“I honestly don’t know what our situation will be like next month, let alone if we are still closed through July or August,” theater owner Adam Bergeron tells TheWrap
Many independent theater owners are complaining that promised federal financial relief has been hamstrung a haphazard rollout and a banking system that has never taken on a loan program of its scale.
While billions in federal stimulus for small business owners was met with cheers by a movie theater industry shut down by the coronavirus pandemic, multiple owners told TheWrap that even applying for the loan has been a difficult process.
Lucie and Larry Mann, owners of Park Plaza Cinema in South Carolina, said that they first attempted to apply for a loan through the Small Business Administration (SBA) website shortly after Congress passed what is known as the CARES Act, only to find days later that they would have to apply through a bank approved by the SBA as a lender. But their own bank was not one of those lenders.
“They declined because they didn’t know that this loan program was going to be dumped on the banks,” Larry Mann said. “And many banks that were approved SBA lenders were only taking loan applications for businesses they had a pre-existing relationship with by February 15. We eventually were referred to Radius Bank, and they were accepting open applications, but it was all done online, and there was no one we could talk to. It was rather unsettling.”
Other theater owners shared similar experiences with their applications to banks struggling to get a handle on a new program suddenly thrust upon them. Last Friday, the new system was opened less than 24 hours after the U.S. Treasury Department, led by Sec. Steven Mnuchin, issued final rules on the program to banks.
The loan program was applauded by the National Association of Theatre Owners (NATO) when it was first passed through Congress, with the trade organization praising it as an essential step to help keep movie theaters open as they are expecting to be shut down for several months.
“With this aid, movie theaters can get through this crisis confident in being able to re-open, knowing their vital, trained workforce is able to weather this pandemic and have jobs waiting for them when it is safe to reopen,” NATO said last month.
But now that the rollout has begun, such expectations have been tempered. This past week, a NATO spokesperson told TheWrap that it is providing guidance to theater owners on the details of the CARES Act and the federal loan program as they become available. But the trade organization has found that the program “has proven to be less useful than anticipated for businesses that are closed and can’t pay employees.”
“Many small businesses are discovering that the requirements act primarily as a pass-through to employees, but do not help with companies’ other needs,” NATO said. “But this is not the only program that will be available.”
The main loan program passed by Congress in the CARES Act was the Paycheck Protection Program (PPP), a $350 billion SBA initiative that aims to provide low-interest loans to small businesses in order to keep employees paid during the crisis. The loan comes with the offer that it can be forgiven by the SBA if at least 75% of the loan is used towards payroll.
But upon the program’s launch, top banks like Wells Fargo, JP Morgan Chase and Citigroup refused to open applications until further moves by the federal government; and while all three are now accepting applications, JP Morgan Chase is the only one only giving small business loans through the program, while Wells Fargo has used the crisis to get the Federal Reserve to temporarily lift an asset cap it had received as a penalty for creating millions of fake bank accounts in the midst of the 2007-08 financial crisis.
Even Bank of America, which was accepting applications upon launch, put up the sort of requirements that the Manns ran into: Only those with “business lending and a business deposit relationship” can apply. Those rules prompted a class action lawsuit filed in Baltimore against the bank, to which Bank of America responded in a filing Thursday that the CARES Act “nowhere prohibits participating lenders from determining how best to prioritize to whom they will lend under the program.”
While this has all happened, Bank of America said it received more than 85,000 applications worth more than $22 billion in loans on its very first day. With an estimated 30 million small businesses in the country, it’s clear that only a small fraction of all businesses, let alone movie theaters, will be able to take advantage of this program. Even though Mnuchin has called for an additional $250 billion to be added to the fund by Congress, this competition between small businesses for federal loans has the Manns concerned.
“There’s a limited amount of funds, and even if our application is approved, it’s only going to help so much,” Larry Mann said. “That helps, and we’ve negotiated a partial payment plan to cover our rent, but it’s not going to cover everything.”
The nature of movie theaters has also clouded whether some regional chains qualify for the loan. One chain that elected not to apply in part because of that uncertainty is Santikos Theatres, which operates nine multiplexes in San Antonio. The chain has more than 500 employees, the maximum amount allowed for businesses to qualify for PPP. But CEO Tim Handren found that after the employee count rule, the guidelines for the loan refers to employees as FTEs, or full-time employees, that work at least 40 hours per week. While more than 500 people are employed by Santikos, not all of them would count as FTEs.
