Alaska small businesses that received federal loans are ineligible for state grants, but that could change

Published: Jun. 10, 2020 at 2:23 PM AKDT
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During a House Finance Committee meeting held on Wednesday, officials confirmed that small businesses that have accepted federal coronavirus loans are ineligible for state grants. But that could change.

In May, the Alaska Legislature ratified a request from the governor to pay $290 million in grants to Alaska small businesses, prioritizing businesses with fewer than 50 employees. The grants are between $5,000 and $100,000 and are approved on a first-come, first-served basis.

At least 20% of those grants are required to go to businesses in rural Alaska.

Language in the bill passed by lawmakers meant small businesses that have accepted federal loans are ineligible for the state small business grants program:

“Businesses that have secured an Economic Injury Disaster Loan, PPP loan, or other federal program funding made available directly to small businesses under the Cares Act do not qualify."

On Wednesday, Commissioner Julie Anderson of the Department of Commerce confirmed that is the understanding and policy being used by officials. Clarification is being sought from the Department of Law to see if there is any flexibility.

“Any legal advice provided to the Department of Law's client agencies is confidential and privileged,” Maria Bahr, a spokesperson for the department, said by email. “(The Department of) Law has no public statement on the legislative intent behind the payment of CARES Act grants.”

If legal advice doesn’t provide flexibility, Rep. Andy Josephson, D-Anchorage, floated the idea of the Legislature reconvening to rewrite the law. Some lawmakers believe that may be the only way to definitively change the rules for Alaska businesses.

The problem with not receiving state grants for some small businesses is the size of federal loans they have been given during a coronavirus-impacted economic slowdown.

Aime Nieves and her husband Luis own Aegis Comics of Alaska in Wasilla. The comic book store was closed for a month during COVID-19 and struggled to get supplies from distributors.

Nieves said they accepted a $1,000 federal loan and now find themselves unable to receive state help. “The state kind of failed us,” she said.

Nieves said the comic book store will survive as the couple is putting their own money into their business.

The frustration was not knowing state grants would be larger and could have helped the business more than federal loans. “It would have been nice not to have to hold our breath sometimes,” Nieves said.

Business owners that received federal loans are also finding out they can’t return them to become eligible for state grants.

Gregory Whiteside, the owner of Romper Room in Fairbanks, received a $1,000 payment from the feds and tried to give it back. The Small Business Administration would accept that but his business would not be eligible for state help.

The Romper Room has bouncy castles for kids and had to temporarily close during the pandemic.

Whiteside invested $80,000 buying new inflatables in December. Twenty seven events were booked for the summer that were all cancelled. Whiteside estimates he’s lost over $200,000 in revenue.

To make matters worse, as Whiteside has taken a second job to keep medical insurance, he is again ineligible for state grants. The law states that the small business must be a person’s primary source of income to get state help:

“Businesses that are a secondary income source or part time endeavor are not eligible for the program.”
Despite 1,000-plus applications, only 11 small businesses receive state grants

Across Alaska, roughly 15,000 small businesses have received federal loans. Another 7,261 have received Economic Injury Disaster Loan (EIDL) advances that pay up to $10,000 per business.

According to data from the Small Business Administration, the average EIDL advance is $3,300 per Alaska business.

Jon Bittner, the executive director of the Alaska Small Business Development Center, said he has been fielding calls from business owners that want state help. “Is there a desperate need for funding for businesses? Absolutely,” Bittner said.

Many business owners have told Bittner that the state grants are preferable to federal loans because the application process is simpler and there is more flexibility in how the funds are used.

Allen Weitzner, the acting executive director of the Alaska Industrial Development and Export Authority (AIDEA), told the House Finance Committee about the process to get the grants out to Alaska businesses.

Since June 1, Weitzner says that AIDEA has received 1,171 applications for grants with an average grant application size of $43,382. A total of between 6,000 and 7,000 small businesses could eventually receive the state grants.

Despite the large number of applications, just 44 grants have been approved and 11 grants have been funded at an average size of $22,569 per business.

Weitzner said the bottleneck is largely to do with Credit Union 1 receiving a significantly greater amount of paperwork from applicants than is required, resulting in a slower than anticipated start. AIDEA is now looking to hire another financial institution to help process grant applications.

Editor's note: This story was updated to clarify why grants have been approved more slowly than expected, according to Allen Weitzner. Copyright KTUU 2020. All rights reserved