More than $6 million of federal loans wasn’t enough to keep HopCat’s beer pubs or TooJay’s sandwich delis out of bankruptcy, Bloomberg News reported. They’re the two biggest recipients of Paycheck Protection Program aid, designed to prevent U.S. small businesses from collapsing during the pandemic, that filed for chapter 11 protection, according to research by bankrutpcydata.com. Almost one out of every 12 companies that have gone bankrupt since early April got PPP loans just weeks earlier, and more are likely on the way. “The bankruptcy trend is just up,” said Jim Hammond, chief executive officer of New Generation Research Inc., which owns bankruptcydata.com. “The money is going to run out.” The recipients that went bankrupt didn’t do anything improper. Federal regulations bar companies from receiving PPP money while they are in bankruptcy — but not the other way around. TooJay’s Management LLC and HopCat parent company Barfly Ventures LLC, which both filed within five weeks of getting federal assistance, are seeking to use the cash to keep operating while they reduce debt and prepare for a fresh start once their court cases end. For them, the low-interest PPP loan is a cheaper way to finance a turnaround than in traditional bankruptcy cases, where lenders routinely charge double-digit interest rates and impose hefty fees. There appears to be no guideline preventing a borrower from heading to the courthouse shortly after getting PPP funds, said Edward Barry, chief executive officer of Capital Bank NA, a Rockville, Maryland-based lender that has made $234 million of PPP loans. “It’s free money if you work within the program,” Barry said.
