Up in smoke: Cigarette shops, liquor stores default on $140 million in SBA loans
 

[June 19, 2015]  By Arthur Kane | Watchdog.org
 
 While many federal and state agencies are fighting tobacco use and alcohol abuse, about $140 million in Small Business Administration-backed loans to bars, liquor stores and cigarette shops — partly backed by taxpayer money — have defaulted since 2009, a Watchdog.org investigation found.

And some of the owners of liquor and tobacco businesses that received SBA-backed loans continue in the industry — despite the lender writing off the loan and the federal government apparently paying for them.

For example, a questionably named Thornton, Colorado, bar, Whiskey Dick’s, obtained an SBA-backed loan in 2007 for nearly $300,000 to buy the building that would house the establishment, bankruptcy records and a SBA loan charge-off database show.

About three years later, the lender had to charge-off more than $200,000 of the loan, and the owners filed for bankruptcy, according to bankruptcy records and the database Watchdog.org obtained under the Freedom of Information Act.

But Whiskey Dick’s former owners, Keith Winyard and Sharon M. Plettner, are apparently still in the bar business; their 2009 and 2010 bankruptcy filings showing they each own 50 percent in Winyard Enterprises, which does business as Streets of London Pub in Denver, according to incorporation records.

The bankruptcies that apparently cleared most of the SBA-backed debt show the Whiskey Dick’s loan as “debt personally guaranteed by Debtor,” court documents read, and the bankruptcies note the Pub ownership stake.
 

National Taxpayers Union president Pete Sepp questioned how tenaciously the banks and the SBA go after people who take out the federally backed loans but don’t pay them back — especially if they can own a similar business in the same metro area.

“The IRS has been known to hound taxpayers over a lot less,” he said. “Did somebody calculate the core costs and whether it was worth the time and effort to go after the assets, or was that calculation never even made?”

Sepp also questioned why taxpayers are backing loans for businesses that other government agencies are spending money to fight.

“In some cases it might be employees exercising less than good judgment; in other cases it might be the rules,” he said.

SBA officials did not respond to repeated requests for an interview, but the National Association of Development Companies president Barbara Vohryzek, whose members lend 504-backed SBA loans, said the Treasury department will go after other assets, if it’s cost-effective.

“It is really hard to go after personal and corporate guarantees, and often by the time you go to court the assets are moved,” she said, adding the SBA-loan guarantee program is valuable in creating business opportunities for women, minorities and veterans.

Jeffrey L. Hill, the trustee in the Plettner bankruptcy, said the bankruptcy was a personal one not a business one.

“If they own stock (in another business) we determine what’s the value of the stock what is the value of the assets compared to the liability,” he said, adding there were very few assets to pay entities Whiskey Dick’s owed. “If there’s no net value, then there’s little we can do.”

Whiskey Dick’s was one of more than 600 drinking establishments that received government and taxpayer-backed loans since 2009 but failed to pay back a total of $60 million, which the SBA and lenders had to write off, according to the charge off database.

RELATED: Wineries, country clubs also get SBA guaranteed loans that don’t perform

Additionally, liquor stores funded by the SBA loans defaulted on more than $77 million and tobacco businesses defaulted on nearly $2.5 million on federally backed loans in the past six years, analysis of the database shows.

This happens as other government agencies spent tax and public money fighting tobacco and alcohol. A study by the Centers for Disease Control and Prevention says states spent about $38 million last year on tobacco prevention, and tobacco use costs the economy $289 billion in medical costs and lost productivity. The National Institute on Alcohol Abuse and Alcoholism alone spent nearly $460 million fighting alcohol abuse.

Vohryzek conceded the federal government often works at cross purposes, but that’s the price of freedom — as opposed to central planning.

“It happens all over government — we subsidize the ag sector and people eat too much so we have to fight obesity,” she said. “There are a lot of oxymorons in this country, but that’s what makes it great. There’s freedom, and public policies can contradict each other.”

Overall, the database shows more than $8.7 billion in charge-offs on SBA-backed loans since taxpayers started to subsidize about $835 million of the defaults. The 2016 fiscal budget year is the first since the Great Recession that SBA loan guarantee defaults will again be funded solely by a fee on lenders, according to news reports and NADCO.

The SBA loan database didn’t detail how much of the write-offs are paid by the SBA and taxpayers. The SBA only generally funds a maximum of 90 percent of the loans depending on loan type and amount. SBA officials said they did could not provide records of SBA guarantee payments but provided a database of information from lenders who report the charge-offs.

“This information is collected by the lenders from SBA loan applicants who provide it on a voluntary basis,” wrote William Brown, SBA Freedom of Information Act analyst. “Since the information is provided by the loan applicants on a voluntary basis, it is not necessarily inclusive of all SBA borrowers, nor is its accuracy checked by the Agency.”

Federal figures show default rates on SBA-backed loans are usually in the low single digits.

Openthebooks CEO Adam Andrzejewski, whose website featured a database of all SBA loans guarantees issued but that database didn’t contain charge-off information, said government agencies need to get on the same page on what policies to fund.
 

“This is a great example of government hypocrisy and inefficiency,” he said of loans going to liquor and tobacco businesses while other agencies are fighting smoking and alcohol abuse. “It’s not only wasteful, it’s contradictory.”

Neither Winyard nor Plettner returned calls left at the pub and on personal phone numbers, though an employee confirmed Winyard owns the establishment, which, on a recent weekend evening, was filled with patrons.

As far as Winyard and Plettner’s Whiskey Dick’s venture, the bankruptcy closing records show the SBA received about $2,000 from their assets, or roughly 1 percent of what was owned.