More than $6 million of federal loans wasn’t enough to keep HopCat’s beer pubs or TooJay’s sandwich delis out of bankruptcy.

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 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 “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 appear 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 worth of the PPP loans.

“It’s free money if you work within the program,” Barry said.

The companies got a much larger PPP loan than the average, which was $108,000 as of June 27. Only 0.1% of all PPP loan recipients got more than $5 million, according to the Small Business Administration, which oversees the program. Barfly founder Mark A. Sellers III didn’t return calls seeking comment. A Barfly attorney declined to comment. An attorney for TooJay’s didn’t respond to an email message. The SBA declined to comment.

The primary goal of the $669 billion PPP program, which stopped taking applications June 30, was to keep small firms that were otherwise financially healthy afloat during forced lockdowns.

TooJay’s said in court papers it was profitable until it had to shut its locations. Barfly had been struggling before the coronavirus, having expanded too rapidly while chasing what it called the craft beer craze, according to papers filed in its Chapter 11 case.

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