April 22, 2020

More Money Coming, but Will Small Businesses Get It?

Big banks seem to have prioritized big businesses in allocating forgivable PPP loans.

A longrunning story during the Great Coronavirus Shutdown has been the efficacy (or lack thereof) of the Paycheck Protection Program (PPP), the $350 billion portion of the CARES Act for the Small Business Administration (SBA) to back loans for small businesses to keep more Americans on the payroll. That money was a smaller part of the massive $2.2 trillion “phase three” aid package. All told, Congress has approved roughly $3 trillion in coronavirus aid, with perhaps almost that much more to come — all on top of a 2020 budget that was already approaching $5 trillion. Staggering.

First, we’ll tackle the political wrangling. After two weeks of Democrat obstruction over unrelated demands, Congress authorized another $321 billion for the PPP and yesterday the Senate passed by unanimous consent a total package of $484 billion. The House will vote Thursday.

“I am just sorry that it took my colleagues in Democratic leadership 12 days to accept the inevitable,” Majority Leader Mitch McConnell said Tuesday. “They shut down emergency support for Main Street in a search for partisan ‘leverage’ that never materialized.”

Actually, some of that leverage did materialize. Republicans gave up on a “clean bill” of only PPP funding, while Democrats won roughly $160 billion in totally unrelated money for hospitals and testing (hence the dollar discrepancy above), even if they failed to secure more bailout money for state governments.

Second, we’ll note the bigger story: Who’s getting the money.

The PPP ran out of money last week after processing “14 years worth of loans in less than 14 days.” The Dispatch reports, “According to Treasury Department data, 1,661,367 loans — 74 percent of which came in at $150,000 or less — were approved by 4,975 different lenders. The average loan disbursed was $206,000.”

Why did the money disappear so quickly?

A significant part of the answer is something we pointed out right from the beginning: Some relatively big businesses gobbled it up.

According to the Associated Press, at least 94 publicly traded companies received aid, and some have “market values well over $100 million.” The Wall Street Journal reports it was more than that, adding, “Twenty of the 103 [publicly traded] companies employed more than 500 people.” Those big companies raked in big cash, too.

When most of us think of small businesses, we think of the mom-and-pop shops around town that employ a relative handful of people, not publicly traded chains. Businesses employing 100 or fewer workers constitute 98% of firms and account for roughly 50% of the workforce. Yet because the SBA considers any operation with 500 or fewer to be “small,” most of the PPP money went to fairly sizable operations that perhaps weren’t as desperate for cash as the little guy.

The law was supposed to distribute money on a first-come-first-served basis. But big banks seem to have shuffled big customers to the front of the line — leaving small businesses at the back — as alleged in class-action lawsuits filed against Bank of America, JPMorgan Chase, U.S. Bank, and Wells Fargo. When truly small businesses did succeed in obtaining loans, it was through smaller community banks. (Democrats claim to have added stipulations specifically allocating $60 billion of new funding to small banks.)

By contrast, individual relief payments were prioritized for those with the lowest income. It certainly seems like it would have been prudent to do likewise for truly small businesses.

All this said, it’s important to note that this isn’t to distinguish between the workers whose jobs were saved. An employee of a bigger company needs that job every bit as much as the one working in a small store front. It is simply to say that too many small businesses in critical condition ended up being left out while some of the bigger fish were fed.

Update 4/24: National Review reports, “The Treasury Department said Thursday that it was asking approximately 150 publicly traded firms to repay nearly $600 million in loans they received from the federal program designed to help small businesses cover expenses and payroll amid the coronavirus pandemic.”

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