Strip-club stimulus reveals lingering uncertainties over
U.S. small-business aid
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[July 21, 2020] By
M.B. Pell and Chris Prentice
PHILADELPHIA/
WASHINGTON (Reuters) -
Backlights off, music quiet and poles bare, strip clubs across the
United States closed earlier this year in the face of COVID-19
social-distancing measures that precluded the up-close nature of the
exotic dancing industry. Like many businesses, these cabarets, lounges
and gentlemen’s clubs hoped a $660 billion Small Business Administration
(SBA) loan program would help them weather the lockdown.
But nearly four months since the launch of the loan initiative known as
the Paycheck Protection Program (PPP), it is still unclear whether the
SBA can make it rain for them. The Trump administration has barred
companies that "present live performances of a prurient sexual nature"
from participating. Clubs sued, and two federal judges rebuked the SBA
for excluding the establishments from receiving the forgivable loans
meant to protect jobs amid the health crisis.
For a government loan program that has been plagued by criticism -
duplicate loans, borrowers without clear financial need, inconsistent
data - the strip-club uncertainties are yet another example of confusion
surrounding an initiative that pushed hundreds of billions of dollars
out the door.
Will the SBA allow clubs that have not won a court order to participate?
And for those that received loans, either through court order or from
banks that apparently took a broad interpretation of the law, will the
government forgive the loans, as it does for other borrowers?
"The ball is in the SBA’s court right now," said Brad Shafer, an
attorney who convinced a federal judge in the U.S. District Court for
the Eastern District of Michigan to issue a ruling in May ordering the
SBA to work with more than 50 strip clubs. "We still don’t know the end
of this story."
Using loan data released by the SBA earlier this month, Reuters
identified 36 organizations representing dozens of strip clubs across
the country that were approved for between $11.15 million and $27.95
million worth of loans from the small business pandemic aid program.
Some of the businesses received the funds after the court decision;
others got the money from banks despite the ban. All totaled, these
companies saved 2,548 jobs, according to the government data.
An SBA representative did not directly respond to questions about the
discrepancies surrounding the loans.
One of Shafer’s clients, John Meehan, said he does not expect a straight
answer from the SBA anytime soon.
Meehan owns three combination sports bar-strip clubs, all called
Cheerleaders, in Philadelphia, Pittsburgh and Gloucester, New Jersey.
They were hit by state and local shutdown orders for the hospitality
industry. To keep employees paid while he and his partners poured up to
$50,000 into cleaning and safety improvements like installing UV-light
purification systems in the air ducts, he turned to the SBA for funding.
His bank in Philadelphia denied the loan, citing SBA rules. When Meehan
applied in Pittsburgh with PNC Bank for a different club, though, he was
approved for a loan of between $150,000 and $350,000.
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“I wasn’t complaining, but I was scratching my head,” he said.
A spokeswoman for PNC declined to comment on specific loans, but said the bank
sought to process all applications in accordance with SBA guidelines.
“Under those guidelines, applicants were responsible for certifying that they
met applicable SBA eligibility requirements, and lenders were not required to
independently verify such eligibility,” she said.
RISKS FOR LENDERS
Running afoul of the still-unclear SBA rules poses a potential hazard for
lenders, who risk getting stuck with unforgiven loans on their books or
litigation, lawyers said.
The SBA’s main small business funding program, known as 7(a), restricts a number
of organizations, including churches and strip clubs. Under the PPP, the houses
of worship received an exemption from the normal rules - the business of bare
skin did not.
“Although it’s not clear that the 7(a) program’s eligibility rules apply to PPP
loans, companies that do not satisfy these rules could be sued, as could their
lenders,” said Scott Pearson, a partner with Manatt, Phelps & Phillips LLP in
Los Angeles.
Meehan is not the only one faced with the muddle. RCI Hospitality Holdings Inc
operates more than 35 strip clubs including the self-described “largest strip
club in the world,” Tootsie's Cabaret, in Miami.
Several banks approved the company and its affiliates for between $4.45 million
and $11.7 million even though RCI was not one of the companies protected by
federal court rulings in Michigan and Wisconsin.
A representative of RCI declined to comment. A spokesman for lender Hancock
Whitney Corp, which according to government data approved a loan to RCI
Entertainment Inc in New Orleans, told Reuters the firm “followed all of the
guidance that was provided by the SBA, which changed frequently as the program
was being rolled out.”
Meehan’s Pennsylvania clubs remain shuttered, but his New Jersey establishment,
which received a loan, has a liquor license for the outdoor patio. So while
empty stools are stacked on the bar inside, outside the dancers work an
improvised stage.
On a hot Friday afternoon in July, Jordan Lawrence got a few shout-outs from the
audience as she fell into a split. After her big finish, she collected tips from
men sipping drinks, her long blond ponytail tickling the dollar bills in her
costume.
Lawrence lost her job in insurance during the pandemic and returned to her
former profession as a dancer a few weeks ago. Even though she had saved up for
years, she struggled to pay her bills without her old job. Lawrence said she is
frustrated the SBA is squeezing her industry just as she is getting back on her
feet and the stage.
“These people need to come out here and interact with people like me because
they are interfering with our livelihood,” she said. “We have bills to pay too.”
(Reporting by M.B. Pell in Philadel
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