Some Hawaii social clubs are spoofing paycheck protection loans

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More than 25,000 Hawaii businesses and nonprofits received federal paycheck protection program loans repayable earlier this year – but at least a few should not have.

Some private social clubs in Hawaii with golf, yacht, pool and dining facilities to benefit their members received PPP loans when they were not eligible.

These loans of up to $ 10 million were made available in April to help small businesses pay mostly workers as well as less spending, including rent and utilities, to offset the impacts of the COVID-19 pandemic.

The US Small Business Administration established the PPP under the direction of Congress under rules excluding social clubs with 501 (c) 7 nonprofit designations while allowing the participation of 501 (c) 3 charities that can include hospitals, schools and churches.

Yet banks, which collected commissions for approving and issuing SBA-guaranteed PPP loans, have made such loans totaling at least $ 1 million to ineligible social clubs in Hawaii, and these loans can become expenses. taxpayers under the remission provisions.

According to SBA data, at least three local 501 (c) 7 social clubs – Hilo Yacht Club, Lahaina Yacht Club and Mid-Pacific Country Club – have received PPP loans of $ 150,000 to $ 1 million.

The SBA will not release the names of entities that have received PPP loans under $ 150,000, so it is not possible to publicly see if other inappropriate loans have been made.

The United States Government Accountability Office has raised concerns about the vulnerability of PPPs to eligibility circumvention and fraud, as the SBA allowed lenders to rely on borrower certifications to determine the eligibility with minimum subscription.

“The GAO recommends that the SBA develop and implement plans to identify and respond to risks in PPPs in order to ensure program integrity, achieve program effectiveness, and combat potential fraud,” said the federal agency said in a June 25 report.

The SBA intends to review loans over $ 2 million to confirm eligibility after a borrower requests loan cancellation and may decide to review any PPP loan.

“For a PPP loan of any size, the SBA can undertake a review at any time at the discretion of the SBA,” the agency said in a May guidance document. The SBA can also deny loan cancellation to ineligible borrowers.

SBA spokeswoman Cecelia Taylor confirmed that 501 (c) 7 nonprofits are not eligible for PPP, but said the agency does not comment on individual borrowers.

Taylor also said that any fraud, abuse or waste in SBA loan programs is not tolerated and can be reported anonymously to the SBA Inspector General’s office.

In Hawaii, 25,097 businesses and nonprofits have received nearly $ 2.5 billion in P3 loans through August 8. Of these loans, 129 exceeded $ 2 million.

Companies and nonprofits were under heavy pressure to quickly understand the SBA’s ‘final interim’ rules for PPP loans that were made on a first come, first served basis and quickly sold out in April. before a second round of funding is added.

Jim Swieter, general manager of the Mid-Pacific Country Club, said the Lanikai members-only golf club was relying on the First Hawaiian Bank to secure eligibility for an $ 830,000 loan approved on April 15.

“We have confirmed this on several occasions,” he said.

Swieter also said that in his opinion the club was respecting the spirit and intention of the PPP as the loan was used to preserve the wages of 118 employees, including 65 who were put on leave in March and would have otherwise requested unemployment benefits.

“We were able to get people back to work and pay them,” he said. “It wasn’t like the club had done it.”

The club has around 1,000 members, including former President Barack Obama, who in recent years have paid $ 1,000 to become a member, which is well below the registration fee published by the club. The monthly membership fee is $ 625.

Swieter said that unlike Hawaii’s more prestigious social clubs, Mid-Pac is not easy even though it offers invite-only memberships. He said the club, established in 1926, has struggled financially for nine decades, in part because it is located in Windward Oahu and leases its land to Kamehameha Schools.

According to a publicly available 2017 tax return, the club’s expenses exceeded revenues by $ 191,670 that year and $ 1.15 million the year before.

“We’re kind of the red-haired stepson of private country clubs,” Swieter said.

Nonetheless, the SBA has determined that PPP loans should not go to such clubs which do not pay taxes on their main source of income which only benefits members.

First Hawaiian Bank, which also made the PPP loan to Hilo Yacht Club, did not comment on the matter after being asked about it more than a week ago by the Honolulu Star-Advertiser.

Fees paid to banks on PPP loans represent a portion of the value of the loans: 5% for loans less than $ 350,000, 3% for loans ranging from $ 350,000 to less than $ 2 million, and 1% for loans under $ 350,000. loans of $ 2 million to $ 10 million.

On the $ 830,000 loan from Mid-Pac, the charges were $ 24,900.

Hilo Yacht Club, a social club established in 1919, said it saved 36 jobs with a loan of between $ 150,000 and $ 350,000, but did not respond to a message seeking comment.

Lahaina Yacht Club, which was established in 1965, also received a loan between $ 150,000 and $ 350,000. The SBA data did not include the number of jobs preserved. The club did not respond to a request for comment.

Bank of Hawaii, which provided the Lahaina Yacht Club loan, did not comment on the matter after being asked about it more than a week ago.

The Pukalani Country Club in Maui is another loan recipient listed in PPP loan data as a non-profit organization. However, this golf course is a for-profit business open to the general public.

At the same time, some member-only social clubs operating as for-profit businesses have secured PPP loans as permitted by SBA rules, including the Honolulu Country Club golf course in Salt Lake and The Club in Hokuli’a. , where owners of residential buildings in a gated community on the island of Hawaii can access golf, fine dining, tennis, and yoga.

More than 250 qualifying nonprofits in Hawaii have received PPP loans, including schools, healthcare facilities, churches, and other charities.

In addition to private social clubs, nonprofits that are not eligible for PPP loans include homeowners associations, unions, advocacy groups, and professional associations.

Efforts have been made to change the regulations for PPP loans so that all nonprofits are eligible, including a bill in Congress backed by the National Club Association. The United States House of Representatives passed HR 6800, which would make such a change among other things, but the Senate did not approve the measure.

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