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BROOMFIELD — Weeks after it laid off a third of its workforce, DMC Global Inc. (Nasdaq: BOOM) was awarded $6.7 million in Paycheck Protection Program funds meant for struggling small businesses, prompting questions about how multi-million dollar firms are tapping the program.
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The Broomfield oil services company disclosed the funds in a U.S. Securities and Exchange Commission filing late Friday. It is originally structured as a loan due in April 2022 that accrues interest of 1% per year, and can be converted into a grant depending on how much is used to cover payroll costs.
DMC made $34 million in profit last year and had $20.35 million in cash and equivalents at the end of 2019, according to its last annual report. It had exactly 500 U.S. employees as of Dec. 31.
The PPP loan program, which was approved last month via the federal $2 trillion CARES Act, distributed $349 billion in funding that can be converted to grants later on depending on how much was applied toward keeping employees on payroll or re-hiring laid off staff.
The process worked by having private lenders take applications and loan the funds to local businesses, with that loan being guaranteed by the federal government instead of the company’s creditworthiness.
DMC vice president for investor relations Geoff High told BizWest the company doesn’t immediately plan to rehire the 264 it laid off last week, but is using the funds to maintain the payroll still left and pay health-care benefits to some of the eligible former employees.
High said it’s not entirely clear how long the loan can last the company, especially as a stunning downfall in the oil markets Monday morning left prices at around negative $35 per barrel for the first time ever.
“We’re trying to keep as many people as employed as possible during this downturn, when activity is basically coming to a screeching halt,” he said.
DMC isn’t the only company that secured funding meant to help business owners keep employees on payroll as efforts to slow the spread of the COVID-19 virus brings commerce across the U.S. to a halt.
Shake Shack Inc. (NYSE: SHAK) secured $10 million in loans despite having turned a $19.8 million profit last year and having $73.5 million cash on hand and easily liquid securities. The company said it would return the loan after public outcry.
Potbelly Corp. (Nasdaq: PBPB), which employs about 6,000 people at its corporate office and 428 locations and had revenues of $409.7 million last year, also received $10 million in PPP funding. That loan came days after it expanded its credit line with JPMorgan Chase to $40 million.
Both of those restaurant chains were able to claim small-business status under SBA rules that define small businesses as under 500 staffers per location.
High said DMC and the greater energy industry is facing a historic downfall in activity, and the company was looking for any source of funding to help it avoid further job cuts.
When asked if existing companies that had existing cash and access to investment credit were taking advantage of a program aimed at firms with fewer resources, High said the program didn’t clearly disqualify larger firms.
“When this program was launched and we were considering what we could do to enhance our liquidity going into a very unsafe period, we looked at the program and thought let’s at least apply, and we received it,” he said. “If they were limiting it to, at the time, only small businesses, that wasn’t necessarily conveyed.”
Mike O’Connell, director of the Larimer County Small Business Development Center, said the broad language of the PPP gave an advantage to larger companies that have close relationships with their banks and against small businesses who would have difficulty finding credit even in good economic conditions.
But that prioritizing undercuts the intent of the program itself, funneling funds to companies based not on how much a business needs the funds to stay solvent, but how quickly they were able to get their banker to approve a loan, he said.
McConnell proposed that the next $310 billion round of PPP funds, which Congress may approve this week, should limit itself to companies that can prove they had lost at least a quarter of their revenue due to COVID-19 related shutdowns.
“It’s very easy to separate people whose revenues have been horribly declining versus businesses whose revenues haven’t declined at all,” he said. “(More well-off businesses) are looking at that as business owners and saying, ‘Well, I better get ready just in case, because I can’t predict what’s going to happen, but they’re not the absolute neediest people.”
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