Strip-club incentives reveal lingering uncertainties over US small-business aid

PHILIPPELIA / WASHINGTON (Reuters) – Closed across the United States, music sober and poles bare, strip clubs closed earlier this year in the face of COVID-19 social-disruptive measures, which have brought the foreign dance industry’s up- Close ended nature. Like many businesses, these cabarets, lounges and gentlemen’s clubs hoped that the $ 660 billion Small Business Administration (SBA) loan program would help them during the lockdown season.

FILE PHOTO: A dancer cleaned the pole before performing in the outer courtyard at the Cheerleaders Gentlemen’s Club in Gloucester City, New Jersey, US July 17, 2020. REUTERS / Rachel Wisnoski

But about four months after the launch of the loan initiative known as the Paycheck Protection Program (PPP), it is still unclear whether the SBA can make them rain. The Trump administration has banned companies that “make a lively display of a discretionary sexual nature” from participating. The clubs sued, and two federal judges reprimanded the SBA for preventing establishments from obtaining excusable loans to protect jobs amid health crises.

For a government debt program that has been plagued with criticism – fake loans, borrower without apparent financial need, inconsistent data – strip-club uncertainty is still another example of confusion surrounding an initiative that has cost hundreds of billions of dollars out the door. Pushed out.

Will the SBA allow clubs that have not won a court order to participate? And for those who obtained loans, either through a court order or from banks, who explicitly interpreted the law extensively, will the government forgive the loans, as it is for other borrowers?

“The ball is in SBA court right now,” said Brad Shaffer, a lawyer who convinced a federal judge for the Eastern District of Michigan in the US District Court to issue an order in May to strip the SBA of over 50 strips Be ordered to work with. Club. “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 around the country with small business epidemics between $ 11.15 million and $ 27.95 million in loans. Assistance was approved for the program. Some businesses received funding after the court’s ruling; Others received money from banks despite the ban. In total, these companies saved 2,548 jobs, according to government data.

A representative of the SBA did not directly answer questions about discrepancies regarding the loan.

One of Shafer’s clients, John Meehan, said he does not expect a direct answer from the SBA.

Meehan owns three combination sports bar-strip clubs in Philadelphia, Pittsburgh and Gloucester, New Jersey, called Cheerleaders. They were influenced by state and local closure orders for the hospitality industry. He and his partners were given up to $ 50,000 in cleaning and safety improvements, such as installing a UV-light purification system in the air ducts, to keep employees paid while they turned to the SBA for funding.

His bank in Philadelphia refused the loan citing SBA rules. When Mehan applied with a PNC bank in Pittsburgh for a different club, however, he was approved for a loan between $ 150,000 and $ 350,000.

“I wasn’t complaining, but I was scratching my head,” he said.

A spokesperson for PNC declined to comment on specific loans, but said the bank sought to process all applications according to 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.

Risk to borrowers

The lawyers said that the SBA rules posed a potential danger to those following the SBA rules, who get stuck in their books or lawsuits due to debts.

The SBA’s main small business funding program, known as 7 (a), prohibits many organizations, including churches and strip clubs. Under the PPP, houses of worship were exempt from the general rules – the bare skin business did not.

“While it is unclear whether the 7 (a) program’s eligibility rules apply to PPP loans, companies that do not meet these rules can be sued, as their lenders said,” Mant , Phelps and Phillips LLP partner Scott Pearson said Los Angeles.

Mehan is not alone. RCI Hospitality Holdings Inc. operated more than 35 strip clubs in Miami, including the self-described “world’s largest strip club,” Totsey Cabaret.

Several banks approved between $ 4.45 million and $ 11.7 million to the company and its affiliates, 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 the lender Hancock Whitney Corp., which approved loans to RCI Entertainment Inc. in New Orleans, according to government data, told Reuters that it followed all the guidelines provided by the SBA, which often changed as the program rolled. . outside.”

Meehan’s Pennsylvania clubs remain closed, but his New Jersey establishment, which received the loan, has a liquor license for an outdoor courtyard. So while the empty stools are stacked on the bar inside, the dancers on the outside act as a carefree stage.

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On a hot Friday afternoon in July, Jordan Lawrence was yelling something to the audience, as he fell into a split. After her big finishes, she took tips from men drinking drinks, collecting long long ponytails in her dress tickling dollar bills.

Lawrence lost a job in insurance during the epidemic and returned to his former profession as a dancer a few weeks ago. Even though she survived for years, she struggled to pay her bills without her old job. Lawrence said she is disappointed SBA is squeezing her industry just as she is getting back on her feet and on stage.

“These people need to come here and interact with people like me because they are interfering with our livelihood,” she said. “We also have bills to pay.”

Reporting by MB Pell in Philadelphia and Chris Prentice in Washington; Additional reporting by Michelle Price in Washington; Editing by Tom Lasseter and Matthew Lewis

Our standard:Thomson Reuters Trust Theory.