal government has so far allocated trillions of dollars to try to keep the nation’s economy above water during the pandemic.
Small businesses with limited access to capital are in a particularly tough spot.
Payroll protection is the portion of the CARES Act devoted to providing these companies with loans to pay wages, utilities, and rent during the shutdown. Until now, however, these loans were unavailable to businesses primarily engaged in gambling.
The change in policy, therefore, comes as a huge relief for small casinos. For some, however, having their access to a loan delayed by a few weeks has already proven disastrous.
The SBA defines small businesses as those with fewer than 500 employees, and most of them are eligible for PPP loans.
These loans can be up to a maximum of $10 million or 2 1/2 months of payroll, whichever is less. Companies that use the money for its intended purpose are not obligated to repay it.
The original trouble with the PPP was that the CARES Act instructed the SBA to use its existing framework for economic disaster injury loans. And the guidelines for these loans were both outdated and designed for less-extreme circumstances.
The SBA classifies gambling businesses as risky and “of poor character” — putting them in the same category as oil wildcatters and pyramid schemes. That is, of course, an inaccurate and unfair assessment of most legal gambling operations in the modern regulatory environment.
When Congress first passed the CARES Act, it allocated $349 billion to the PPP. That money was gone in a flash. The act passed on March 27, but by mid-April, the SBA had already run out of cash to loan.
By that point, the administration was facing numerous complaints from business owners, members of Congress, the American Gaming Association (AGA), and other stakeholders. Affected, excluded parties demanded the SBA change its policies vis-a-vis small gambling businesses.
The administration gave some ground, but only a little. It changed the exclusion from any business making more than one-third of its income from gambling to one-half.
That allowed a few more businesses with significant gambling income to qualify, such as some Nevada bars, but it still left far too many of them out in the cold. It also came very late — on April 14, mere days before the first round of PPP funding ran out.
Fortunately, there are now both new rules and new money. The guidelines on the SBA website now state that any business that is otherwise eligible for a loan not be excluded based on gambling-related income.
Even though gambling businesses now qualify for PPP loans, many will still end up empty-handed. To get their share of the money, small casinos still need to compete with countless other businesses in equally dire financial circumstances.
There are approximately 30 million small businesses in the US. The additional money that Congress released last week is only enough for 31,000 loans in the maximum amount of $10 million apiece.
Naturally, many loans will be for smaller amounts. Even so, it’s obvious that the demand for PPP loans far exceeds the amount of money available for distribution.
Nevada Rep. Mark Amodei was among the legislators pushing the SBA to reconsider its guidelines. Now that they have, Amodei is cautioning business owners in his state that they’ll have to move quickly if they want to secure a loan.
“With what’s in the pipeline, that money’s going to be competitive,” he told them, “so you need to be there right now.”
Technical challenges have made that difficult, however. The new money is expected to run out in a matter of days, causing business owners to flock to the SBA’s online application system.
SBA Administrator John Carranza said that the agency received over 100,000 applications in the first five hours after reopening. That system ordinarily processes $25 billion in loans per year. Now it’s attempting to handle more than 10 times that in the span of days.
Unsurprisingly, that has led to long load times, error messages, and other issues.
Despite the loosening of the guidelines and the additional money, it’s already too late for some small gambling companies. Whereas major corporations have greater financial elasticity, small businesses often operate month to month. That’s as true for small casinos as for other sorts of operations.
As one example, the Lakeside Inn and Casino in Stateline had already made the decision to shut down permanently before the SBA changed its stance. It’s unlikely to be the only such establishment to become a casualty of the epidemic.
States with a high density of small, independently owned or tribal casinos will be grateful for the change in the SBA’s policy. Even so, the delay is likely going to cost those states a lot of jobs.
The land-based casino industry employs some 362,000 people in the US, many of those in small casinos like Lakeside. A large number of those small casinos are in landlocked western states like Nevada, Montana, Arizona, and Colorado.
Meanwhile, casinos of all sizes around the country are wrestling with the decision of how soon to reopen. In California, for instance, tribal casinos have floated the idea of reopening in a limited way as soon as by the end of this week.
On this front, too, larger casinos have an advantage over smaller ones.
To reopen while maintaining social distancing means changing the setup to serve a lower density of customers. Casinos might, for instance, only allow players to sit at every second slot machine. Table games might reopen only for higher limits with fewer players per table.
Larger casinos have a greater ability to run at such reduced capacity while remaining profitable. For smaller operations without as much floor space, though, it might be all or nothing.
The PPP is important not just for the economy but also for public health. To the extent that small businesses have a choice about whether to reopen or not, it’s better for the medical system if they don’t do so too quickly.
It’s, therefore, no exaggeration to say that this change in SBA policy will save lives.
However, even the hundreds of billions of dollars Congress has poured into the PPP won’t last long. Within another month or two, more money will be needed if small businesses — including gambling businesses — are to remain closed.
It’s hard even to predict what the consequences might be if economic pressure forces casinos to reopen before the epidemic is under control.