30-year-old Kohala firm eyes bankruptcy after local bank appealed for PPP loan

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Ken Hughes, owner of Kohala Coast Properties. PC: Kohala Coast Properties website

A North Hawaiian business is about to close permanently because it must repay a Payroll Protection Program loan.

Ken Hughes, owner of Kohala Coast Properties, said he would never have borrowed $200,000 under the federal program had he known that First Hawaiian Bank in Waimea, which administered the loan at the start of the pandemic , would one day call the note.

But the bank did.

Now Hughes is considering closing his 30-year-old property and property management business because he cannot afford the payment schedule the bank has set to recoup the costs. The bank wants Hughes to pay around $26,000 a month to pay off the debt, a financial request that Hughes called “absolutely ridiculous”.

“To me, it’s unbelievable that this is happening,” Hughes told Big Island Now. “I can’t understand why they are doing this to businesses in their own community.”

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According to letters sent by First Hawaiian Bank to Hughes, the bank denied Kohala Coast Properties’ appeal on the matter.

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Hughes’ attorney, Sara Vargas, appealed the bank’s denial to the Small Business Administration, the federal agency through which the $800 billion in low interest unsecured loans were conducted nationally.

SBA-backed PPP loans were issued by Congress early in the pandemic to help businesses keep their workforce employed during the COVID-19 crisis. The SBA delegated administration of relief funds to local banks to expand their issuance within communities, which is how Hughes applied for his PPP loan, at the Waimea branch of the bank he did business with. personal and professional for 30 years.

The problem for Hughes, who paid about 15 agents and workers with the money he eventually received, is the wording he used on the application he submitted — wording he said the bank had asked him to use.

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Hughes said that under the direction of the bank’s branch manager, Anna Liu, who guided him through the application process, Hughes listed his agents as “employees” rather than “independent contractors”. , even though its workforce consisted entirely of independent contractors.

Hughes said he made it clear to the branch manager and the bank’s loan officer that his employees were independent contractors. He even fulfilled his first application listing them as independent contractors originally, only to be told by Liu to change it to employees for the sake of the application.

Hughes said he took Liu’s suggestion into consideration and reapplyed.

Ultimately, that distinction — that they were listed as employees and not independent contractors — is why the loan amount was not forgiven, according to Hughes, Vargas and the bank’s letters.

First Hawaiian Bank, which declined to comment for this story, citing customer confidentiality, said in a letter that Hughes was behind on return payments.

This apparent about-face by the bank, Hughes said, resembles “a stab in the back” and is unethical.

“I’m really disappointed,” he said.

Liu’s purported directive to change the wording to list Hughes workers as employees was not in writing. This was done verbally while the two sat down at the bank to complete the application, according to Hughes.

Hughes still has the original application he filled out that says independent contractor, which was part of the paperwork he submitted to the bank as part of his appeal.

Liu referred questions to First Hawaiian Bank administration, which declined to comment for this story, citing customer confidentiality.

“First Hawaiian Bank policy prohibits public comments that apply to a particular customer’s transactions,” Lindsay Chambers, a spokeswoman for the bank, told Big Island Now. “It is of the utmost importance that we maintain the confidentiality of our clients’ financial interests.”

In a letter from the bank to Hughes dated June 11, the bank outlines its decision not to cancel the loan due to the company using employees in the application instead of independent contractors as the reason. It says the company owes $212,000.

“Our decision is based on the fact that the total amount of your PPP loan was calculated using payments to independent contractors and owners who are not owner-employees,” the letter states. “These payments cannot be used to calculate the amount of a PPP loan. Since the amount of eligible payroll costs was $0, you were not eligible for a PPP loan. Ineligible borrowers are not eligible for forgiveness, so we are required to issue a $0 forgiveness decision.

The letter goes on to say that the bank will submit its findings to the SBA, which is free to change the bank’s decision.

“Subject to the SBA changing our decision regarding the amount of your forgiveness, you will be responsible for paying the full amount of your PPP loan, including interest, in accordance with your PPP loan promissory note,” the letter states.

Then, in a June 23 follow-up notice sent by the bank to Kohala Coast Properties, the bank notifies that the company is in arrears and now owes the bank $215,278.61.

The higher amount is due to the fact that interest accrues.

Vargas said the responsibility for the loan process should rest with the bank, regardless of the details. Even though the bank did not direct Hughes to complete the application incorrectly and he did so of his own volition, as the fiduciary entity responsible for approving the loan, the banking team should have detect Hughes’ error during his review of the request. and rectified it. Or at the very least explain to Hughes what was at stake with the different wordings.

The bank could have prevented what happened in several ways, Vargas added.

“It seems like such a burden on the borrower,” Vargas told Big Island Now of the bank putting Hughes in charge of the loan process. “It really blows my mind that this is the result.”

Nationally, not all PPP loans have been forgiven.

According to SBA data, about 94% of PPP loans approved in 2020 had been canceled by December 2021, an April 4 Forbes article on the program pointed out.

“Overall, approximately $28 billion of all PPP loans remain outstanding as of February 2022,” the article said.

Mark Stevens, broker in charge of Kohala Coast Properties who worked alongside Hughes for 23 years, echoed Hughes’ sentiment that the company would never have even considered taking out the loan if it had known it existed. the possibility of having to reimburse it. .

“We thought it was supposed to be a band-aid,” Stevens told Big Island Now.

“We don’t have the money to pay them back,” he added. “We’re a little lost on what to do.”

Vargas said he appealed the bank’s decision to the SBA, but has not heard back, although the bank has tried to collect the loan.

Valerie Kubota, SBA’s outreach and marketing specialist, did not take questions this week for this story on loan administration and the appeals process, but told Big Island Now that the SBA does not can generally not talk about individual cases.

For Hughes, facing the possibility of shutting down due to a misunderstanding over a loan he believes should have been forgiven seems surreal.

He doesn’t understand why the bank would go after the money — money that didn’t belong to the bank in the first place, because it was given to them by the federal government. If the bank did not recover it, it would not be his loss. The only other thing he can guess the bank could earn would be the loan interest Hughes would have to pay.

It seems like a small gain to take away from a 30-year-old client at the cost of forcing him to declare bankruptcy and close up shop, Hughes said.

“I’m a strong guy,” he said. ” I’ll manage to deal with that. I don’t know how, but I will. I’ve been through worse.

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