“After consulting with NATO and our banking partners, we decided that it was probably best for us to not apply,” Handren said. “We’re fortunate that our balance sheets are very strong right now and that we’ve been able to continue paying health benefits to our employees even as we’ve had to furlough them.”
Even for those who have had less difficulty with the application process, there are still questions about whether they will be able to use the loan to cover some of their most pressing expense problems during the lockdown.
“When we knew we had to close, we gathered our employees — we have 15 — and told them we were going to help them file for unemployment benefits,” said Adam Bergeron, who operates the historic Vogue and Balboa theaters in San Francisco, with over 100 seats that among the first cinemas in the U.S. to close on March 13. “Most, though not all, of our employees have had their applications processed and are getting UI checks, so it was at least good to know that being ahead of the curve allowed us to make sure they had some help.”
Bergeron’s CinemaSF, which manages the Vogue and Balboa, has Bank of America as its banking partner and was able to complete its application earlier this week. The company also applied for a $50,000 loan that San Francisco’s local government is offering to small businesses, as well as the SBA’s Disaster Loan program during the first week of California’s lockdown back in mid-March. While none of the checks have come in yet, he feels confident that they would help CinemaSF deal with closures that are now expected to last at least until July and possibly longer.
But there is still a major element of the federal loan program that Bergeron is not sure about: the forgiveness requirements. Because CinemaSF’s 15 employees have filed for unemployment benefits, they are no longer on payroll. This has left Bergeron unsure of whether he would have to bring all his employees back on payroll in order to comply with the rule stating that at least 75% of the loan has to be used on payroll for it to be forgiven.
“It’s still a loan on very low interest, so having to pay it back wouldn’t be the worst-case scenario,” he said. “But I still have outstanding costs for things like concession vendors that are still standing from before the lockdown, and I don’t know if the rules of the loan would allow me to use it to cover those costs. Also, if I hire back my employees to use the loan on payroll like they want, do I just pay them for no work or do I bring them back to the theaters to help clean up and keep things in shape, which would be violating the social distancing guidelines the government wants us to follow?”
Many also question if these programs will get aid to small businesses before theaters go under. In a Wall Street Journal survey published last week, 20% of small businesses only made a partial rent or mortgage payment for the month of April while about 30% made no payment at all.
Bergeron does not fall into either category, as he was able to pay rent for his theaters this month, but he’s not sure about next month.
“It was important to do as an act of good faith, but I did tell them that while I had the money for rent in April, I have no idea what the situation will be on May 1,” he said. “As a theater owner, I’m used to playing catch-up on paying costs from a few months ago and knowing that a couple bad weeks could cause me to fall behind. But I honestly don’t know what our situation will be like next month, let alone if we are still closed through July or August.”
For now, there’s still one small bit of solace that Bergeron and the Manns have drawn from during this crisis: the sense of community that they bring to their neighborhoods as indie theaters.
“We bought Park Plaza Cinema in 2010, during the recession, and we’ve seen firsthand what our theater has meant to people who live here,” Lucie Mann said. “I’ve seen families of 10 or 15 people come in together to watch a movie. I’ve watched all sorts of people connect and reconnect here and they keep coming back every time. I think for independent theaters like ours, there’s a real sense of connection that local residents have with it that I don’t think people have with theaters from the big chains.”
Chains like Santikos have also tried to give back to the community, providing affordable meals to their employees along with continued health benefits. Meanwhile, CinemaSF has seen an increase in merchandise sales since the lockdown began and is also now a participant in the Virtual Cinema program, a home movie rental program also adopted by indie and premium chains like Laemmle and Alamo Drafthouse that allows customers to direct their purchase towards their local theater. While the revenue from the program has been a drop in the bucket compared to business as usual, it has allowed Adam Bergeron to see just how much the theaters he has worked so hard to maintain really mean to people.
“It’s amazing just seeing a chat room of 50 people talking about a movie online together. It really shows how important our theater is to a lot of people that work and live here,” he said. “I think that whenever this ends, people are going to remember the places that tried to maintain a sense of community even when we were all apart.”