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Applications for pandemic aid are being rejected at a high rate, leaving small businesses in the lurch

Both state and federal programs are rejecting higher numbers of applicants as officials rush to fix paperwork issues.

Doug Bacon applied for the state grants in October, but so far has received funds to support just one of his eight restaurants.Suzanne Kreiter/Globe staff

Thousands of hard-hit small businesses are once again having trouble accessing millions of dollars in pandemic aid from the state and federal governments, as they fight for survival while a second wave of virus infections continues to undermine the economy.

A $700 million-plus relief fund set up by Massachusetts officials initially rejected some 4,000 applications so far this year from small businesses because their paperwork was incomplete. Meanwhile, the current round of the federal Paycheck Protection Program is rejecting loan applications at a higher-than-normal rate, according to local bankers.

At the state level, the small business grant fund is being administered by the Massachusetts Growth Capital Corp., a quasi-public agency. Executive director Larry Andrews said that of 8,000 applications received in the last month or so, about half are in a holding pattern because of issues with documentation; another 1,000 didn’t meet the industry-specific qualifications for the money.


And, many applicants who have been approved are still waiting for the funds to arrive.

“Please be patient,” Andrews implored, saying the agency is “working as quickly as we can to clear up” discrepancies and help applicants access the funds. Since December, the state has given out more than $450 million to 9,900 businesses with the average grant at about $54,000.

Andrews said it takes three to four weeks for funds to be released after applications are approved.

On the federal level, Congress authorized a third round of PPP in late December replenishing the program with $284 billion, but the Small Business Administration has been slower to approve these loans and is denying them at higher rates, according to people in the banking industry.

One factor is that the SBA is doing more due diligence of applications to reduce fraud. The rejection rate was as high as 25 percent nationally a few weeks ago when the agency began reviewing new loans, but has since fallen to 10 percent after the SBA refined its validation procedures, according to Dan O’Malley, chief executive of Numerated, a Boston firm that provides lending software to banks and credit unions across the country.


O’Malley urged applicants to work with their lenders to resolve issues with the SBA.

“Lenders can help borrowers get through this. They need to be tenacious,” he said. “You can fight and win.”

Bob Luz, president of the Massachusetts Restaurant Association, said many of his members who own several restaurants had their PPP applications denied because their business information was not recognized by some of the databases used to check against fraud.

“There was a high number of rejections and the data not matching up,” he said.

Anxiety has been running high among owners of multiple locations because they are at the back of the line for the state grants, as Massachusetts is giving priority to the smallest of business owners.

Doug Bacon, owner of the Red Paint Hospitality Group, whose Boston restaurants include the Corner Tavern and The Avenue, received PPP funds last year but said his second application has been tied up with his bank. He applied for the state grants in October, but so far has only received funds to support one of his eight restaurants.

“If you’re not going to give me the grant, OK, tell me why and explain to me why I didn’t qualify,” a frustrated Bacon said.


The state program awards grants of up to $75,000 to small businesses that meet certain criteria, and those funds will not need to be repaid. Applications closed for the grants last month.

Meanwhile, PPP — which is available until the end of March — is a low-interest loan program. If applicants meet certain requirements such as keeping employees on the payroll, they do not have to repay the loan.

The SBA has been making adjustments to PPP since its bumpy rollout last spring. To address criticism that loans in earlier rounds favored big companies and big banks, the agency allowed community lenders and small banks, which tend to serve people of color, offer loans first.

In this current round, the SBA has approved more than 1.3 million PPP loans for a total of about $104 billion. Of that, the agency has approved 30,580 loans totaling close to $3 billion in Massachusetts. The money is not expected to run out like in the first round.

Bob Nelson, the SBA Massachusetts district director, said the agency is aware approvals are taking longer and more applicants are facing rejection compared to the “instantaneous approvals” of last spring. On Wednesday, the SBA updated its guidance to banks on how they can speed up loans with validation errors and eligibility concerns.

Nelson said most applications are being approved within 48 hours, and he urged rejected applicants to work with their lenders to learn why they were denied loans and if the issue can be overcome.


“We are in the business of trying to approve loans — as many as we can,” said Nelson. “We want these businesses to get the money and help rebuild the Massachusetts economy.”

In this latest round, businesses that received PPP can apply for a second loan, while others are newly eligible under expanded guidelines. That includes trade groups such as the Greater Boston Convention and Visitors Bureau, which received $1.5 million that it will use to bring back furloughed staff.

Quincy Miller, president of Eastern Bank, said the majority of its 3,900 applications so far are for “second draw loans” — small business owners seeking a second PPP. This time, he said there is more back and forth between bankers and customers navigating different requirements, such as proof that business revenue was down 25 percent in any one quarter. In the earlier rounds, with loans based on payroll, bigger companies that had that information readily available were able to apply for money more quickly.

“This time around it’s slower for all companies,” said Miller. “It is without a doubt more work.”

Still, many small businesses, in particular those owned by people of color, are reluctant to apply to PPP and accrue more debt, even though the loans are designed to be forgivable. Instead owners of the smallest businesses are flocking to the state program because the grants do not need to be repaid.

Lena Vinnitsky, co-owner of Vinndio Salon in Jamaica Plain, received a PPP loan in the spring but needed additional funding. She learned about the state grants through the Jamaica Plain Neighborhood Development Corporation, and with their help, was approved for $75,000. “It was really a huge sense of relief,” she said.


The state relief program, billed as the largest in the country, has been inundated with more than 19,000 applications. Over several rounds of grant-making, the Massachusetts Growth Capital Corp. has prioritized businesses owned by people of color and women, two populations that traditionally struggle for capital.

More than $250 million remains in the fund, and Andrews, the MGCC executive director, could not say if the fund will run out of money, or if his agency will reopen the application process. But he stressed that officials are working with rejected applicants, noting many weren’t approved due to fixable issues, such as missing paperwork or information like taxpayer identification numbers.

“This is not a one-and-done deal,” he said. “I’ve told my people if there’s an ability to get the business across the finish line to an awarding of a grant, that’s what we need to do.”

Shirley Leung is a Business columnist. She can be reached at Janelle Nanos can be reached at Follow her @janellenanos.